www.startupPerColator.com www.PerkinsCoie.

com

Formation &
Early Stage Financing
Jim Brenner Troy Foster
jbrenner@perkinscoie.com troyfoster@perkinscoie.com
Troy Foster
www.perkinscoie.com/TroyFoster

Troy Foster | Partner

Business attorney Troy Foster has focused on emerging companies for his
entire career. He has particular depth representing technology startups as
well as the investment banks and venture capital firms that support them.
Troy provides legal leadership for emerging growth businesses on all of
their legal, compliance and related matters, working with numerous mid-
to-late stage emerging growth companies and pre-IPO candidates. He has
significant domain experience in cleantech/renewable energy, biotech and
fintech/secondary trading. Some of Troy’s clients include, MobileCoin,
SharesPost, Storj Lab and Machine Zone.
Troy previously served as the chief legal officer at TrueCar, where he
Palo Alto, CA oversaw its successful IPO and managed significant legal matters, such as
+1.650.838.4466 “bet-the-company” litigation and securities class actions. He has also
advised private investors on numerous primary and secondary securities
TroyFoster@perkinscoie.com transactions.
Prior to serving as in-house counsel, Troy had a long tenure in private
practice in Silicon Valley, where he represented dozens of private
companies and venture funds as well as public and private companies in
merger and asset sale transactions, within the technology industry.

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Jim Brenner
www.perkinscoie.com/JBrenner

Jim Brenner| Partner

Jim Brenner is a Silicon Valley native and classic startup lawyer who
represents clients with big ideas. He has a particular strength in counseling
consumer facing companies, especially those who touch “frontier
technology,” including augmented reality/virtual reality (AR/VR), internet
of things (IoT) and the shared economy.
Jim works with founders and entrepreneurs through the entire lifecycle of
their companies, including formation, fundraising and exit processes. Jim
serves as an outside general counsel for several clients and, on occasion,
acts as investor counsel in venture capital financings. Active in Perkins
Palo Alto, CA Coie’s Blockchain Technology & Digital Currency group, Jim also advises
clients on their initial token sale strategy, with a focus on securities law
+1.650.838.4349 compliance for pre-functionality token sales.
jbrenner@perkinscoie.com Knowing that every investment, transaction or partnership begins with the
need to build a relationship, Jim takes a relationship-based approach to the
practice of law. He works closely with his clients to balance legal risks with
business needs that impact immediate decisions, as well as short-term and
long-term goals.
Jim also sits on the board of directors of the Silicon Valley Monterey Bay
Council of the Boy Scouts of America. Previously, Jim has been a barista at
Starbucks, a cast member at Disneyland and a member of the University of
Southern California Trojan Marching Band.

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Picking the Right Type of Entity

§ C Corporation (most common)

§ Limited liability for owners
§ Double level of tax, however
§ S Corporation
§ Limited liability for owners
§ Single level of tax – Partnership tax treatment
§ Restrictions on type and number of shareholders limits
usefulness of this structure
§ Limited Liability Company (LLC)
§ Limited liability for owners
§ Single level of tax – Partnership tax treatment

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Basic Terminology

§ Certificate of Incorporation (Charter)

§ Bylaws
§ Authorized Shares vs. Outstanding Shares vs. Reserved Shares
§ Typical Types of Equity
§ Common Stock (Outstanding)
§ Preferred Stock (Outstanding/Convertible)
§ Options (Exercisable)
§ Warrants (Exercisable)
§ SAFEs/Convertible Notes (Convertible)
§ Equity Incentive Plan/Option Pool (Reserved Shares)
§ Fully Diluted Capital
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Sample Capitalization Table

Preferred
Total % Option Stock Total Fully % Fully
Holder Name Common Stock Preferred Stock Oustanding Oustanding Grants Warrants Diluted Diluted
John Amar 5,000,000 - 5,000,000 40.00% 5,000,000 35.71%
Jane Roe 5,000,000 - 5,000,000 40.00% 50,000 5,050,000 36.07%
Rob Smith - - - 0.00% 12,000 12,000 0.09%
Beth Reyes - - - 0.00% 24,000 24,000 0.17%
Bigtime Ventures - 2,500,000 2,500,000 20.00% 2,500,000 17.86%
Venture Lending - - - 0.00% 14,000 14,000 0.10%
Available in 2019 Equity Plan 1,400,000 10.00%
Totals 10,000,000 2,500,000 12,500,000 100.00% 86,000 14,000 14,000,000 100.00%

Authorized Captial
Common Stock 14,100,000
Preferred Stock 2,600,000

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Founders Equity

§ Division of Equity between Founders

§ Founder Vesting/Repurchase Right
§ Time Period
§ Cliff?
§ Single vs. Double Trigger Acceleration
§ Transfer Restrictions
§ DON’T FORGET TO FILE YOUR 83(b) ELECTIONS!!!

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Equity Incentive Vesting & Restrictions

§ Employees:
§ 4 years with one year cliff
§ No Acceleration
§ Post-Termination Exercise Period (90 days vs. Longer)
§ Advisors:
§ Size of Grant (top-down approach)
§ 2 year with no cliff
§ Single Trigger Acceleration
§ Transfer Restrictions

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Equity Incentives for Employees/Contractors/Advisors

Benefits Disadvantages
Option Grants • Familiar concept • Requires 409A Valuation
• Stock is not outstanding (costly for early stage)
(non-voting) • Less favorable tax
• Easy to administer treatment
• No cost to employee
until exercise

Restricted Stock • 409A Valuation not • Employee needs to

Purchase/Bonus Awards needed (minimal tax come out of pocket (or
risk) pay withholding for
• Advantageous Tax “phantom income”)
Treatment for Employee • More costly to
(if 83(b) election filed) administer
• Employee will hold
outstanding (voting)
stock
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Board/Management

§Board of Directors:
§ High-level decisions making authority to guide
direction of the Company
§ Appoints/Oversees Officers
§Officers:
§ Oversee the day-to-day operations
§ Report to the Board
§Fiduciary Duties to Stockholders & Company

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IP Hygiene

§ Founder’s IP Assignments
§ Proprietary Information Invention Assignment
Agreements
§ IP Assignment (Cannot cover assignment for previous
work)
§ Confidentiality Protection
§ Non-Solicitation (limited in California)
§ Non-Compete (not permitted in California)
§ Consulting Agreements

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Other Things Not To Forget

§ Obtain Employer Identification Number (EIN)

from IRS
§ Qualify to Do Business
§ Blue-Sky Securities Filings
§ National Database Reporting Requirement

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JOBS Act: General Solicitation

§ What is General Solicitation?

§ Mass newsletter or email
§ Website (company’s or third party)
§ Public speaking engagements (e.g., industry
conferences, trade shows)
§ Posting on social media
§ Videos on TV or internet

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