Debt and Bridge Financing, Securities Law

Convertible Notes: Advantages and Disadvantages

06 July 2010

Many startup companies use convertible notes during the initial stages of raising money. Basically, the investor makes a loan to the company, and once an agreed upon event occurs, the debt owed to the investor converts to stock in the company. Much like a basic loan, a convertible note consists of providing money in exchange for a promise to repay the debt with interest at a future date. The main difference from a conventional loan is that the convertible note contains a mechanism in which the completion of a certain event will trigger the conversion of the debt into equity in the company. Typically, the agreed upon conversion event will be the acquisition of additional financing or the conclusion of a strategic partnership. In exchange for the investor taking the risk during the initial stage of investing, the debt will be converted into equity at a discount in the stock price given to future investors, usually between 20 to 40%. Convertible notes are also often referred to as “debt financing” or “bridge financing”.

Entity Formation, Startup Law

When Should I Incorporate?

28 May 2010

A question we often hear from entrepreneurs and founders of startup companies is, “When should I incorporate?” In typical lawyerly fashion, the answer is, “It depends.” While there is no perfect answer that applies to every situation out there, we generally counsel people to incorporate when: 1) they are ready to get serious about the business; 2) they have multiple business parters; or 3) they are ready to contract with an outside party. For a more detailed discussion, below are some additional factors that should also be taken into account when deciding when to incorporate. If you are in a situation where one or more of these conditions exists with your business, then you should seriously consider incorporating sooner rather than later so that you can get the ball rolling and save yourself time and money in the long run.

Entity Formation, Startup Law

Where Should I Incorporate: Delaware, Texas, California, Nevada?

26 February 2010

I am often asked where one should incorporate their business, for which there are generally three answers: 1) Delaware; 2) your home state (Texas, California, etc.); or 3) off shore (Caymans, BVI, Bermuda). The choice you make depends on your individual business, your investor preferences, and where your customers and investors reside.

Delaware

Delaware is often chosen for many reasons, including: 1) insistence of investors and underwriters; 2) established and efficient corporate law and court system; and 3) favorable protections for directors and officers. These are discussed in more detail below.

Startup Law

Founders Shares: How do you split them up?

24 February 2010

There are a few common ways that founders split up equity and ownership of the company:

1.) Equally: each founder get the same amount of equity. For example, with 2 founders each gets 50%, with 3 founders each gets 33.33%, with 4 founders each gets 25%, etc. This method is most often used by first-time entrepreneurs because it seems more “fair” and is easy to get everyone to agree on it at the outset.

Corporation, Entity Formation, Startup Law

High Tech Startup Packages

15 February 2010

High Tech Startup Packages

At the Copeland Law Firm, we love dealing with entrepreneurs and emerging growth companies, it is our passion. We have advised many entrepreneurs on the formation of new companies, capital structures, financing transactions, employment matters, intellectual property matters, as well as provided counseling on day-to-day legal issues that arise in startup companies. Our clients cover a wide range of industries including software, technology, energy, real estate, insurance, healthcare, manufacturing, construction, advertising & marketing, publishing, and retail.