There’s many reasons why a startup should seek help from a lawyer early on. Protecting IP, receiving business advice and tax savings are just a few to mention. What it all come down to is having a mentor that can help you avoid serious problems down the road.
Alan: Welcome back I'm here to day visiting with Jackie Ammon, she's an attorney with WilmerHale. Jackie welcome to today's show.
Jackie: Hi thanks for having me.
Alan: For the listeners can you give us your background of what brought you up to where you are today?
Jackie: Sure so I didn't know really that I wanted to be an attorney when I was in college, just kind of you know having fun in studying political science which is a degree that can go a lot of directions. And my junior year I did an internship in the speaker's office in Congress in Washington DC and all the staff were lawyers and I loved it so much I realized if I want to be anywhere near this I needed to become a lawyer and so that was kind of the drive the rest my junior and senior year in college. Fast forward, go to law school in San Francisco and realized that not just Congress government but I just loved working with people. And found that corporate law is really going to be a passion of mine because of the ability to work with clients directly. And as a result I got a job at WilmerHale and now practicing corporate law in Silicon Valley.
Alan: You know it must be exciting in Silicon Valley with how how much alive it is with new innovations and new companies and as you're doing corporate transactions is a particular type of company that you enjoy working with more?
Jackie: Yeah so my favorite companies are actually the ones that I get before they've done anything. It's the quintessential 2 guys in a garage you know coding and coming up with an idea and I really love those companies because I get to grow with them you see them when it's just an idea and you watch them turn into a company that's creating jobs and potentially saving lives or changing the world in some way with their technology and those are really my favorite kinds because a lot of the issues that they encounter are novel and so they're not only novel to the client but to me a and so getting to work those through those together is is really fun.
Alan: So when a client comes to you how do they usually find you?
Jackie: It's a great question, you know the valley's small even though it's big, so you know a lot of times it's through clients I've already had you know referring. Sometimes people does Google search lawyers, I mean as silly as that sounds, but our firm has a good reputation for being able to help with a lot of different areas, right you're having IP issues you want to file a patent we can help with that, if you're having regulatory issues I have a client that is it working through some FAA regulations which just seems a little unusual for a tech company a because they're obviously not an airline but you know we can help with the regulatory issues as well and then I kind of feel as the corporate attorney that I'm the quarterback so you know I'm helping the business grow and helping with corporate governance but I also get to be a part of all of those other aspects that we're helping with on the legal front.
Alan: And WilmerHale, they have multiple locations across the US?
Jackie: Yes, so we have 2 big offices in Boston and DC, probably our second biggest office is our Palo Alto office. A we have one in Los Angeles and then one in Denver. So I'm hoping to make my way out to Denver soon and work from out there.
Alan: So in the Silicon Valley office how big is the office there?
Jackie: About 90 attorneys
Jackie: Which is pretty large you know we're not one of the biggest in the valley that's because were based out of the east coast, I like to think of our Palo Alto office as the small office feel with the big office resources and so you can get to know your attorney really well have a lot of one on one time if you want it, but we have the resources that you know a multi national 1000 person, 1000 attorney firm has.
Alan: That's important for today's business environment for companies that want to scale.
Jackie: I think so, kind of going about what I was saying before about you know being able to start with people from the beginning, a lot of those people need a lot of hand holding in a good way- right you know you don't know anything about running a business you know a lot about the substance of your technology or what you're doing, but I get to really teach people how to run a business, it's not just necessarily you know how you going to structure this legally, you know is it going to be an LLC is going to be a corporation- who's going to be on the board who are going to to be the officers, how we going to run a board meeting that's all part of it, you know that's legal, but how do you fire somebody, I had to help a team fire a CEO about a month ago, that's not really legal that's business and so we get to do it all.
Alan: You know those little companies you have to be that Jack of all trades and in knowing how to advise clients as you go through there their growth spurts.
Jackie: Yeah absolutely
Alan: So Jackie I need to take a quick break, and after the break when we come back I want to talk about what's new in structuring of companies in the industry today. I'm visiting here today with Jackie Ammon, she's an attorney with WilmerHale and we'll be back after this messages.
Alan: Welcome back I'm visiting here today with Jackie Ammon, she's an attorney with WilmerHale and Jackie and before the break were talking about your background, why you got into corporate law and the types of companies that you work with, and I want to start off with, two entrepreneurs come to you, they have a company that they want to form. How would you advise them made in terms of how they select the entities and what are their options there and how do they get things going off the ground?
