Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
ru*********@****ra.com; www.gentra.com
FINANCE
DEAR INFORMER: My company is at the point where I need to raise about $100,000, and I haven’t gone after outside capital before. How should I structure my first friends-and-family round?
DEAR ASKING: So it’s time to hit up the relatives! Don’t think of it as begging for money from people you’ll see every holiday. See it as your chance to get everyone to forget that ugly incident with your ex-fiancée.
Professionalism is a must when seeking your first round of financing, according to Adam Soffer and Steve Charbonnet (shar-ba-NAY). They structure lots of these deals at Soffer Charbonnet Law Group in Edina.
“There’s very often the temptation to do it on a handshake because it’s friends and family,” Charbonnet says. Instead, follow his three Ds.
Disclosure: “Make sure that whoever he’s raising money from knows exactly what they’re investing in and exactly what the risks are. The biggest risk is that the person could lose it all.”
Deal structure: If you want the capital in the form of debt, the company would write a promissory note to the financier, with payment terms and when it matures. There’s not a messy ownership stake, but paying the loan crimps cash flow, and if the business fails, this creditor would be in line for repayment ahead of shareholders. The note can be convertible to preferred stock, triggered by a variety of factors, such as the raising of the first venture round.
With equity, the investor takes an ownership stake. “The up side is capital infusion but he doesn’t have to pay it back. The down side is control,” Charbonnet says. Investors may demand a board seat and more.
Documentation: “It’s very important to document this, particularly when you have later investors that come in and want to do due diligence,” Charbonnet says. “It makes raising funds later a little less difficult because you have your ducks in a row.”
Talk with potential financiers to get a feel for their preferences, but then standardize the deals, the two advise.
“To the extent you can standardize, you’ll lower transaction costs and it will help you later on,” Charbonnet says. Finally, it’s better to “raise larger amounts from fewer people than smaller amounts from lots of people,” because of both simplicity and securities laws.
Steve Charbonnet, Soffer Charbonnet Law Group: 952.942.1081; *********@*******aw.com“>sc*********@*******aw.com; www.sofferlaw.com
LITIGATION
DEAR INFORMER: My business partner up and quit our company halfway through our contract and without the notice that we agreed to give. Should I sue, or isn’t it worth it?
DEAR DITCHED:I’m sorry for your plight, which is all too common, according to Todd Taylor. He’s an attorney at Leonard, O’Brien, Spencer, Gale & Sayre in Minneapolis.
There’s not much you can do if your business partner decides to leave, Taylor says: “As a general rule Minnesota law favors freedom of association. The flip side of that is freedom of disassociation.”
There may be remedies written in your agreement, such as, if one partner leaves before a specified time, you have to pay damages of X amount, or you have to surrender shares. Also, “if that person started trying to take business from your old company, you can’t do that,” Taylor says. That’s because a shareholder or officer has a duty to treat the company right.
A case may be made along either of the above lines, but Taylor warns: “Litigation is not cheap.”
“Beyond that there’s not much you can do,” Taylor says. “They should say, I’ll take my lumps.”
He likens business partnerships to marriages, and recommends many heart-to-heart talks before starting companies and regular communication afterward.
You make take solace in the fact that you’re not alone. Unfortunately, in case after case Taylor sees business partners falling out. “They just fight like cats and dogs,” he says.
Todd Taylor, Leonard, O’Brien: 612.332.1030; *****@***gs.com“>tt*****@***gs.com; www.losgs.com
