start ups – creation and issues
TRANSCRIPT
Company separate from founding organization
Some major companies like Palm and Lucent were originally ‘spin offs’
Becoming a metric in and of itself Demonstration of new enterprise
formation Licenses can create jobs too Tendency is to use a spin-off locally in
preference to a license externally
Need to put a business on a business footing
By sheltering within parent organization sometimes don’t cut apron strings
Finances become confused Personnel commitments can be conflicted Generating tax incentives and
attracting other money
Loss of tax status Core competency Market valuation problems
Can’t be a one time licensing play› May be tax reasons to incorporate these
externally› Not officially a spin off
Needs to be able to sustain itself› Platform technology is best› Platform allows future growth› Definition of platform may be debated› Pros and cons?
Technology› This is the easy one
A Plan› Who will do this?
Money› Sometimes surprisingly, this
is the second easy one People
› Toughest one› What do you do when Chief
scientist wants to run a company?
Technology› Decision to assign or license?› Assignment not possible if initiating
organization either won’t or can’t › Won’t: matter of policy› Can’t: IP constitutes needed background
for other IP being practiced
Will amount be paid in cash, shares or combination?
Assignment likely to be an equity interest
License likely to be cash› Can be deferred as needed
Becoming a very important component How is it funded? Sometimes this is what generates the
Money and the People Consider engaging a professional
Business plan identifies cash needs How do you raise money? Smaller amounts may be self-financed
in may cases Larger amounts may require access to
outside money
Friends and Family› Amounts ~ <$250K
Angel Investors› ~ $100K to $5M
Venture Capital› ~ $1M to $25M
Public markets› > $10M
How much will the money cost in terms of equity?› Who is providing the money?› What is value of other components?
What is plan for future money?› IPO usually doesn’t happen until 2 or 3
private financings› Each tier is called a ‘tranche’
Technology is worth? Cash in is $1M On paper company is
worth:› Technology ($0) +
Cash ($1M) What percentage of
company should person with the cash get?
What skills do you need? What power will the
people have? Cost of people
› More gray hair the higher the price
› Compensation will be combination of cash, stock and options
You will have at least 2 different types of people and generally 3 or more› Organization originating technology› Researcher› Where the money comes from› The people› Professional advisers
Peace isn’t possible; settle for an operating agreement
What are key points?› Shareholders; Directors and Officers› What will company do?› Employees› Death; disability; unwillingness to act
Deadlock breaking Buy/sell; shotgun; puts & calls Family breakdown Non-dilution; coattails Non-competes and
confidentiality
