We use our market knowledge to create a fundable capital structure and license terms.
The formation of a new venture company is not as simple as choosing a state and form of incorporation. All the work accomplished so far is used as a basis for creating a fundable capital structure and license terms, as appropriate. Boards of directors and advisors will also need to be identified and formed.
Many new ventures fail to seriously consider the implications of decisions surrounding the formation of the company and hence fail to align investor interests with their own.
In addressing a company’s formation, the founders must use financial projections to estimate reasonable cash needs and valuations over time. Management can then predict, based on investor expectations, what amounts of investment, types of investment and types of investors will be necessary to build a successful company.
Different investors will have differing expectations of returns, timing and control. Issues surrounding dilution of shareholder value must also be addressed.
For example, friends, family and angel investors may tolerate high risk with respect to a startup. But if the startup has licensed key technology and fails to make royalty payments as required, exclusivity may be lost which could preclude the opportunity to attract venture capital.
The key point is that all agreements and terms related to the company’s formation and its ability to participate in the marketplace, including employment agreements, license agreements, by laws and IP acquisitions, must be put in place with view toward creating a capital and governing structure that will be acceptable to all stakeholders who will have an interest in the exit strategy.