Building a Startup: The Legal Playbook | Kim Klayman, Partner @ Ballard Spahr

Today on the show we have Kim Clayman, partner at Ballard Spar. Why does the Grove have a lawyer on today's show? Well, it's because Kim is, in my opinion, the go-to individual in the beautiful city of Philadelphia for all of your law questions relating to startups, deep tech startups, uh, commercialization, cool things like

this. Uh I've been involved with Kim for a few years running Earth onward and she's always been around to answer very interesting questions. Every time that uh I talk to someone doing something interesting with climate tech in Philadelphia, she always seems to be uh involved with them as well. So uh I went

to go see her at a local uh a local event and uh all the I wish the conversation was recorded. show that I ended up recording a conversation. [laughter] But we talk a lot about things I don't know anything about which are different kinds of legal entities, why incorporate in one way or the other, what does

equity mean, how does law support entrepreneurship or innovation uh in deep tech and a lot of things like this. It was extremely educational. I felt like uh it [snorts] was a college lecture. Uh, it was great for me and I know it will be for you as well. Uh, shout out as always to our sponsors,

Clean Tech Growth Lab if you're looking to grow in clean tech. They are the people to do it with and the producers of this podcast, Craze and Friends. And with that, I give you Kim. Welcome to another episode of The Grove.

Thank you to our sponsors mentioned just before this. But without them, it would not be possible to interview awesome people doing awesome things like Kim. Welcome. >> Thank you. I'm really excited to be here and to be talking to you.

>> Yes. So, a lot of times on this show, I get to talk to people who know a lot more than I do. Period. And something that you know that I don't know is law. So much so that you're figured out all the law stuff for me. and you're so articulate and knowledgeable for my own

questions that I wanted to share that knowledge with everybody else. So very excited that you agreed to this. Uh before we get into uh any more questions, if you could give a brief introduction of yourself and what you're building.

>> Yeah, my name's Kimberly Clayman. I'm a partner at Ballard Spar. I run actually am the chair of our emerging company and venture capital group nationally. Uh so Ballard is um a national law firm uh several hundred attorneys I think about 900 attorneys nationwide about 25 offices across the country uh emerging company and venture capital that's

working with entrepreneurs it's working with investors to help get them together to do deals. It's helping entrepreneurs to grow their businesses as outside general counsel. Uh so I've been running that group for the last year and a half almost two years. Um, and it's been a real pleasure to watch it grow and and

flourish. And our client base has grown and flourish. And the group itself is a really fun group of people to work with. >> So, a lot of people that I talk to on the show are founders or investors or corporate buyers. And this is a special episode, first time we're doing specifically lawyer. So, how do you get

into the space? >> Um, so a lot of people ask me this question. This is actually a space I've always wanted to be in. Um, but I might take it backwards from where I usually take it. Usually I go back in time to say how I got here. But I just want to

say that being here where I am today as a partner of a law firm, which means I own a piece of the law firm. That's what it means to be a partner in the law firm, just like it is to own a piece of an LLC, a piece of a corporation. I actually do feel like an entrepreneur

because I feel like I own what I'm building. Um, my practice is mine, which means my clients are mine. I track my own revenue. I think about my profitability. Um, these are all things that I can relate to a lot with respect to the people that I actually work with.

So, both entrepreneurs and investors who are tracking their ROI on the work that they're doing. >> So, weirdly enough, I do think I did end up almost where I started from like uh, you know, a career aspirations perspective. But if I take a step back and kind of rewind 15 years to when I

you know was entering uh graduate school, I was thinking I want to be a business person because I had a lot of business people and entrepreneurs in my family. Um I mentioned to you that my grandfather had a business that he started. Um my mom was also very entrepreneurial.

