Business Structure Validation

KickinItBusinessKickinItBusiness subscriber Posts: 1
edited July 2008 in Business Planning
I am looking for opinions of experts if this business structure is viable, if possible list your credentials.Company_A - High technology Delaware C-Corp seeking VC or angel funding owns 40% of its shares (voting class is split evenly among 100% of shares). 60% of the company is owned by Company_C (offshore holding corporation).Company_B - Management Nevada/Wyoming/Delaware (undecided...opinions needed) consisting of founders and their team. Their sole role is to manage Company_A.Company_C - Offshore holding corporation whore sole role is to manage 60% of Company_AThis scheme was designed to protect the founders and Company_A from vulture capitalists.Please validate that this scheme will protect the founders from being cheated out of control of Company_A and money. same founders will represent both Company_B and Company_C on the board of Company_A.Thank you in advance,Sincerely,Evan Miller
KickinItBusiness2008-7-13 22:24:55

Comments

  • KickinItBusinessKickinItBusiness subscriber Posts: 1
    Hi Mark,Thank you for your reply.My structure protects the company from a VC that plans to paw more then I was willing to give to begin with. I will give maximum 40% and I believe that keeping the rest in companies that can not be controlled by VCs of Company_A will protect founders from unfair negotiation practices. Its is well known that VCs have plenty of competitive advantage when it comes to structuring the deal, and the ones that will use the most of it against the founders make the most money.Sure there are great VCs like Sequoya, but the rest of them will not hesitate to skin you alive under the table. If they plan to skin us alive they will see that it will be harder then normal and back off - in which case we don`t get funding from them, but we also don`t get skinned alive. Most of do-good VSs will see such structure as no threat and possibly even a positive.Costs will be ~15% cash to Uncle Sam from the 60%. The upside is that we keep all the voting stock of that 60%.Separate management company is a rather common occurence and you see that often in business plans. This is seen especially prevalent in companies in the real world (beyond Silicon Valley). In my opinion these companies` founders take equal amount of time in developing their business fluency as well as their comparative advantage. And as we are not limiting ourselves strictly in SF/SJ VC market we are forced to be more serious about the planning of the business.Sincerely,=)Evan
    KickinItBusiness2008-7-14 12:40:4
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Evan,
    Do you have any venture capital companies "ready" to put capital into your business?
    What makes you beleive that any capital will come into your situation?
    I`m sorry if I sound harsh - but your scenario and request for my credentials to give you free advice - tells me that most reputable VC firms will "pass".robertj2008-7-14 12:35:24
  • KickinItBusinessKickinItBusiness subscriber Posts: 1
    Hi Robert,Are you asking what we do or commenting that this business structure will not attract much VC funding?KickinItBusiness2008-7-14 12:45:51
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Do you want me to answer that here or in private?
  • KickinItBusinessKickinItBusiness subscriber Posts: 1
    Sorry, but I believe you already have(?).I may need to restructure my question.I am asking is: will it protect us? And if so how well?I  understand already that this will not sit well with most VCs (not our primary concern), but I am interested in how much protection such scehme will offer us.
    Posting credentials is optional (if possible), mainly used by us to judge the
    differences in opinion between experts in the field and an average
    entrepreneurs.Evan
    Apologies for double post.KickinItBusiness2008-7-14 13:9:50
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    I know an excellent small business securities attorney and will be happy to give you his contact information in a private message.
    Will it protect you from "what"?
  • KickinItBusinessKickinItBusiness subscriber Posts: 1
    Please validate that this scheme will protect the founders from being cheated out of control of Company_A and money. 
    I`ll gladly take any contacts that you think can help me come to a decision about the implications of this structure. I prefer to do most of research myself and utilize my attorney when I need the use for his fluent legalese to word my decisions.I like researching these sort of things. It is something that I have very high interest  in as a hobby and as my occupation.Sending pm now!=)
  • daleyfla99daleyfla99 subscriber Posts: 1
    Fact of the matter is that nothing will "protect" your interests when you invite others to the table.  It is entirely possible for someone to wrest control of your company from you when it is a public entity. 
     
    From my Investment Banking background, you are shooting yourself in the foot.  You cannot easily or readily take this company public with this kind of structure.  It is also a very tough VC sale, (what`s in it for them?).  So answer the question, what is your goal here?  To acquire capital and not give up control?  To prepare the company for sale?  To prepare the company for public offering/holding?  To make yourself rich?  All of the above?  And what`s to keep the offshore company from using the laws in their country to "steal" your corporation?
     
    Fast Venture is on target with a Reg D to raise capital, spreads your deal over several VCs and helps all of them and you.  But will not fly with that structure.  Take the meeting with the lawyer that robertj offers and get a good feel for your viability in the marketplace before proceeding and do take the time to answer the question about what you are trying to accomplish with the deal.
     
    Also make sure you have a very good confidentialty agreement before you begin negotiations with anyone.
    daleyfla997/15/2008 5:36 PM
  • KickinItBusinessKickinItBusiness subscriber Posts: 1
    Thank you for the reply,

    I can tell you are not convinced that this structure will protect the
    founders (other issues you have raised do not concern me). You have not
    provided any details why, other then few generalizations (here in the
    states the government is just as likely if not more to freeze funds in
    question then elsewhere abroad), it is not advisable to go offshore.I figure being in investment banking you should be very well familiar with offshore financial industries as they are widely used by every large conglomerate and other shrewed corporations and individuals alike. Just to clarify, we will not be using high profile offshore destinations like Caribbean or Bermuda. Maybe you can clarify for me why do you think the business structure would not protect our founders.
    Thanks,
    Fact of the matter is that nothing will "protect" your interests when you invite others to the table.  It is entirely possible for someone to wrest control of your company from you when it is a public entity. 
     
    From my Investment Banking background, you are shooting yourself in the foot.  You cannot easily or readily take this company public with this kind of structure.  It is also a very tough VC sale, (what`s in it for them?).  So answer the question, what is your goal here?  To acquire capital and not give up control?  To prepare the company for sale?  To prepare the company for public offering/holding?  To make yourself rich?  All of the above?  And what`s to keep the offshore company from using the laws in their country to "steal" your corporation?
     
    Fast Venture is on target with a Reg D to raise capital, spreads your deal over several VCs and helps all of them and you.  But will not fly with that structure.  Take the meeting with the lawyer that robertj offers and get a good feel for your viability in the marketplace before proceeding and do take the time to answer the question about what you are trying to accomplish with the deal.
     
    Also make sure you have a very good confidentialty agreement before you begin negotiations with anyone.
  • KickinItBusinessKickinItBusiness subscriber Posts: 1
    Mark, I apologize for seeming dogmatic - I merely trying to stay on point.I am here to get very specific questions answered while the answers I receive attempt to touch on issues I have already worked out or plan to work out in the future and then blame the results of those issues on why my plan will no succeed.With that said I found your advice (Reg. D) on the first page more useful then the rest of replies on here and I took some time to research it.So I thank you for that. Unfortunately if there is a power struggle on the board anything can be changed no matter how much time I spent drafting things out. It`s easier to set things in stone by introducing another company in to the mix, especially the company that can not be touched or so I think.I would be more interested on how you would circumvent the defenses of this structure rather if you would invest in it or not (say hypothetically, by a freaky chance of fate, you found yourself as a VC in this situation and your goal was to circumvent the defenses - what would you do?)Evan
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