Representing the Technology Entrepreneur by John C. Yates, Esq. PartnerinCharge, Technology Group Ju

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Representing the Technology Entrepreneurby
John C. Yates, Esq.Partner-in-Charge,
Technology GroupJune 16, 2001
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(No Transcript)
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MMM - Overview

• Over 300 U.S. and international technology
  clients
• Over 100 legal professionals in
  Corporate/Technology Group
• 10 legal professionals in eCommerce and
  Technology focusing on privacy issues
• Offices in Atlanta, Charlotte, and Washington,
  D.C.
• Represent over 40 public companies

MMM Described by Atlanta Business Chronicle as
the premier technology firm in the Southeast.
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MMM - Corporate MA Expertise

• 1999 - Present Over 140 MA deals valued over
  18.5B
• Asset and stock purchase transactions
• Mergers and reorganizations
• Roll-up, spin-off, going private and joint
  venture transactions
• Advising investors in evaluating and structuring
  investment transactions
• Counseling Boards of Directors on fiduciary
  duties in complex transactions

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TIMELINEStart up ________________Liquidity
Event
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eFacilitator Services
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Six Sigma MMM

• Define Defects
• Use Action Item Lists
• Conduct Bi-weekly/monthly conference calls with
  clients
• Measure performance

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Form of Entity

• C Corp
• S Corp
• LLC
• Partnership

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Preferred Legal Entity

• C Corp
• Permit tax free reorganization
• VCs may refuse to invest in anything else
• Best understood
• Incorporate in Georgia or Delaware

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LLC Benefits

• Tax
• Flexibility
• But they are more complex
• And have more unpredictable traps
• In the long run its more expensive (more legal
  fees)

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Early Funding

• Friends and Family
• Valuation Concern
• Consent and Waiver Problems
• The well may be dry quickly
• Your dirty laundry

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Strategic Investors

• May get better valuations
• May get cash and credits (zap media)
• Could preclude work with competitors (UPS v. Fed
  Express Coke v. Pepsi)
• Problems if investor is also customer
• Limits on future funding

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Venture Capitalists

• There are many flavors
• Local
• Regional
• National
• International

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Key VC Criteria

• Size of Fund
• Representative on the Board
• Industry contacts
• CEO mentor
• Maturity
• Focus of representative (financial, financing,
  industry, etc.)

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End Game

• Liquidity event
• IPO
• Sale of company
• Sale of assets
• Stock sale
• Selling shareholder sale

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The VC Process

• Practical Pointers

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Pointer 1- Prepare an Executive Summary
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Pointer 2 - Prepare the Business Plan
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Pointer 3 - Select the Management Team
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Pointer 4 - Anticipate the Capital
Structure - - now and in the Future
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Pointer 5 - Assess Existing Employment
Issues and Restrictions
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Pointer 6 - Consider Strategic Members of
your Board of Directors
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Pointer 7 - Achieve the Desired Valuation
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Pointer 8 - Understand the extent of the
VCs Control
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Pointer 9 - Determine a pool of
prospective VCs
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Pointer 10 - Select a VC with Industry
Contacts
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Pointer 11 - Do the VC and Founder Agree
on the Management Team?
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Pointer 12 - Are There Benefits to Having
Local VC Involvement
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Pointer 13 - Schedule VC Meetings
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Pointer 14 - Check on VC References
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Pointer 15 - Obtain a Range of Valuation
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Pointer 16- Select a Lead Investor
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Pointer 17 - Obtain VC Term Sheets
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Pointer 18 - Finalize the Term Sheet
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Pointer 19 - Prepare for Due Diligence
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Pointer 20 - Review Draft Documents
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Pointer 21 - Close the Transaction and
Monitor On-going Compliance with Covenants
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Possible Problems

• Your VC is out of money
• Your VC wants to shut the business down but you
  want to continue running it
• Your VC wants to replace you as CEO
• Your VC wants to replace other members of the
  Management team
• Your VC refuses to let you seek capital from
  other sources (at lower valuations)
• Your VC wants you to file Bankruptcy

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Other Key Issues

• Liquidation Preference - How does it work?
• Size and composition of the Board of Directors
• Stock options repricing
• Severance Agreements and the acquiror
• Maintaining your reputation

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Future Trends

• Fewer VC deals
• Requirement for differentiated technologies
  (patentable)
• More mature management teams
• No financing until actual sales are generated
• More strategic relationships prior to VC rounds
• Fewer start ups

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The Good News

• VC funds have lots of cash
• The poor performers are being flushed out
• Lots of management talent is available
• The IPO market will eventually come back (but not
  as strong)