Um I have family members who own lots of businesses that are that you know they work on with their brothers, with their kids. Uh, so I came from this entrepreneurial background and really love the space of building your own business. Um, and I got advice early on from my grandfather like rather than

just do the business side, why don't you also learn a skill that's useful in a business? And he was like, I always had to pay my lawyer so much money. So it would be great to have a lawyer in the family. Um, so at the time I decided I'm going to go to law school and I was, you

know, luckily in a school that had a great entrepreneurial program at Penn. So I was able to actually study the entrepreneurship of law. Uh frankly at a time that most law schools did not have a really prolific entrepreneurship program. Uh and it's been you know really serendipitous in terms of the timing of you know the boom within the

entrepreneurial industry. >> So framing I guess setting a foundation for law and entrepreneurship. what role uh does a lawyer or law in general play in entrepreneurship? Cuz to me um which is why you're doing it, it's there's paperwork, there's documents, there's legal things you need to sign with clients or equity partners, a lot

of stuff that really doesn't make sense to me. So yeah, what role does it play? >> Well, you know, in a perfect world, your lawyer is doing more than giving you documents. They're also being a epicenter for you in terms of growing your network, a sounding board for what other people in your shoes have done

who've been in similar positions. So so much of entrepreneurship is rinse and repeat. uh not the idea, not necessarily the way you're executing an idea, but the foundational elements, building a team, you know, people who are growing a business and hiring and giving out equity comp and dividing equity amongst themselves and their partners and their

investors. Those are things that are true across all industries or they tend to repeat across all industries. And lawyers offer a good perspective on how other people do it so that you can make sound decisions, tried andrue decisions, um, rather than, you know, kind of trying to reinvent the wheel each time you do something that is, you know,

typical of building a business. But the other thing that a lawyer should do is help keep you organized. I think one of the things that differentiates great entrepreneurs from entrepreneurs that kind of hit a bunch of stumbling blocks is just being really really organized with the execution of your vision. Um, understanding the step plan, laying that

step plan out, seeing ahead of time where you might have a delay. Um, and I think, you know, not necessarily by documenting the things you're doing, but by helping you with that road map, a lawyer, especially when parts of that road map require legal input, a a good lawyer will help you see the vision from

point A to point Z and help you think through what the true timeline is. So combining I think combining your point about uh a really granular plan and also about introducing other humans into this this venture. Uh there was uh I guess one of the only times I've I've listened to a podcast spec or a conversation

specifically with a lawyer was a divorce lawyer and he was making the case Yeah. He was making the case for um uh I believe it was prenups where at the beginning of a marriage you're putting together exactly everything that could go wrong.

>> And there are a lot of people that get married and like oh we don't need that. I love my partner. I know this is going to be successful. >> And I think in a lot of ways starting a company with uh someone that you're close with or someone that you trust >> Yeah.

>> is first I mean a good idea cuz that's it's a really hard thing to do. You spend a lot of time with them. But a lot of times people say, "Oh, we don't need any specific operating agreement or like you know, we'll handshake on like a 7030 split like I trust you, you know, to

deliver on that in five years." What do you say towards uh people that feel that way as far as the role of those types of documents at the beginning of a company? >> So I don't necessarily believe that more documents and more complexity will sell will like prevent future catastrophe. I think, you know, partnerships work and

don't work based on things that happen in life, not necessarily what you put in a document beforehand. I do think though, not so much your relationship with your co-founders, but your relationship with third-party stakeholders tends to depend a lot on how organized you are with your documentation. So that when you go and

present, hey, me and my co-founder founded this company. This is how decision-m works. this is how um our books look, this is what our minutes look like. And and actually having all those things ready makes you both look more prepared. Even if you're whether you're getting along or not, frankly, I think if you're not getting along,

there's a different problem. But assuming everybody's getting along, you know, the handshake deal being on paper just so that when you go to someone and present what you have and it matches what you're saying, I think that gives you credibility right off the bat so that you don't have to establish yourself as someone who really follows

through with what you say you're going to do. You've shown already that even when it was just you and your co-founder, you had the foresight to write things down, to document so that when you go to somebody, they see that you're already a person who's organized and prepared for questions.

