Catharina min : 스타트업 미국 진출 법률자문
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The document outlines the process of forming start-ups and securing venture capital investments, detailing types of business structures, initial funding methods, and compliance with securities laws. It discusses employee issues, funding rounds, shareholder rights, exit options, and important procedural considerations for mergers and acquisitions. Additionally, the document highlights the need for proper legal and governance practices throughout the investment process.
Catharina min : 스타트업 미국 진출 법률자문
- 1. Start-ups and Venture Capital Investments © By Catharina Yoosun Min Partner Reed Smith LLP
- 2. Types of Start-ups • Sole Proprietorship • Partnerships • Limited Liability Company • Corporation • Most choose Corporation in Delaware
- 3. How to form a corporation • File Articles or Certificate of Incorporation • Bylaws • Appoint directors • Directors appoint officers, sell initial stock, fix fiscal year, etc. • Obtain Employer ID Number from the IRS • Open a bank account
- 4. Initial Funding • Founders stock – simple and cheap since low or no valuation • Friends and Family – simple and cheap since low valuation. Usually a bit higher than founders stock
- 5. Securities Laws • Need to comply with federal and state laws where the investor resides • Cannot sell stock to just anybody • Can usually only sell to people who are related to the founders/officers or who have net assets of over $1 million
- 6. Employee Issues • All employees are “at-will” and can be terminated anytime. Cannot terminate based on unlawful reasons (race, nationality, sex, etc.) • All employees need to assign any and all IP to the company • All employees/consultants to sign Proprietary Rights and Confidentiality Agreement • Employment agreement not common but sometime for key officers
- 7. Next Funding • Convertible Debt - Automatically converts to the next financing of a certain amount - Usually has warrants attached to the convertible note (around 10-30% warrant coverage) - Friends and family or angel investors
- 8. Series A Preferred Round • Need to create preferred stock with preferences by filing a revised Articles of Incorporation • Need shareholder and board approval • Mainly angel investors or VC investors • Looking for exit in around 5 years so the terms support this timeframe
- 9. Rights of a shareholder • Common Stock – residual rights after preferred stock • Preferred Stock – dividends – liquidation – director seat – voting, veto and protective provisions – right to sell stock and co-sell with founders – right of first refusal when others sell – drag along rights – registration rights – timing of exit – Stock option pool
- 10. Series B Preferred Round • Will need consent from the board and the holders of common stock and Series A preferred stock • Rights of shareholders are either pari passu with Series A or in preference to Series A or a combination. • Down-round or up-round depending on the valuation of the company • If down-round, will trigger anti-dilution protection
- 11. Exit Options • Licensing out of all material technology • Initial Public Offering • Mergers & Acquisitions • Dissolution or bankruptcy
- 12. IPO • Usually have underwriters who are investment banks • IPO under the Securities Act of 1933 – registration statement is filed and declared effective • NASDAQ or NYSE; AIM and other jurisdictions too • Costly process and after IPO
- 13. M&A • Stock vs. asset acquisition – depends on many things, e.g. contingent liabilities • Tax consideration • Representations and warranties • Indemnification and escrow • Purchase price adjustment
- 14. 7 Procedural Issues: 1. Get the right local professionals and partners early in the process (bankers, lawyers, accountants, tax professionals)
- 15. 2. LOI stage - obtain exclusivity, binding/non-binding, confidentiality, build in flexibility on the structure if needed
- 16. 3. Do due diligence right and early • What are we investing in and who owns it • Any issues on change in control (IP, contracts, employees) • Following the ownership chain, especially on IP • Infringement, lawsuits, contingent liabilities
- 17. 4. Think ahead of post-investment and plan ahead – capital needs, other infrastructure. • Bring the team who will be there post closing and have them participate in the deal
- 18. 5. Employee/Management team • Employee retention - Who is important and necessary to the business Severance arrangements • Non-competition, trade secrets • Management team compensation – go with local market
- 19. 6. Foreign Corrupt Practices Act • Bribes and illegal payoffs to government officials • US very aggressive – recent conviction of 2 senior officers • UK Bribery Act of 2010 – encompasses more than government officials and no grease money
- 20. 7. Attention to the local corporate governance laws – • Have board and shareholder meetings • Danger of piercing the corporate veil and having shareholder liability
- 21. Thank you. Catharina Yoosun Min Reed Smith LLP Silicon Valley, California CMin@ReedSmith.com 415-794-8314