This document discusses various financing options for startups, including equity sources like founders, angels, accelerators, seed funds, and VC funds, as well as debt sources like credit cards, promissory notes, and loans. It provides examples of equity structures like common stock, preferred stock, warrants, and options. It also describes different types of debt structures and their key terms, such as interest rates, repayment schedules, guarantees, and collateral.

1. Law & Order:
Financing Options
for Startups
February 12, 2013
Nicole Moss
(617) 816-8220
nmoss@campbellriggs.com

2. Disclaimer
The information presented herein and the surrounding
discussion are provided for educational or informational
purposes only. The information presented herein is not
necessarily applicable to any particular situation herein or
discussed in the course of this presentation. By providing this
information and engaging in discussion, no legal advice is
provided hereby and no attorney client relationship or privilege
is being established. Every business and every issue is unique
and legal questions or issues should be directed to your
attorney.

3. Sources of Funds for Startups

4. Sources of Funds for Startups
• Founding Team • Banks
• Friends & Family • Mezzanine Funds
• Angels • Private Lenders
• Super Angels • Crowdfunding
• Accelerators, etc. • Grants
• Seed Funds
• VC Funds

5. Categories of Fund Sources
• Equity
• Debt
• Hybrids

6. Debt Structures
• Credit Cards
• Promissory Notes
• (Convertible Notes are hybrids)
• Loans

7. Credit Cards
• Higher Rates than other Debt
• Compounding Interest

8. Promissory Notes
• Principal
• Interest
• Repayment Structure
• Prepayment
• Default
• Personal Guarantee (maybe)

9. Super-Simple Org Chart
Shareholders
Company
Assets

10. Super-Simple Org Chart
Shareholders Personal Guarantee
Debt document
secured by
Company guarantee or
collateral or both
Assets Collateral

11. Loans
• Same as P-Notes PLUS
• Covenants
• Reps & Warranties
• Bringdowns
• Diligence
• Secured with Assets/Collateral,
Guarantees
• UCC Filings

12. SBA Loans
• Same as Regular Loans PLUS
• More Paper
• Longer Payment Schedule
• No/Lite Prepayment Penalties
• Lighter Covenants
• Non-recourse (maybe)

13. Equity Structures
• Common Stock (or membership units
in an LLC)
• Preferred Stock
• Warrants & Options

14. Super-Simple Org Chart
Shareholders
Company
Assets

15. Simple Org Chart
Shareholder #1 – 50%
Shareholder #2 – 30%
Shareholder #3 – 20%
Company
Assets

16. Org Chart
Shareholder #1 – 50% Liquidity Event: $1000
Shareholder #2 – 30%
Shareholder #3 – 20% Distribution: $1000
Waterfall:
- outstanding debt
Company
- shareholders pro rata
Assets

17. Common Stock
• For cash, in-kind, in lieu of compensation
• = a Security
• Governed by:
• Federal & State Securities Laws
• State Corporate Laws
• Certificate of Formation (public)
• Bylaws
• Other Agreements – Shareholders’,
Investors’ Rights…

18. Preferred Stock
• Like Common PLUS
• Liquidation Preference
• Convertible
• Superior Voting Rights/Protection
• Anti-dilution – ROFR, Participation

19. Preferred #1 – 50% Org Chart
Shareholder #1 – 25% Liquidity Event: $1000
Shareholder #2 – 15%
Distribution: $1000
Shareholder #3 – 10%
Waterfall:
- outstanding debt
Company
- Preferred shareholders
pro rata
- Common shareholders
pro rata
Assets

20. Warrants & Options
• Not an Equity, but still a Security
• Exercise Threshold
• Strike Price
• Warrants -> Transactions
• Options -> Compensation

21. Hybrid Structures
• Loans with PIKs, Warrants
• Convertible Notes

22. Q&A