NEW YORK LONDON HONG KONG CHICAGO WASHINGTON, D.C. BEIJING PARIS LOS ANGELES SAN FRANCISCO PHILADELPHIA SHANGHAI PITTSBURGH

HOUSTON SINGAPORE MUNICH ABU DHABI PRINCETON N. VIRGINIA WILMINGTON SILICON VALLEY DUBAI CENTURY CITY RICHMOND GREECE KAZAKHSTAN

Making it Rain:

How to be Prepared, Not Scared,

for your Acquisition, IPO & More

Stacy Marcus, Partner

Barbara Bispham, Associate

March 2015

About Us

2

1. What’s Market in the Market?

2. Current Market Trends

3. Understanding the Digital Landscape

4. Trends in Digital

5. Financing Options

6. How can I prepare?

7. Takeaways

…but first, what’s on the Agenda?

What’s Market in the Market?

IPO Industry Breakdown (as of July 2014)

IPO investment firm Renaissance Capital (www.renaissancecapital.com)

What Are Trends in the Market?

Financings (Some Rumored) in 2013/2014

Airbnb

Airwatch

AppNexus

Automattic

Box

Coupons.com

Deem

Dropbox

Evernote

Fanatics

Gilt

Good Technology

GoPro

Jawbone

Lending Club

MongoDB

Palantir Technologies

Pinterest

Pivotal

Pure Storage

Snapchat

Space Exploration Technologies

Square

SurveyMonkey

Uber

Vice

• 2013/first half of 2014: venture capitalists have been building

tech companies to sell, not to take public

• 2013:

• 43 tech stock IPOs occurred

• Venture capitalists sold 376 of their portfolio companies in

trade sales

• First half of 2014: 30 tech stock IPOs occurred

WHY: Young tech companies finding organic growth process too

time consuming – value maximized when company sold out to a

large tech company that can immediately integrate new tech

Market Trends

Understanding the Landscape

The New Digital Language

• “Like”

• Pin

• User Generated Content

• Advercasting

• Social listening

• Key Words and Metatags

• Omnichannel

• Streaming Music and Video

• Interactive Gaming

• Pre-Roll/Post Roll, Interstitial Advertising

• Trolling

• Viral and Buzz Marketing

• Twitterjacking

• Cybersmearing

• Embedded Players, Gadgets and Widgets

• Podcasts and Webcasts

• Promercials

• Microsodes, Mobisodes

• Digital Downloads

• CGI and Video FX

• Tweet

• SMS, WAP

• Advergaming

• Astroturfing

• Typosquatting

• Social broadcast channel

• Second Screen

• Hashtag

Tickets to Entertainment Events

PrescriptionsCredit Cards

Passport

Radio Programs

Currency

E-mailTelevision

Programs

Music

VCR/DVRBooks

Telephone

Discount Coupons

Newspapers

& Magazines

GPSKeys via

Bluetooth

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Trends in Digital

• Big Data/Analytics

• Native

• Omnichannel/Cross-Device/Media

Agnostic

• Real-Time

Buzzwords

• Programmatic • Real Time Bidding

Show Me the Money

10 Social Media Statistics from 2013

1. 4.2 billion people use their mobile device to access social media sites

2. Facebook has 1.15 billion total users

3. 23% of them check their account more than 5x per day

4. Twitter has 500 million + total users

5. The fastest growing age demographic is 55-64

6. 40% of marketers use Google +, 70% want to learn more and 67% plan to increase activities

7. 42% of people update their profile information regularly on LinkedIn

8. Every second 8,000 users like a photo on Instagram

9. 350 million photos are uploaded to Facebook every day

10. 60% of consumers say that the integration of social media makes them more likely to share a company’s products and services

Source: http://www.digitalbuzzblog.com/infographic-social-media-stats-2013/

Financing Options

1. Merger or Acquisition

2. Initial Public Offering (IPO)

3. Reverse Merger

3. Secondary Private Market Sales

What are my financing options?