>> So, when you say third party, you just mean I guess other like service providers or >> No, I mean like when you go to a bank, you want to borrow money. Uh you want to raise money from a venture capital fund or an angel investor. Uh you want to go work with a vendor. Yeah. maybe like a a

vendor who's bigger than you or you want to be a vendor for somebody else. I mean, we work with a lot of companies that they're small, but they're going to be servicing really big companies and those big companies want to make sure that that small company is going to be there for the long haul. That they're

not just a fly by night vendor um that they're entrusting with data or that they're entrusting with sensitive information or that they're giving an RFI to that could have gone to a different vendor. Uh so it is really important to show that you're not just there because it's easy to be there but

because you've actually done the leg work to get there. So then so then these operating agreements at least at the beginning of of a company so they you've seen like in your experience they've done less to help facilitate uh the end of a partnership or somebody exiting in some way or they've done they

they I guess like in my head they serve an important role in the fabric of a partnership but are you saying that it it's not as important in that sense? >> No, I think it is like I think everything you set up at the beginning should be set it and forget it. So much

of what you set up at the beginning has important tax implications. Um it has important you know for example what kind of entity you choose can have a tax implication for the founders if you're an LLC versus a corporation. So there are choices you make at the beginning that go into these documents

that definitely matter for the end. But I don't know that your documents are going to prevent you from having a falling out with your co-founder. >> Okay. Right. >> Can can can they h can they help you like land the plane more smoothly instead of like, you know, it crashing and exploding?

>> If you have a fight, I think good documentation can help you get through the fight if one person's going to stay and one person's going to go. So like a divorce could happen easier. Like a prenup is nice. Correct. Like exactly your example. Um, but you know, sometimes there's situations where you

know, one co-founder and the other co like the the idea doesn't work without one of them. And if that's the case and there's just not they're not copathetic, I mean, the idea is not going to take off. It's going to be hard for those two people to land the plane in a direction

that's, you know, commercializing the idea, selling the idea. So, that can happen regardless of your documentation. It's the documentation won't necessarily save you from a founder fallout. Sure. Okay. >> But, you know, I do think good documentation helps you be successful and sometimes getting to success too slowly can lead to a founder fallout.

So, for example, if you go to your investors and say, "I want to raise money." And you show them your documents and it's a total mess. You say you're a corporation, but all your documents are for an LLC. You say that you're two people, 50/50 split in equity, but the documents don't show that. You say that

you expect this and that tax treatment, but that's not really how it works. You just never got advice on all of that stuff. I mean, the person you're pitching to might say, "Hey, this is a hot mess, and I'm not going to invest." And that could delay growth and that could elongate the time frame that you

have to be working with this co-founder on a low or no income basis, and obviously that, >> you know, starts to fester. So I think you know being organized, being prepared, having that stuff laid out correctly. One, it shouldn't be expensive. It should be a lot of the stuff is either free, fixed fee, um

special arrangements that are not meant to be massive, uh you know, economic sucks out of these companies. Uh so hopefully you're finding the right resources and not overspending on that. But because it's cheap, free, easy to do, uh people expect you to do it. So that's why I think maybe it doesn't make it doesn't

ensure success, but it definitely ensures that your success isn't hindered by disorganization. >> Got it. >> Yeah. >> Time out. This is already so amazing. Everything is going great. >> Okay, good. >> Time back in. Okay, so um quick thing that you that you had just said is quick, free, easy. There's a lot of This

is something that uh Nick had asked you at the PH3 event that we saw uh that we saw each other at. Shout out to PH3. >> Um what are your opinions about um something that I almost did, but I'm glad I didn't, which is uh just the the things you can pay 50 bucks for, get an

LLC. Um >> I don't hate it. I think it's always helpful to have a discussion about what you're doing and what you're forming before you form it. A discussion should not really cost any money. >> Uh you can get some quick advice usually on entity choice. Um I don't hate these platforms that form entities. I would

say for the most part, especially if you're going to do something in a space that isn't high high growth, meaning you're not going to take on investment money from third parties right away. Uh you're not going to have a million equity holders in your business. If you're doing something simple, an LLC is

usually fine. Um, these platforms that form them, and I'm blanking on all the names, like Legal Zoom and and all those platforms, I am not a snob about those. I think they're fine. You just have to recognize that if you didn't have the conversation about what entity to form before you formed it, you might later

have that conversation and someone might say to you, "Hey, now you have to convert your entity into something else." And then that conversion process might actually be more expensive than if you had just >> started with that conversation and formed the right entity.

