Company Due Diligence AIEA March 27, 2008 Sam Thacker Business Finance Solutions

Focus of Presentation Investors invest in companies. The product/inventions/service is key to the success of the company, but ultimately it is the company and the belief in management’s ability to succeed that matters most to an investor.

Company Design Management Team Product / Service Customers Shareholders Directors Trusted Advisors Corporate Governance Strategic Partners Intellectual Property Agreements Contracts

Building Your Company Carefully consider implications of various company structures Consider how company is likely be funded before setting up structure Find a good “board of advisors” Set-up corporate bylaws/organizational agreement Create company agreements

Management Team Domain Expertise Business Acumen Seasoning / Experience Critical roles: CEO CFO CTO

Three Biggest Talents Strong ability to manage people Strong ability to manage money Strong ability to “sell”

Know All “Skeletons” Know what personal credit looks like for all shareholders with 20% or more ownership and who are operating the business Know about any criminal background issues of any officer, director, or key management personnel

Trusted Advisors Corporate Attorney Patent Attorney Banker CPA Insurance Professional

Corporate Documents Articles of Incorporation / Organization Certificate of Organization Certificate of Good Standing Company bylaws / organizational agreement Capitalization table Minutes / resolutions

More About Company Bylaws Significantly more detailed than Articles of Inc. / Articles of Org Called a Partnership Agreement in a partnership and an Operating Agreement in an LLC Maintained as part of corporate records Sample:

Capitalization Table / Stock Certs If you have more than 1 shareholder, keep a formal “Cap Table” and issue stock certificates Read “Rookie mistake # 7”: ieMistakes/RM07.pdf ieMistakes/RM07.pdf

Company Agreements Employment agreements Buy / sell agreement Consultant agreements Lease / finance / other Co-development agreements Customer sales / P.O.s Insurance policies License agreements Non-disclosure agreements Shareholder subscription agreements

Why Employment Agreements? Shows an investor key personnel are committed to venture Lets investor know how key personnel anticipate to be compensated Provides for “exit” provisions of a key personnel Sample: contracts/business-forms-contracts-a-to-z/form1- 29.html contracts/business-forms-contracts-a-to-z/form1- 29.html

Why Buy/Sell Agreement? Even the best of friends can have difficulties agreeing on business issues. Buy/Sell Agreement spells out how one partner can be bought out by the other in the event of “Irreconcilable differences”

Stock Subscription Agreements Warning – Know what you are doing Know the law – have back-up counsel Know what an accredited investor is Know how many non- accredited shareholders you may have Keep very detailed records

Intellectual Property If a patent is licensed to your business make sure you have the license agreement and understand the terms of the license Insure clear ownership / assignment Understand how patent assignments can be made

Revenue Visibility Purchase orders / letters of intent / distributor forecasts Keep in one place all evidence of interest in product Keep “pre-sales” pipeline

Maintaining Due Diligence Material Scan all documents put in PDF format Place in appropriate subdirectories Write simple HTML menu to connect all docs Password protect any PDF documents that contain sensitive material