1. Create price drivers

2. Know your shareholders

3. Keep key employees incentivized

4. Have a credible intellectual property position

5. Preparation for due diligence process

6. Formalize good corporate governance practices

7. The finance function is crucial

8. Establish robust reporting and management systems

9. Address executive compensation, legal, and tax matters

10. Ongoing obligations

No matter what the event, pre-planning steps are

crucial, and can differentiate your company

• Diversity of key employees

• Reputation of company as great workplace

• Growth potential

• Company

• Industry

• Proprietary product or procedure

1. Create price drivers

• Voting participation

• Communication

• Impact on shareholders

2. Know your shareholders

3. Keep key employees incentivized —

Shareholders’ “Buy / Sell” Agreement

• Provides for control of transfers

• Preserves team and controls new members

• Voluntary transfers — right of first refusal

• Involuntary transfers — termination, death, divorce, disability,

debt — stock valuation issues

3. Keep key employees incentivized —

New Team Members• Equity Compensation

• Grant triggers income (and withholding); as price rises, tax cost of stock grant increases

• Options:

• Require payment of exercise price (eventually)

• Don’t vote; can’t be transferred

• Tax holding period doesn’t start until stock is purchased

• Vesting

• Three-year or four-year vesting periods

• One-year cliff and subsequent monthly vesting still common

• Company right of first refusal on any proposed sale of stock

• For new team member with objectives —key engineering, marketing or others objectives — consider milestone vesting

3. Keep key employees incentivized —

Non-Compete Covenants

• Employment

• In California, non-compete covenants are generally

unenforceable with two exceptions:

1. Sale of a business

2. Trade Secrets

• Confidential & Proprietary Information

• Who owns it?

• Employees? Founders? Contractors? Open source?

• Proprietary information agreements

• Are patents worth the money?

• Can I keep others from competing with me?

4. Have a credible intellectual property position

Patents

• In the United States, must file within one year from the date the

invention is first used or offered for sale

• In other countries, must file before disclosure.

• By treaty, filings in the United States will protect foreign rights in

most countries, as long as patents are filed in the country within

one year

• Consider provisional patents to lock in filing dates. Full utility

patents can be filed within one year

Copyright

• Copyright protects artistic expression (i.e., a song, artwork or

computer software code)

• Filing a US copyright can be done at any time. Filing provides

(statutory damages and attorneys fees)

• Requires disclosure in a public document (which is why code is

rarely copyrighted)

• For Work for Hire, lasts until the earlier of 120 years from

creation, or 90 years from publication

Trademarks

• Protection for the “brand” in the market (market confusion)

• The same mark may be used by different companies, as long

as the public is not confused (different products)

Trade Secrets

• Protected by state law, requires protection of the trade

secrets

• NDAs and invention assignments

• Minute books

• General corporate matters

• Material contracts and agreements

• Virtual dataroom

• “Paper everything”

5. Preparation for due diligence process

• Board composition

• Organizational documents (i.e., charter, bylaws, etc.)

• Capitalization (i.e., authorized shares, stock split required)

• IPO only:

• Add anti-takeover mechanisms

• Sarbanes-Oxley Act of 2002

• SEC rules

• Stock exchange rules (e.g., NASDAQ or NYSE)

• Form an audit committee

6. Formalize good corporate governance practices

• Credible financial statements

• Design/implement personnel, systems, policies infrastructure

• IPO only:

• Engage and establish relationship with independent auditor

• Registration statement requires three years of annual audited financial statements (NB: under the JOBS Act, emerging growth companies only need to provide two)

• Unaudited interim financial statements may also be required

• Pull up your SOX: CEO and CFO certifications

7. Finance function is crucial

• Implement formal risk management practices for management

to monitor and communicate to board, as necessary

• Once public, a company will be subject to extensive disclosure

requirements – both financial and otherwise

• Benchmark financial reporting capabilities against SEC criteria:

• U.S. GAAP or reconciliation

• Need for an external expert to assist

8. Establish robust reporting and management systems

• Perform any changes to executive compensation plans and employee benefit plans

• Note impact of any such changes on legal and tax matters

9. Address executive compensation, legal, and tax

matters

• Annual Report on Form 10-K

• Quarterly Report on Form 10-Q

• Proxy Materials

• Form 8-K

• Statements of Beneficial Ownership

10. Ongoing reporting obligations (IPO Only)

Takeaways

1. Focus on creating value for customers, not money for

yourself

2. Competition is a good thing: validation

3. Keep your burn low

Social Media White Paper – 3rd Edition

www.reedsmith.com/networkinterference

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