>> Yeah. >> So that's always a bummer I think when people find out hey >> I now need to go through a change and that change costs more than if I had started differently. Um, but I think, you know, all in all, I'd rather someone be operating with an entity than without an entity for fear of like forming

without a plan. >> For sure. Very very good. Um, one thing that you had also said um at that at that talk in response to a similar question was the the people element like the relationship with people and which something I benefited from so thank you for being a resource for that. Um but

yeah, like what is that aspect of it when you're deciding to go with one of these entities or someone like yourself? >> Yeah, I think like I said, the formation process is so cheap. Most law firms at this point will do it for free or cheaply at like a very fixed rate, low

fixed rate. So I look at it as an opportunity to meet someone who's going to be your long-term advisor partner. I think, you know, before we started maybe recording or maybe this was recorded, you know, I've become friends with a lot of my clients because I do feel like I'm in the trenches with them. I do feel

like I want to see them be successful. When you have a good relationship with your service provider, they're usually doing more than what what is showing up on the billable hours report or the invoice. And like I said, at some point I think in this like your great lawyer is going to be an epicenter for your

networking, your ability to leverage other resources that are available in the space that you're in. Uh potentially meeting people. Usually lawyers have a really long roster of other clients in your space or you know for example I have several hundred partners all across the country with great clients and um not you know very frequently I'm reaching

out to them to ask for connects to potentially uh client you know customers for my clients connects for my clients if it's something that's going to be useful to them. uh just you know there's a lot of opportunity to leverage all of what's in a big law firm and if you have a if you have a good relationship with

your attorney if they're not just there to turn a document for you um you're probably getting a lot more out of that than just you know the formation documents or just uh getting from point A to point B as far as documentation goes.

>> Good example right here. >> Yeah. Um so uh another thing to lay the foundation um and something I would ask you anyway so I'm glad that this is uh facilitating the environment for it but can you just define what these different entities are so LLC means C corp >> BC corp I mean a lot a lot of I mean my

entire focus is climate tech and uh there are there's a whole segment of people that are in sustainability which is >> depending on who you talk to if you talk to me it's separate than climate tech but it's still has a place in the world and this idea of uh BC Corp or which I

believe is is the distinction where you're recognizing triple bottom line anyway just to whatever extent you want to what are the differences between these things >> yeah there's a lot of different entity types a lot of the one a lot of them we don't even really talk about so there's also partnerships there's limited

partnerships and general partnerships there's something called an SC corporation which is pretty common actually for smaller you know service provider type entities Um, for example, a lot of insurance companies out there, small ones or brokerages tend to be escorps. Uh, but just, you know, to peel the onion layers back a little bit,

we're often dealing with corporations, that's one type of entity, and LLC's. LLC's are limited liability companies, which are effectively partnerships from a tax perspective. Um, and the differences are primarily tax, but there is other differences. is there's a difference in what the documentation looks like. There's a difference in the nomenclature. So like with LLC's you

have members typically with uh corporations you have shareholders or stockholders. With LLC's you have units or interests. With corporations you have stock uh common stock or preferred stock. So those nomenclature differences. I guess on some level it these are just creatures of history because these entities were developed by law at different times, right? So

corporations existed long before LLC's came into an ex existence in the law. Uh so some of the nomenclature is just what's from the law. >> Oh, that's interesting. Yeah. >> But you know the reality is a lot of there's a lot of similarity though. I mean you're going to get the same level

of limitation of liability that's in a LLC. the name, you get the same limitation of liability as a shareholder of a corporation. You're protected by the entity. Uh your personal assets are protected. So you either one of them does that trick for you. Um you mentioned BC Corps and there's also something called a benefit corporation.

