Venture capital funding is seen as the holy grail for a startup, often improving the company’s chances of a big IPO or exit dramatically. Most companies start their lives with the hope, if not the expectation, that they will eventually receive venture funding. This presentation will cover what a company should do to prepare for venture funding, what steps to take, what the venture capitalists expect and how to avoid venture capital deal breakers. The speaker will discuss: 1) what types of companies are candidates for venture capital funding 2) the essential assets, qualities or aspects that your company must have to approach a venture capitalist 3) how (and when) you should value your company for venture capitalists 4) how you can protect yourself against dilutive rounds, losing control and being removed from management 5) how to get your company in front of venture capitalists and more!

1. Idea To IPO
How to Get Your
Startup Ready for
Venture Capital
Funding
#startup #ideatoipo
Roger Royse
@rroyse00

2. Disclaimer
No information contained in this presentation is to be construed as legal advice. No
information contained in this presentation is intended or related to any particular factual
situation. Nothing herein forms an attorney-client relationship. If legal advice or other
expert assistance is required, the services of a competent professional should be sought.

3. Choice of Entity
• Limited Liability Company (LLC)
• C Corporation
• S Corporation

4. Choice of Jurisdiction
• Delaware
• California
• Other states
• Foreign

5. Team
• Founders
• Advisors
• Partners

6. Vesting
• Term
• Acceleration
Single trigger
Double trigger

7. Management and Control
• Board of Directors
• Observers

8. Super Voting Stock
• Class F Stock

9. Employees and Contractors
• Worker classification
• Deferred compensation
• Invention assignments
• Stock or Options?

10. IP Part 1: Patents
• Federal registration with USPTO
• 20 years
• Public disclosure

11. IP Part 2: Trademarks
• Brand name/identity protection

12. IP Part 3: Trade Secrets
• Valuable information
• Secret
• “Reasonable efforts”

13. Patent vs. Trade Secret
• Public Disclosure
• Unpatentable subject matter?
• Duration of legal protection
• Product life cycle
• Reverse engineering
• Can the company keep it secret?
• Licensing or collaboration
• Employees
• Needed for investment?

14. Positive
Cashflow
Negative
Cashflow
Idea Generation Development Commercialization Sales/Realization
Product
Launch
Time
Manufacturing
Licensing
Cashflow Comparison
Licensing Versus Manufacturing
Licensing vs. Manufacturing

15. Joint Ventures and Licenses
• Share commercialization or
exploitation
• Contributions of the parties

16. IP Ownership
• Assignment (CIIAA)
• Non-Disclosure Agreement
(NDA)

17. Cap Table
• Founders
• Advisors
• Friend/Family Investors
• Financial/Strategic Investors

18. Seed Funding: SAFEs and Convertible Notes
• Pre- vs. Post-Money
• Valuation Cap
• Discount

19. Series FF Stock
• Founders
• Conversion

20. Employees
• Option Pool
• Restricted Stock Unit (RSU)

21. Financing
• Crowdfunding
• ICOs
• Royalty Financing

22. Term Sheets
• Valuation

23. Participation
• Participating preferred stock returns its investment and then shares pro
rata in proceeds of a sale
• Non-participating convertible preferred stock either gets a return of its
investment or its pro rata share of proceeds
• Participation may be capped at a multiple of the investment

24. Dividends
• Preferred will have a dividend preference.
• A cumulative dividend on preferred shares must be paid before any other
dividends on common.
• If the company can't pay out a cumulative dividend in a year, the
amount is carried forward.
• Common in private equity deals, not in venture
• Non-cumulative is only paid when as and if declared.

25. Liquidation Preference
• Who gets paid first and how much?

26. Redemption Rights
• Feature of Preferred Stock
• Right to put stock to company, usually after a period of time and over time
• Is effectively a right to force a sale of the company

27. Protective Provisions
Standard:
• Right to veto or block certain corporate
actions
• Sale of the company
• Amendment to the company’s certificate
or bylaws so as to adversely alter or
change the rights of preferred stock
• Increase or decrease in the number of
authorized shares of preferred or common
• Authorization or issuance of equity
security having a preference over, or being
on a parity with, preferred stock
• Redemption of shares of preferred stock
or common stock
• Declaration or payment of dividends
• Change in the authorized number of
directors of the company
Other:
• Hiring, firing or change in the
compensation of officers
• Any transaction with any director,
executive or employee of the company
• Incurrence of indebtedness in excess of
$[____]
• Change in the principal business of the
company or the entering into any new line
of business
• Any purchase of a material amount of
assets of another entity

28. Information Rights
• Financial statements and other information
• Thresholds

29. Registration Rights
• Requires a company to list the shares publicly so that the investor can sell
• Demand rights
• Piggyback rights
• S-3 rights

30. Observer Rights
• Right to attend
board meetings

31. Co-Sale Rights, ROFR
• Co Sale and Tag-Along Rights – right to participate in a sale
• Right of First Refusal – right of company (first) and investors (second) to
require shares to be offered to each of them before a third-party sale

32. Board Representation
• Size of board
• Founder-friendly boards

33. Founder Vesting
• Term, milestones, commencement
• Acceleration
• Single and double triggers

34. Anti-Dilution
• Broad-based weighted average
• Narrow-based weighted average
• Full ratchet

35. Exclusivity
• No-shop
• 30 to 60 days

36. Other
• Cap table
• Due diligence

37. • Taking money off the table
• Earnouts and contingencies
• Acqui-hires
• Management bonus for
effecting sale
• Carve-out plans
The Exit

38. Earnouts and Contingencies
• Purchase price based on performance (earnouts)
should be baked into formation documents
• Can structure for capital gains tax instead of
ordinary income

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CONTACT US
www.rroyselaw.co
m
@RoyseLaw
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San Francisco, CA 94105
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CONTACT US
www.rroyselaw.com
@RoyseLaw
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