Jackie: Yeah so usually the first question is, do you want to be venture backed? Are you trying to raise money from third parties or are you trying to you know build up with your own revenue. And that's that's really I mean as you know it's tax driven and that's what really what drives the question if you're looking to raise money from the a VC or some kind of angel investor, you really need the corporate structure, primarily because entities can't invest via an LLC. If you're going to be a small company kind of grinding on your own initially and you want to be able to take the losses and gains on your personal tax return than the LLC is going to be the way to go. I don't usually advise startups- the the 2 boys in the garage coding- to go the partnership route. Especially later on, the liability concerns make a corporate structure or an LLC a more viable option, and what I mean by that when I say liability is you know let's say your product hurt somebody, you don't want your personal assets to be on the line so a corporate structure corporate form will protect the founders up from from personal liability.
Alan: You know in today's world I guess as things involved we see a lot of different structures going so just reviewing a partnership, sole proprietorship they go to the corporation. And in the deal structure, typically a lot of companies that want to grow, the entrepreneur usually has got the ideas, but they don't have the money. And so what what's the right time for them to start coming in and entertaining should I be taking funds early on, should I wait a little bit, how would you advise them as the attorney?
Jackie: So there are a couple ways to raise money unless you can find, quote on quote good money early on, you don't really want to give too much equity away in your company right you're building this thing from scratch you want to hold on to as much of it as you can as long as you can. So usually we advise clients to do some kind of convertible debt and that you can just raise a couple thousand dollars at a time, friends and family really easy- well easier then you know your equity financing. And that's usually the route that I recommend startups take early on. You know a lot of times you can you know bootstrap, you don't need a lot of money if you're just 2 guys in a garage coding long as you have your computers you can probably get pretty far without too much funding as long as you're okay you know eating bread for dinner and and living in your garage. You know I think the convertible debt is a good way to raise money if you have people who are willing to put a little and and take the risk.
Alan: So Jackie, what's the risk of the person- you got that new technology out there, in the CPA world, TurboTax and Quicken and in the law world, Legalzoom and these do it yourself. What's the risk of a person saying, let me just bootstrap and do everything myself and just go online. What's their down side.
Jackie: I think the downside- and I have a lot of clients who come in who have used legal and it's not that you can't do that, but no company is one size fits all, right everybody has a different story and Legalzoom and those kind products that are available are really. Pigeon holing every company into one kind of one kind of company. For instance, when you're a corporation you file your charter publicly in Delaware and so you might have things in there that Legalzoom just adds that you don't actually want to be public. And that's something that an attorney can advise on early on that you might not even think about or realize on you know a lot of people worry about the cost of an attorney early on and I can totally understand that. And what I would say to that is a lot of the firms in the valley understand that- when you work with emerging companies you understand that they can't afford you know thousands and thousands of dollars in legal fees early on and so I would encourage entrepreneurs to negotiate with their attorneys you know people are flexible. They want to get paid everybody's running a business but you know people are flexible they understand and then I'll try and work with you so you shouldn't be afraid to engage in attorney just because of the legal fees because frankly it's going to be more expensive to clean up the mess later a than it would be to just do it right the first time.
Alan: That's great advice. I'm visiting here today with Jackie Ammon, she's an attorney with WilmerHale. Jackie I need to take a quick break and we'll be right back after these messages.
Alan: Welcome back and busy here today with Jackie Ammon she's an attorney with WilmerHale and Jackie before the break we talked about your specialization as a corporate attorney helping companies with their deal structured putting things together but, when clients come to you if I could just ask the question what are some of the misconceptions or how people are misdirected when it comes to thinking about how an attorney can help them?
Jackie: Sure so I think there's 3 common issues that I see with clients coming and at an early stage, the first is that everybody's going to get along and by that I mean that all the founder you know we don't have to do a lot of paperwork we are not to lock everything up because we're all friends and we're going to remain friends through this whole process. And you know the lawyers are around to say that might not be the case on and I see it happen all the time where the founding team comes and they think everything's going to be great that don't want to sign paperwork to protect IP or things like that and next thing you know 6 months later someone leaves the company has a huge stake of equity and there's not a ton we can do because the company didn't want to correct the paperwork at the time so I think you know there's nothing wrong with admitting that things might go sour or people might decide to part ways so it doesn't have to be a scary conversation and just has to be a realistic one. So that's something that the attorney can help with and I think that's pitfall number one pitfall number 2 which is somewhat related is not getting everybody to assign their IP to the company for a lot of these technology companies intellectual property is their asset that is the value besides the people. So if everyone's not I giving their IPS assigning the IP to the company when it comes time to get financed or sell the company you run into the problem of does this company actually own the assets it purports to own and so that's something again the attorneys can help with. At the outside but everybody who's doing anything at any kind of technology company should be signing intellectual property is assignment agreements. And then the third I think is you're not taking care of your books and and tax issues you know we talked about this before but in my opinion, business law is highly driven by tax law and you need to have clean books you need to have clean records and so you know engaging a book keeper, an accountant early who can help you with those issues and you know quick books can be great but again you you need somebody with the expertise because not everything is one size fits all you want to make sure that you're doing it right at the beginning so you don't have to spend the time and money cleaning it up later.