That's different. A BC Corp is an entity that gets certification under kind of the BC Corp. uh you know and it is about being uh having a triple bottom line so to speak uh approach to your business not just worrying about the economic bottom line but having other values that can be a part of what

um drives what the entity does what the board of directors does and and benefit corporation is similar it's it's sort of that we are going to look at something other from a values perspective than uh economic return for our shareholders and those entities really exist because um you know in corporations and in LLC's

the management of those entities the board of directors or the managers of an LLC or of a corporation they need to they have fiduciary obligations to increase value >> and so there was a point in time where under the law people were questioning especially in a public company setting are people really fulfilling their

fiduciary duties to the stockholders in one, you know, for corporations or members of the LLC. Are they doing that? If they're worried about things like aside from ROI, is what we're doing sustainable? Aside from ROI, is what we're doing good for the oceans? Um, you know, kind of the famous example is Tom's where they were like, we're going

to give away a pair of shoes for every pair of shoes we sell. You know there's a question around that like is that now I think people would think that's also a good marketing >> right >> ploy but before we were as consumers maybe looking at that type of altruistic behavior as you know a marketing uh

something that drew in consumers like I think there was a point at which people were like well is that even good for the ROI of the business is are the are the is the management thinking about its stockholders return and so these new types of entities were developed to really address the fact that we want to create an entity.

The law wanted we wanted in the law to have space for entities uh for management to be able to consider values other than economic return. So those were kind of written into the code for benefit corporations for example it's written into the law that the fiduciaries can consider something other than economic return um and that that

can be written into the governing documents of the company. BC Corps are a little different because that's a certification. It's a little it's that you're getting certified by a third party entity. >> It's not like a legal >> It's not. No, it's not legal entity.

It's a certification you get for, you know, complying with the standards and values of the BC Corp >> certificate providers. >> GB Corpalc and you just said BC Corp certification, correct? >> Um, but benefit corpse, I think sometimes people use BC Corp as shorthand for benefit corps. benefit corporation. That's really something that is a uh creature of law, meaning

there is a legal framework for becoming a benefit corporation and you [clears throat] have to comply with certain parameters for maintaining that benefit corporation status. >> Um, something that has stuck with me from an email that you sent when I was forming my LLC. [laughter] I have an LCA right away. And uh something that stuck

with me was uh you had asked, I mean, very simply, I was deciding, you know, whether to have you guys do it or have uh one of these other services do it. And you asked me, well, what kind of business are you starting? And at the time, it was uh it was really just a

services company and it was just going to work helping other companies uh grow. It's evolved since then. That is still a core piece of what uh the growth and what Earth Onward is doing. Um, but that was curious to me because what you had said was, and I guess it's obvious now, but it wasn't to uh to me

at the time, which is you have to set yourself, you have to have the foresight to uh if you're starting like uh, you know, a deep a deep tech company and it's going to be in the lab for three years and then you're going to do pilots and then you're going to raise certain

kinds of complicated uh um investment rounds and things like this. Like your legal structures matter >> and you're just like, "Oh, it's a service company. That's fine. Delicious too [laughter] you know, which is which is cool. So, a lot of the companies that I work with are those more complex um uh types of

companies and a lot of companies that you work with are as well. So, so that's why I wanted to ask uh for for anyone that's watching that is um uh that is running a company that is more complex or more deep tech or hardware or software something like that. How how do you go about having the foresight for

what type of legal entity is best for you initially? >> Sure. Yeah. So, the reason to ask that question is some companies are eligible for what's called QSBS tax treatment. That's qualified small business stock. Uh qualified small business stock gives you this great tax break when you go to sell your stock. So you get your stock

and then you go sell it and you get this massive tax break which um in the big beautiful bill was increased from 10 million to 15 million of totally tax-free money. So if you build a company, you form a company, you get your stock, and eventually you the founder sell your stock, let's call it,

for $20 million. The first 15 million is 100% taxfree. And that's a really and that's not just for you the founder, it's also for investors and other stakeholders who own stock in that company. So obviously massive massive tax incentive uh and really great but that tax incentive is only available to companies that are doing effectively

research and building something that requires uh development. Um it's not available to certain types of companies. Services companies aren't eligible to be QSBS companies. >> Damn. It's also only available to corporations. It's not available to LLC's. So, if you're going to be a company that's going to do research and development of in a tech space, you're

going to actually develop a new technology, you're going to develop a new molecule in life sciences or something like that, something that you are actually developing and growing and doing research in. Um, it's better to be a corporation because you might be eligible for QBS >> off the bat from the beginning.

