“SO, YOU WANT TO START A COMPANY?...

Legal Considerations For Startup Companies

Jack Sheridan, Chairman of Business Law April 19, 2008
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
650-493-9300
jsheridan@wsgr.com
 Table of Contents
1. Introduction
2. The Four Main Questions
 Who Owns the Equity?
 Who Owns the Technology?
 Who Controls the Company?
 Who Gets What in a Liquidity Event for the
Company?
3. A Final Word

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 Introduction
• Wilson Sonsini Goodrich & Rosati – premier
emerging growth technology law firm
• Jack Sheridan – Chairman of Business Law,
Corporate Securities Expert, practicing law for
over 20 years. Jack advises emerging growth
technology companies from inception throughout
their life cycle to acquisition or IPO and beyond

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 Four Key Questions
As you go through the life of your Company, from
inception through financing through a liquidity event
of an IPO or an acquisition, there are four key
questions that will be asked again and again – by
investors, partners, potential acquirors and the
general public.
• Who Owns the Company? You need to know
exactly who owns the equity at each stage of the
company.
 Consider vesting
 No oral promises (the lawsuit at the time of the IPO)
 No napkin promises (especially regarding streams of
revenue and royalties)
 Conversion and antidilution provisions
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 Four Key Questions (cont’d)
1. Who Owns the Technology?
 The importance of confidentiality and assignment
agreements
 The former employer
 The Genentech Material Transfer Agreement
 Exclusive license? Can be a “poison pill”
 Narrow the risk of IP exposure
2. Who Controls the Company?
 The Board
 The shareholders
 Section 2115 of the California Corporations Code

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 Four Key Questions (cont’d)
1. Who Gets What if the Company has a
Liquidity Event?
 Liquidation preference
 Participating preferred
 Dividends – noncumulative, or cumulative
 Acceleration of vesting?
 Other payments due on change of control?

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 A Final Word
Foresight matters - whether in your Board room,
or with your employees, shareholders or other
business partners. Agreements should be clearly
stated and in writing. Be as detailed and careful as
you would writing code.

Good Luck!

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