Alan: That's good advice and I'll add to that that probably what you see is the more a person is organized and up front getting started on the right foundation platform the easier it is for them later on
Jackie: Yeah I would think so, when I talked to entrepreneurs I like to say you know it's like Hansel and Gretel- follow the bread crumbs right when somebody, an investor wants to come in and invest in you they're going to want to take a look at your entire corporate record and you want to make it really easy for them to follow the bread crumbs of how you got from point A to point B to point C to now where you are getting invested and if your books aren't clean if your paperwork not clean if it's hard to follow if you're doing things that are you know out of the ordinary for Silicon Valley you're just going to make it harder for yourself down the road.
Alan: You know Jackie there's a lot of the companies that seem to be incorporating in states like Delaware but they're doing business here why?
Jackie: It's a great question so you actually can incorporate in any state in the country and be what's called domiciled there and then do business in any other state and so we actually recommend that all of our clients incorporate in Delaware. Delaware makes its money you know the small state and maybe a lot of people can't even point to it on a map, but they really made their name by being incredibly business friendly, being incredibly efficient you know working with the businesses to get things done And business friendly attitude makes them a great place for companies to incorporate cheaply and efficiently and then if you're doing business in a state like say California where we are, we can qualify you as a foreign entity here so that you're also doing business in California but your primary corporate issues are going to be handled in Delaware.
Alan: Now there's a trick to getting a Delaware company set up and it has to do with the number of shares, can you maybe cover that?
Jackie: So we recommend that our clients authorizes about 10 million shares about the magic number for a couple of reasons but up primarily it keeps the the taxes the franchise taxes low in Delaware it's kind of a sweet spot number it's also you know from a corporate perspective when you're issuing equity a really high numbers so that you don't have to go back and amend your charter a bunch of times to have equity in order to be issuing it out to various founders or if you want to you know take on an investor who wants stock. Franchise tax so again everything's tax driven right and we find that 10 millions is the magic number. I think most law firms in Silicon Valley would agree.
Alan: Now there's also something with securities law where Delaware ends up being a little bit more favorable with their security
Jackie: Yes I think though so. Delaware's courts are actually split into 2 and the court of chancery handles of most corporate matters. And again talking about being efficient and quick this court sees all sorts of cases they are well well versed in corporate law a in Delaware and federal securities laws as applicable. And so if you were to engage in shareholder litigation or something down the road or you have securities laws issues the court of chancery can help smooth the process as much as possible. You're still in court, you still have to litigated, it's still expensive but you know... I think overall Delaware's really the place you want to be. There some word recently about Nevada trying to be Delaware part 2. If companies want to incorporate in Nevada we can do that, Delaware’s probably better right now but if Nevada keeps moving forward trying to imitate Delaware and being business friendly I think I might also end up being a good spot and maybe a little bit closer for the California companies.
Alan: Now in the in the world today, the world's going a lot smaller with technology a lot of people are doing business across the border. Any particular thing they need to know if they're going into- let's just take a country like Canada.
Jackie: Yeah so a couple of things, one is to know that you just are going to have to do business little differently there you know when you're moving into a different country, you should get local council, you should get local tax advice because everything's going to be a little bit different. We can help to certain extent but having local council on the ground who knows what's going on is priority number one. And this varies across states as well but in addition to going international, the HR issues are really important. You know countries treat employees a certain way, they have different visions about how employees should be treated and so just because they do a one way in California doesn't mean they do it that way in Pennsylvania and it certainly doesn't mean that they do it that way in you know England or Canada or China and so when you're going to have employees move internationally or you're going to hire people internationally you really need to be cognizant of the issues that might arise and I think that's where most companies land into trouble. We're pretty well versed in getting funds internationally right if you want to raise money from the investor overseas, that's a little easier but things like HR things like hiring employees, things like taxes, that's stuff that you really need to get local advice on to make sure they're doing it right and they are in compliance with the jurisdiction that you're in.
Alan: Jackie for any the listeners that would like to reach out to contact you, how do they do so?
Jackie: So you can go to the WilmerHale website, just Google WilmerHale in and search my name, Jackie Ammon and you can find me there. All of my V card information is on the website.
Alan: I've been visiting here toady with Jackie Ammon, she's an attorney with WilmerHale, Jackie thanks for being on today's show.
Jackie: Thanks for having me.
Alan: We'll be right back after these messages.