>> Correct. because it is also the QPS only takes effect after a certain holding period. So there is you want to start that clock as early as possible. Now you can start getting benefits after 3 years of holding. It used to be after 5 years but the full benefits are after 5 years.

So the earlier you start since companies are selling younger and younger the better. Um so for companies that are developing technologies or developing um yeah technologies including software okay uh we usually advise them to start a corporation and frankly if you start as an LLC you can convert to a corporation to get these benefits it

just you lose the holding period waiting time >> sure >> and most investors in those spaces invest with the expectation of getting the benefit of QPS so they want you to be a corporation. >> Fascinating. So then is there anything as far as law goes where you have to consider uh the industry you're in or

the space or or uh business model like hard tech versus or hardware versus software for example like what are the different I guess variables that you would have to pin down and that navigate you to a certain legal endpoint of like this is what my legal structure should be. Yeah, I mean I'm always asking a lot

of questions about industry. What's it going to take to get from here to here? We have to understand what your if you're going to be a company that's going to raise capital, how much capital are you raising so that we understand the dilutive impact over time to you as the founder. Uh and industry specific

expertise is super important because you know you're going to be interacting along the way with IND industry experts. If you are in the climate space for example, understanding the vendors and end customers that you're interacting with. I mean climate space is actually tough because your vendors and your customers may or may not also be in the

climate tech space, right? But for example, if you're in a industry like a fashion industry to understand sort of the dos and don'ts in that space with the potential customers and potential ve vendors is super important. If you're in the toy industry with kids, um, understanding sort of the regulatory implications of, you know, maybe the law

says you need to have this standard, but all of your customers across the board are going to need this standard. Having some foresight into that is really, really useful. And [snorts] that's where also I think, you know, I really rely heavily on and I'm not going to know all these things about every industry. My

expertise is corporate supporting the growth transactions, the M&A transactions, but that's why I like working at a firm that has a lot of different experts because I can go to some of my colleagues and get some of that shorthand feedback for some of my clients in various industries and there is a verticalization and industry

expertise push I think especially in the last five years to make sure that you know you have the benefit of drawing on those experts so that you know the human component, the benefit of, oh, I know that person over there, like, you know, we have a bunch of fashion clients and and one of our and we represent a couple

of really big uh, you know, uh, retail clients and and to be able to say, "Yeah, I'll just call the C I'll call the GC and see what they think about this is really really helpful." Um, we had one firm client send a cease and desist to another firm client and and sometimes being able to pick up the

phone and be like, "Hey, uh, is this like a serious lawsuit? Should we >> back, you know, do we need some kind of a conflict waiver? Like, are you guys just kind of blowing smoke?" And actually in that particular instance, um, you know, >> the whole thing kind of died down really quickly. We broker a quick piece. Um, so

I think that's the relationship component we were talking about earlier that really >> you get the benefit of when you're working with a really big law firm, but you have your person that you trust that you can go to to get help with. And that person should be your advocate internally to get some of those types of

results to like call up your partner and be like, you know, get so and so on the phone to see if they really are going to go after >> my client for this because obviously my client doesn't want to fight, but you know, we want to try to resolve this amicably. Maybe there's an actual

business transaction that they should do instead. Uh so there has been stuff like that that has come up and it's really great uh to have partners with sophisticated clients with sophisticated practices that I can connect with and communicate with.

>> How how many given we're in Philly and I know um Philly has a large focus on biotech medtec. >> Yeah. uh how how much of your work has been in the space of uh a company spinning out of academia or a lab?

