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스파크랩스의 주최로 열린 이 세션에서는 실리콘밸리 지역에서 미국 및 국제 고객을 대상으로 다양한 법률 활동을 해온 카탈리나 민(Catharina Min)이 현지의 고용절차부터 법인 설립과 IPO 상장, 그리고 인수합병에 이르기까지 미국 진출 시 반드시 알아두어야할 내용들에 대해 설명하는 시간을 가졌다.
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Start-ups and Venture Capital Investments ©
By Catharina Yoosun MinPartner
Reed Smith LLP
Types of Start-ups
• Sole Proprietorship
• Partnerships
• Limited Liability Company
• Corporation
• Most choose Corporation in Delaware
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
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
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
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
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
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
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
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
Exit Options
• Licensing out of all material technology
• Initial Public Offering
• Mergers & Acquisitions
• Dissolution or bankruptcy
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
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
7 Procedural Issues:
1. Get the right local professionals and partners early in the process (bankers, lawyers, accountants, tax professionals)
2. LOI stage - obtain exclusivity, binding/non-binding, confidentiality, build in flexibility on the structure if needed
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
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
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
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
7. Attention to the local corporate governance laws –
• Have board and shareholder meetings
• Danger of piercing the corporate veil and having shareholder liability
Thank you.
Catharina Yoosun Min
Reed Smith LLP
Silicon Valley, California
415-794-8314