On startups – entities, cap structures, securities, markets and more. Get to Know #14: Harold Slawik

by Paul Godfread



GTK #14 Harold Slawik (25 min)

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Harold Slawik from New Counsel on startups Harold Slawik is a Partner with Minneapolis-based New Counsel, PLC, a law firm that is known for it’s work with entrepreneurs and startups in the Minnesota technology industry. Harold has extensive experience with private practice, as in house counsel for Sun Microsystems and with startup companies in both Minnesota and California. Harold is also an investor having started a private equity company that invests in software companies.

Why startups we wondered?

“We both (partner John Roberts) have had a lot of fun, that’s where the most fruitful experiences in our careers have been…it’s where we’ve both developed our experience and expertise. It’s been my exclusive focus since the mind 90’s and while there were a lot of law firms in this town doing tech stuff in the late 90’s during the boom days, after the crash, many of these firms cannot practice it to the degree that we do for the price that we do . There’s a market opportunity at our level.”

Harold shares with us his thoughts about what a startup company needs to do when starting and considering raising debt or equity financing; we’ve outlined the takeaways below:

When  Choosing the Right Entity and Capital Structure-

  • Startups should create a legal entity (opposed to a sole proprietorship) to: (a) limit liability, (b) have a vehicle for growth/transfer and (c) define a management structure.
  • The choice of an LLC or a Corporation will depend on business aspirations (lifestyle, modest exit, or huge win?) and type of investment capital needed (F&F, Angel, VC).  New Counsel frequently recommends LLC for various reasons-including the tax advantages, whereas “losses” can appeal to accredited investors.
  • Have the dilution conversation with your partners early on with less focus on ownership interest and more thought to capitalization structure and price per share.  In other words, create a capital structure defined by ownership in shares or units, rather than percentages, know that dilution is inevitable when fundraising but look for an increase in per share price as the overall value of the business increases.
  • Develop a capitalization plan, e.g “if we execute on the plan, we will need to raise $XM in funding in 3 to 4 rounds” etc.

Respecting the business entity-

  • Hire an accountant who is experienced with early stage businesses and relevant tax issues, and your industry if possible.
  • Investors require a whole new level or record keeping, organization and discipline.
  • Best form of risk management with securities is regular and clear communication with investors.

Securities issues-

  • All debt and equity offerings are subject to federal and state securities laws, period.
  • Find an attorney to “ground you” on the relevant securities laws.
  • You need to have a sales process that complies with securities laws, but that is also tailored to your capital needs.
  • As you take on more investors and less sophisticated investors more process and formality is required.  Know the rules of the game!