스파크랩스의 주최로 열린 이 세션에서는 실리콘밸리 지역에서 미국 및 국제 고객을 대상으로 다양한 법률 활동을 해온 카탈리나 민(Catharina Min)이 현지의 고용절차부터 법인 설립과 IPO 상장, 그리고 인수합병에 이르기까지 미국 진출 시 반드시 알아두어야할 내용들에 대해 설명하는 시간을 가졌다.

1. Start-ups and Venture Capital
Investments ©
By Catharina Yoosun Min
Partner
Reed Smith LLP

2. Types of Start-ups
• Sole Proprietorship
• Partnerships
• Limited Liability Company
• Corporation
• Most choose Corporation in Delaware

3. How to form a corporation
• File Articles or Certificate of Incorporation
• Bylaws
• Appoint directors
• Directors appoint officers, sell initial stock,
fix fiscal year, etc.
• Obtain Employer ID Number from the IRS
• Open a bank account

4. Initial Funding
• Founders stock – simple and cheap since
low or no valuation
• Friends and Family – simple and cheap
since low valuation. Usually a bit higher
than founders stock

5. Securities Laws
• Need to comply with federal and state
laws where the investor resides
• Cannot sell stock to just anybody
• Can usually only sell to people who are
related to the founders/officers or who
have net assets of over $1 million

6. Employee Issues
• All employees are “at-will” and can be
terminated anytime. Cannot terminate based on
unlawful reasons (race, nationality, sex, etc.)
• All employees need to assign any and all IP to
the company
• All employees/consultants to sign Proprietary
Rights and Confidentiality Agreement
• Employment agreement not common but
sometime for key officers

7. Next Funding
• Convertible Debt
- Automatically converts to the next
financing of a certain amount
- Usually has warrants attached to the
convertible note (around 10-30% warrant
coverage)
- Friends and family or angel investors

8. Series A Preferred Round
• Need to create preferred stock with
preferences by filing a revised Articles of
Incorporation
• Need shareholder and board approval
• Mainly angel investors or VC investors
• Looking for exit in around 5 years so the
terms support this timeframe

9. Rights of a shareholder
• Common Stock – residual rights after preferred stock
• Preferred Stock
– dividends
– liquidation
– director seat
– voting, veto and protective provisions
– right to sell stock and co-sell with founders
– right of first refusal when others sell
– drag along rights
– registration rights – timing of exit
– Stock option pool

10. Series B Preferred Round
• Will need consent from the board and the
holders of common stock and Series A preferred
stock
• Rights of shareholders are either pari passu with
Series A or in preference to Series A or a
combination.
• Down-round or up-round depending on the
valuation of the company
• If down-round, will trigger anti-dilution protection

11. Exit Options
• Licensing out of all material technology
• Initial Public Offering
• Mergers & Acquisitions
• Dissolution or bankruptcy

12. IPO
• Usually have underwriters who are
investment banks
• IPO under the Securities Act of 1933 –
registration statement is filed and declared
effective
• NASDAQ or NYSE; AIM and other
jurisdictions too
• Costly process and after IPO

13. M&A
• Stock vs. asset acquisition – depends on
many things, e.g. contingent liabilities
• Tax consideration
• Representations and warranties
• Indemnification and escrow
• Purchase price adjustment

14. 7 Procedural Issues:
1. Get the right local professionals and
partners early in the process (bankers,
lawyers, accountants, tax professionals)

15. 2. LOI stage - obtain exclusivity,
binding/non-binding, confidentiality, build
in flexibility on the structure if needed

16. 3. Do due diligence right and early
• What are we investing in and who owns it
• Any issues on change in control (IP,
contracts, employees)
• Following the ownership chain, especially
on IP
• Infringement, lawsuits, contingent liabilities

17. 4. Think ahead of post-investment and plan
ahead – capital needs, other
infrastructure.
• Bring the team who will be there post
closing and have them participate in the
deal

18. 5. Employee/Management team
• Employee retention - Who is important
and necessary to the business Severance
arrangements
• Non-competition, trade secrets
• Management team compensation – go
with local market

19. 6. Foreign Corrupt Practices Act
• Bribes and illegal payoffs to government
officials
• US very aggressive – recent conviction of
2 senior officers
• UK Bribery Act of 2010 – encompasses
more than government officials and no
grease money

20. 7. Attention to the local corporate
governance laws –
• Have board and shareholder meetings
• Danger of piercing the corporate veil and
having shareholder liability

21. Thank you.
Catharina Yoosun Min
Reed Smith LLP
Silicon Valley, California
CMin@ReedSmith.com
415-794-8314