early stage venture
DESCRIPTION
Garland Brown, an attorney with GreenBerg, Traurig, LLP discusses fundamentals of organizing, funding and IP for startup technology companies. See www.danlistens.com for other notes.TRANSCRIPT
November 2005 Presentation to Pegasus Corp.1GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM
Discussion for Early Stage Ventures
Presented by: Garland A. Brown, Jr.
©2007, Greenberg Traurig, LLP. Attorneys at Law. All rights reserved.
Thoughts and Ideas for Early Stage Ventures
Microsoft BizSpark Update Meeting ─ May 14, 2009
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 2
Agenda
Entity Structure/Formation
Early Stage Funding
Intellectual Property Protection
Licensing
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 3
Choice of Entity
Sole Proprietorship
General Partnership
Limited Liability Company / Partnerships
S Corporation
C Corporation
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 4
Business Entity FormationTraits Sole
ProprietorGeneral Partnership
Limited Liability Company
S Corporation
Corporation
Formation
No state filing
Agreement between 2 or more
No state filing
State filing required
State filing required
State filing required
Duration of Existence
Dissolves when sole proprietor ceases doing business
Dissolves upon death or withdrawal of partner
Perpetual Perpetual
Liability Unlimited Unlimited Member not liable for LLC debts
Shareholders not liable
Shareholders not liable
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 5
Business Entity FormationTraits Sole
ProprietorGeneral Partnership
Limited Liability Company
S Corporation
Corporation
Pass Through
Yes Yes Yes Yes No
Double Tax
No No No No Yes
Cost of Creation
None None State filing fee
State filing fee
State filing fee
Raising Capital
Difficult Through adding partners
Possible Shares sold Shares sold
Transferability of Interest
No No Operating Agreement
Yes Yes
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 6
Business Entity FormationTraits Sole
ProprietorGeneral Partnership
Limited Liability Company
S Corporation
Corporation
Operational Requirements
Few legal requirements
Few legal requirements
Some formal requirements
Board of Directors, annual meetings / reporting
Board of Directors, annual meetings / reporting
Management
Sole proprietor has full management rights
Each partner typically has equal voice
Operating agreement outlines management
Managed by directors
Managed by directors
Taxation Not a taxable entity/1040 schedule C
Not a taxable entity/Partners taxed
Income - loss passed to members
Income - loss passed to shareholders
Taxed at entity
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Last Word on Entity Formation
The entity decision is far less important than the people decisions
Will you have an advisory board? Who will be on it?
Are you sure YOU are the right person for every job?
Are you surrounded by the right team members? Are you hearing enough counter / opposing opinions / enough supporting positions?
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 8
Raising Early Stage Money─Equity vs. Debt
Debt – Principal and Interest to be Repaid
Requires an income stream to be interesting
Acts as a bridges to subsequent financing event(s)
Interest/dividend on preferred stock
Typically senior to equity
Equity: Valuation is sticking point
What is the valuation?
Fiduciary oversight and responsibility
VC’s will place a valuation
Middle Ground: Convertible Debt
Allows FFF’s (and Angels) to convert to equity at a discount while at the same time accumulating interest
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 9
Source of Funds
Risk
TimeSeed Startup Early Growth Expansion Maturity
Founders
Friends and Family
Angels
Venture Capital
Acquisition & Equity Markets
Banks
May 14, 2009 – All Rights Reserved Microsoft BizSpark Update Meeting ─ Discussion for Early Stage Ventures | 10
Last Word on Raising Early Stage
Keep as much of the company (early on) as possible
Think long and hard regarding how much equity you are willing to give to employees
VC’s will control valution
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IP
Copyright
Trademark
Patent
Trade Secret
Licensing
©©
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Garland A. Brown, [email protected]
Garland Brown focuses his practice in the areas of litigation, intellectual property, antitrust law and IP mediation. Garland, who has wide-ranging experience in the software industry, was Director of Antitrust Law Compliance during his 11 years at Microsoft.
Areas of Experience
Intellectual property
Antitrust
Privacy issues
Regulatory compliance
Alternative Dispute Resolution
Greenberg Traurig, LLP2375 East Camelback Road
Suite 700Phoenix, AZ 85016
Phone: (602) 445-8421Fax: (602) 445-8641