First Steps to Create and Protect Value for the Emerging Technology Company

2. First Steps to Create and Protect Value for the Emerging Technology Company

3. 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

4. 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

5. 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

6. 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

7. Methods of Protection • CDAs/NDAs • Employee/Consultant Agreements • Material Transfer Agreements • Sensitive Information Programs • Label Everything!

8. 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

9. Agreements with Third Parties • Confidential Disclosure Agreements/Nondisclosure Agreements • Essential for every contact where confidential information to be shared

10. Noncompetition Agreements • Unconstitutional in OK in context of employment • Use of other forms of restrictions: • non-solicitation of customers, employees