>> Yeah, we I we have an entire practice that is really all about spinouts from universities. We actually have an entire program internally called base. It's an accelerator program run by non- lawyers um and it's for dorm room startups effectively. Okay. Uh so not necessarily someone who's going to spin out a licensed technology but someone who's

really creating a company with their college roommate with their grad school um partners in crime and uh we have a lot of companies that have emerged out of a lot of universities. I think we have over 300 alum from that program companies companies that have been through that program since 2013 I want

to say >> and and probably representing >> something like 60 or 70 universities across the country. Okay. Um but then separately we have people who specialize in tech transfer office spinouts and that's the offices of the universities that are the kind of guardians of technology that the university has developed patented owns and they they

run the process of licensing that technology out so that it can be commercialized. >> So salute >> thank you. >> So um >> I assume you let it out the sneeze. Well, maybe. I don't know. That's That's pretty good timing. [laughter] You held that until the end.

>> It was hard. >> Uh, okay. So, I'll say um so then a little bit of your work is with um uh these spit outs of labs. Do you want to blow your nose? >> No, no, I'm okay.

>> Okay. So, so then just a little bit of your work is with companies that come out. I mean, >> yeah, I'll I'll jump in and do sort of the thing I do with all my company side clients, which is really that outside GC supporting with the commercialization piece and raising capital. But we have

folks like some of my colleagues, all they do is work with those tech transfer offices to negotiate licenses, license agreement. >> So, yeah. So then my my my question within that is uh because again a lot of a lot of founders that um come into the climate tech space are coming from academia and a lot of my conversations

are from people that have done that successfully where typically the conversations around uh someone that's extremely intelligent in a very specific domain has invented a new technology or a novel way novel application of an existing technology and they don't know anything about business and so then they got to scale their business but in a

different way how copypaste in these situations are like going back to your point at the beginning a lot uh in a lot of different uh applications law is copy paste as far as what you're doing with entrepreneurship but in these situations with academia spinning out of uh like deep tech uh deep technologies how

copypaste is it? [snorts] >> Um it's you know it depends on which piece of the puzzle we're talking about. Okay. >> For the license agreement itself it can vary. There's a lot of terms that go into that license agreement with universities for the actual spinout component, but for raising capital and um forming that entity, raising capital

and hopefully commercializing the product [snorts] that a lot of that is pretty much consistent across the board. There is some industry breakdown between >> true you know tech uh like software hardware even but like tech versus life sciences I would say there's a bit of a difference both in timeline timeline to sale or scale uh who you're

raising from the amount of capital you're raising and that's partially because the life sciences space has a much more formal approval process before they can get to commercialization, which requires a lot bigger of an investment from a capitalization standpoint.

>> So that moat of how much it costs to get from point A to point, >> you know, let's call it point F, >> okay, >> is is a difference maker in terms of style and terms and what's market, >> right?

>> Not necessarily in terms of the actual legal work that goes into it, right? You're still going to form the entity. You're still going to have agreements that deal with governance. You're going to still have that license agreement out from the university. You're still going to have um to negotiate the terms of the

equity financing if there's investors coming in, the terms of any debt financing, if there's debt coming in. So, a lot of that is similar. It's just the scale might be different, the timeline might be different, and the actual terms, meaning the negotiating power between the parties tend to differ between industries.

>> Okay. So uh that you just reminded me uh talking about the the equity piece that uh something I definitely wanted to ask you was equity like it's such a huge word. I think >> uh I think a lot of times when people are starting companies equity is the one of the first things that they talk about

where it's like well I deserve this I deserve that like my equity is directly tied to my control of the company which also to my understanding is 100% true. people use equity as a as a lever to say here's how um uh important you are to the business like I I don't know I feel

like there's a lot of misconception around equity I just want to understand first of all how what's the most accurate way to understand what it means and then also what are your thoughts on distributing it across a founding team and then also successive employees >> yeah investors I think this is an area

that I actually really don't hate AI before it can give you a better sense of like the median, the average and things like that, especially when it comes to compensation. So, you're actually translating between dollars and equity. But the way I think about equity at the end of the day is you can own a small

piece of something worth a lot and that's probably worth more or is more meaningful than owning a big piece of something that's worth nothing, right? So equity is only as valuable and important as the whole thing is valued for. It's still a piece of something that has an absolute value.

