First Steps to Create and Protect Value for the Emerging Technology Company.
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Transcript of First Steps to Create and Protect Value for the Emerging Technology Company.
![Page 1: First Steps to Create and Protect Value for the Emerging Technology Company.](https://reader035.fdocuments.us/reader035/viewer/2022072006/56649d1f5503460f949f3c25/html5/thumbnails/1.jpg)
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First Steps to Create and Protect Value for the
Emerging Technology Company
![Page 3: First Steps to Create and Protect Value for the Emerging Technology Company.](https://reader035.fdocuments.us/reader035/viewer/2022072006/56649d1f5503460f949f3c25/html5/thumbnails/3.jpg)
First Steps:
• Decide on form of entity• Issue equity for:
• Cash• Debt• IP• Other assets• Service
• Determine equity split among founders • Protect IP:
• Get assignments for IP transferred for stock or cash• Get assignments for IP to be developed for services• Get confidentiality from service providers
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Form of entity:
• LLC or Corporation?• LLC avoids double-taxation• Only C Corps file for IPOs
• If expect to need institutional venture capital, C Corp is preferred entity
• VCs prefer C Corps• Angel or seed investors less biased, so LLC’s should be
okay• If don’t expect to need VCs, go with LLC
• Choose appropriate form of entity now to avoid complications later
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Allocate and Issue Equity:
• First determine relative values of current contributions:• The business idea• Cash invested• Transfer of property (IP, equipment, etc.)
• The sum of these values is the pre-money enterprise valuation• Example: Assume total value is $250,000 and issue
250,000 shares• Pre-money valuation is $1.00 per share
• 100,000 for IP or business idea• 50,000 for $50,000 cash• 100,000 for future services
• Require equity for future services to vest over time• 3 or 4 years; some can vest immediately (say 10-
25%)• Document the issuances with subscription agreements
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Protect IP:
• IP protection is essential for future sale of company• Not just patents, but also trade secrets/confidentiality• Investors/buyers want assurance that trade secrets
are protected• IP due diligence to determine that all employees/third parties
• are under confidentiality• have assigned inventions to company
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Methods of Protection
• CDAs/NDAs
• Employee/Consultant Agreements
• Material Transfer Agreements
• Sensitive Information Programs
• Label Everything!
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Use of Employee Agreements• Essential features:
• Assignment of all inventions to company• Confidentiality obligation• List of prior inventions to be excluded• Other terms:
• Noncompete• Nonsolicitation of employees or customers
• Get signed at start date• Later could jeopardize enforceability
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Agreements with Third Parties
• Confidential Disclosure Agreements/Nondisclosure Agreements• Essential for every contact where confidential information to be
shared
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Noncompetition Agreements
• Unconstitutional in OK in context of employment• Use of other forms of restrictions:
• non-solicitation of customers, employees