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Investor Readiness - Gavin Barnes redchip lawyers
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Gavin Barnes
redchip lawyers
ENTERPRISE TUESDAY 22 NOVEMBER 2011
Overview
Investment Ready – enhanced value – stronger negotiating position
Intellectual Property Protection & Strategy
What else do I need - Capital Raising
Lets not leave any money on the table
Enhance the value proposition through good process
Structure won’t allow investment
Tax effective exits
Don’t give the investor or buyer an opportunity to discount price
Am I Investment Ready?
Identifying the IP rights in your business
Where is you IP presently located
Types of business structures
The “all in one” approach - Does you business look like this?
Investor ready structure
Legal Agreements to be Investor ready or ready to commercialize
Shareholders Agreements - the danger of not having them
Investor ready companies have...
Do you really know where your IP rights are?
Are they located in the trading entity
Perhaps in a former entity
The business owners still own them
Contractors
Employees
“All In One” Approach
TRADING ENTITY
COMPANY
TRUST STRUCTURE
PARTNERSHIP/sole trader
• All assets inc. IP in one entity; or
• IP Rights not identified and not held where they should be
Problems with the “All in One” Structure
The IP is part of the trading entity.
The IP is generally not identified properly.
If the business is attacked by creditors the IP is exposed
There is no flexibility for taxation purposes
The IP can exist with business owners
The IP Rights may be owned by a contractor or other third party
Are you infringing that third party’s rights
Investor Ready Structure
IP HOLDING ENTITY
TRADING ENTITY
BUSINESS OWNERS
EMPLOYEES
CONTRACTORS
IP LICENSE
BENEFICIAL
OWNERSHIP
IP Assignment
Assign IP
Assign IP
Royalty
Payments
Beneficial Ownership
Advantages of an investor ready structure
The IP is out of the trading entity
Future IP reverts to the Holding Company
The IP holding entity can be located offshore if there is such an opportunity
Other hard assets can be placed in the IP entity (i.e. land and buildings) for protection
IP holding entity is not exposed to creditor risk
Creates further licensing opportunities via the trading entity
All essential IP Rights are identified and secured.
What else do I need - Capital Raising
Steps to VC
VENTURE CAPITAL FUNDING
Preliminary Evaluation
Further
Funding
Complete Due Diligence Review
Sign Shareholders
Agreement
Funds Invested
Reject
Acquisitions
Negotiate Terms
Sheet
Strategic Alliances
Mentor
IPO
Trade Sale
SCREENING
VALUE ADDED
EXIT
Legal Agreements Investor Ready Companies
Shareholders Agreement
What are they?
Why things do they cover?
•Sets out the investors rights
•Define the shareholders commitment to the business
•Composition of the Board
•Role of Directors - executive and non-executive
•Funding considerations
•IP Rights ownership
•Issue of further shares
•Sale and transfer of shares
•Introduction of venture capital
•Dispute resolution
Investor Ready Companies Have...
A well documented business plan
A realistic marketing plan
Identified their IP Rights
Created an effective legal structure
Put together the legal agreements to ensure ownership of IP Rights in the correct entity
Written agreements with employees and third party contractors
A management team in place which can achieve the outcomes referred to in the business plan
Investor Ready Companies Have...
Effective professional advisors
•legal
•accounting
A realistic expectation of how much equity will be sold for the $ raised
Prequalified their venture capital partner or seed investor.
Investor Ready Checklist
Operating in growth industry YES NO
Effective management team YES NO
Technology based products or services YES NO
Readiness to accept equity YES NO
International application or either/both products or services YES NO
Seeking equity capital YES NO
Strong product or service branding YES NO
Clarity of product knowledge and succinctness of delivery YES NO
Knowledge of market, growth rates and expansion possibilities YES NO
Venture stage and capital requirements YES NO
Identification of venture capital or business angel level YES NO
Diversification of company directors and employees skill base YES NO
Ability to identify company weakness and offer valid, productive solutions to these YES NO
Is your organisation able to supply : (Audited) financial statements and projected operational and financial statements? YES NO
Are the terms of any pertinent contracts or agreements manageable and enforceable? YES NO
Is the legal structure of the group and the relationship of the company with subsidiaries and/or holding companies appropriate and CGT efficient? YES NO
Are you able to provide details of capital structure and share distributions to potential investors? YES NO
Are the company's accounting policies in accordance with accounting standards? Are they reasonable in the circumstances and have they been consistently applied? YES NO
Has market research been undertaken by a third party to date? Are you able to provide the primary and secondary sources of information? YES NO
Are you able to list all potentially domestic and international market segments? YES NO
Is the company in compliance with environmental, equal employment opportunity and other regulatory requirements? YES NO
Are you able to supply a copy of the Memorandum and Articles of Association of the company? YES NO
Is there a current Shareholders Agreement? YES NO
There is no major litigation, pending or potential? YES NO
Are you able to supply projects of earnings and cash flows? YES NO
Does the company have a properly constituted board which meets at regular intervals? YES NO
Does the company have a management team, and not a single person operation? YES NO
Are there any "private company adjustments", including: inappropriate stock valuations, private expenditures and excessive salaries, superannuation and other benefits for shareholders? YES NO
Are private and company financial affairs separated in the operations of the business? YES NO
Are current employment contracts in place for all staff? YES NO
Does the company have adequate insurance coverage with regard to public and professional indemnities? YES NO
Are you able to supply the following basic information about the company: names, addresses and contact personnel of company's professional advisers, including legal, auditors, principal bankers and investment bankers? YES NO
Are directors' credit cards or holidays funded through the company? YES NO
Investor Readiness - Gavin Barnes redchip lawyers
START WITH THE END IN MINDGavin Barnes
redchip lawyers
ENTERPRISE TUESDAY 22 NOVEMBER 2011
Overview
Investment Ready – enhanced value – stronger negotiating position
Intellectual Property Protection & Strategy
What else do I need - Capital Raising
Lets not leave any money on the table
Enhance the value proposition through good process
Structure won’t allow investment
Tax effective exits
Don’t give the investor or buyer an opportunity to discount price
Am I Investment Ready?
Identifying the IP rights in your business
Where is you IP presently located
Types of business structures
The “all in one” approach - Does you business look like this?
Investor ready structure
Legal Agreements to be Investor ready or ready to commercialize
Shareholders Agreements - the danger of not having them
Investor ready companies have...
Do you really know where your IP rights are?
Are they located in the trading entity
Perhaps in a former entity
The business owners still own them
Contractors
Employees
“All In One” Approach
TRADING ENTITY
COMPANY
TRUST STRUCTURE
PARTNERSHIP/sole trader
• All assets inc. IP in one entity; or
• IP Rights not identified and not held where they should be
Problems with the “All in One” Structure
The IP is part of the trading entity.
The IP is generally not identified properly.
If the business is attacked by creditors the IP is exposed
There is no flexibility for taxation purposes
The IP can exist with business owners
The IP Rights may be owned by a contractor or other third party
Are you infringing that third party’s rights
Investor Ready Structure
IP HOLDING ENTITY
TRADING ENTITY
BUSINESS OWNERS
EMPLOYEES
CONTRACTORS
IP LICENSE
BENEFICIAL
OWNERSHIP
IP Assignment
Assign IP
Assign IP
Royalty
Payments
Beneficial Ownership
Advantages of an investor ready structure
The IP is out of the trading entity
Future IP reverts to the Holding Company
The IP holding entity can be located offshore if there is such an opportunity
Other hard assets can be placed in the IP entity (i.e. land and buildings) for protection
IP holding entity is not exposed to creditor risk
Creates further licensing opportunities via the trading entity
All essential IP Rights are identified and secured.
What else do I need - Capital Raising
Steps to VC
VENTURE CAPITAL FUNDING
Preliminary Evaluation
Further
Funding
Complete Due Diligence Review
Sign Shareholders
Agreement
Funds Invested
Reject
Acquisitions
Negotiate Terms
Sheet
Strategic Alliances
Mentor
IPO
Trade Sale
SCREENING
VALUE ADDED
EXIT
Legal Agreements Investor Ready Companies
Shareholders Agreement
What are they?
Why things do they cover?
•Sets out the investors rights
•Define the shareholders commitment to the business
•Composition of the Board
•Role of Directors - executive and non-executive
•Funding considerations
•IP Rights ownership
•Issue of further shares
•Sale and transfer of shares
•Introduction of venture capital
•Dispute resolution
Investor Ready Companies Have...
A well documented business plan
A realistic marketing plan
Identified their IP Rights
Created an effective legal structure
Put together the legal agreements to ensure ownership of IP Rights in the correct entity
Written agreements with employees and third party contractors
A management team in place which can achieve the outcomes referred to in the business plan
Investor Ready Companies Have...
Effective professional advisors
•legal
•accounting
A realistic expectation of how much equity will be sold for the $ raised
Prequalified their venture capital partner or seed investor.
Investor Ready Checklist
Operating in growth industry YES NO
Effective management team YES NO
Technology based products or services YES NO
Readiness to accept equity YES NO
International application or either/both products or services YES NO
Seeking equity capital YES NO
Strong product or service branding YES NO
Clarity of product knowledge and succinctness of delivery YES NO
Knowledge of market, growth rates and expansion possibilities YES NO
Venture stage and capital requirements YES NO
Identification of venture capital or business angel level YES NO
Diversification of company directors and employees skill base YES NO
Ability to identify company weakness and offer valid, productive solutions to these YES NO
Is your organisation able to supply : (Audited) financial statements and projected operational and financial statements? YES NO
Are the terms of any pertinent contracts or agreements manageable and enforceable? YES NO
Is the legal structure of the group and the relationship of the company with subsidiaries and/or holding companies appropriate and CGT efficient? YES NO
Are you able to provide details of capital structure and share distributions to potential investors? YES NO
Are the company's accounting policies in accordance with accounting standards? Are they reasonable in the circumstances and have they been consistently applied? YES NO
Has market research been undertaken by a third party to date? Are you able to provide the primary and secondary sources of information? YES NO
Are you able to list all potentially domestic and international market segments? YES NO
Is the company in compliance with environmental, equal employment opportunity and other regulatory requirements? YES NO
Are you able to supply a copy of the Memorandum and Articles of Association of the company? YES NO
Is there a current Shareholders Agreement? YES NO
There is no major litigation, pending or potential? YES NO
Are you able to supply projects of earnings and cash flows? YES NO
Does the company have a properly constituted board which meets at regular intervals? YES NO
Does the company have a management team, and not a single person operation? YES NO
Are there any "private company adjustments", including: inappropriate stock valuations, private expenditures and excessive salaries, superannuation and other benefits for shareholders? YES NO
Are private and company financial affairs separated in the operations of the business? YES NO
Are current employment contracts in place for all staff? YES NO
Does the company have adequate insurance coverage with regard to public and professional indemnities? YES NO
Are you able to supply the following basic information about the company: names, addresses and contact personnel of company's professional advisers, including legal, auditors, principal bankers and investment bankers? YES NO
Are directors' credit cards or holidays funded through the company? YES NO