So when you think about people kind of quibbling over whether they're 75% owner or 74% owner, the meaningfulness of that concern is directly tied to the value of the company. So if you think about someone getting upset about that when the company is worth zero versus when a company's worth $und00 million like that person might sound super

unreasonable versus super reasonable because there's real dollars behind it. So I think it's important to remember that before the company's worth something while you still want to be thoughtful about the equity and and I'll explain how you can be thoughtful about the equity. I don't know that, you know, the very over-the-top, you know, concerns around,

you know, decel decimal places is as warranted. >> Sure. >> Um, that being said, being thoughtful means making sure that when you look at the capitalization of a company, you can explain why people own what they own. So, for example, having 10 different people each own 10% of the company could look really confusing, like who's the

leader here? Who's directing traffic? Who's the most important? Like, who who has the biggest stake in the game to push this forward? Is everybody really just a 10% holder with no, you know, 90% incentive to push the idea forward? So I think it's important to show that you know the key management whoever is

leading the charge is actually on the whole doesn't mean they have to own 51% but that they have a significant majority as compared to the rest of the owners to incentivize them to push this to a good place. It's also helpful to see that the ownership is concentrated around people who are in management who

are responsible for the company rather than for example when you see a cap table where like 20% is held by management that's long resigned or gone or disappeared from the business. And we call that like dead equity because it's held by somebody who's not pushing the ball forward, who's not in touch, who's

not necessarily helpful from a voting perspective, but they just like are sitting on this big chunk of equity. >> So it's it people look at the cap table to understand, you know, what what are the incentives here? Are they aligned?

Is management properly incentivized? And um also, you know, do the passive owners own too much? Do they own the right amount? Um are they really driving the show from an ownership perspective? Like who's the most important voice in the room from a voting perspective?

>> Is that directly tied to the amount of equity someone has? [snorts] >> Um not always. No, because you can have equity that has different voting capacity or has specific veto powers. So it's not always the case that you know the person who owns the most has the most control over various actions. Uh

but I would say in a healthy company the management's properly incentivized meaning they own enough to want to drive value. >> Okay. Um what at what point uh so I so I get that the conversation is different at the very beginning of a company versus when it's worth something. Uh but how how can people

to to your point be thoughtful or make the best decisions possible about the distribution of equity at the beginning of a company or maybe when there's uh you know $10,000 in total revenue like you know is there a threshold at which you say okay this is serious now like we got to revisit this equity thing. Yeah,

I mean I think people revisit all the time first of all. So it's not true that it's like set and done from the start and you're stuck with what you have. So people do reset. Um I think you do want to show that there is a locust of power.

So you don't want everyone to really just be equal owners if especially if you have a disperate group of people. But probably the most important thing is you want vesting schedules for people so that everyone starts off with X amount.

But if they leave, they should forfeit, meaning give up a meaningful amount or all of their equity so that it can be reused in a more meaningful way, especially if the company is really young. People get in trouble sometimes when there's no vesting. They give away 25% to a co-founder. That co-founder kind of trails off. And in trailing off,

they kind of take with them 25% of debt equity that now we just have to wait till it dilutes down and or we have to buy it back and that process is expensive and messy. So, it's not it's not great if you get stuck with someone who's no longer a part of the company.

Um, so that's why the vesting schedules become pretty much like a must-have across most um multifounder companies. >> Okay. Uh before we get to uh to the to the last questions, two of my favorite questions, uh I am curious in your opinion, are there any um are there any misconceptions, major misconceptions, common misconceptions

that um uh people in entrepreneurship have about law in general, about what it means to them? But anything that we've talked about that you think is important that we haven't covered? I think this perception of lawyers as being like in conflict with their clients as far as like wanting to spend a lot of time and

that bill a lot and like kind of rack up legal fees is like totally off base for the most part if you have good attorneys they're busy enough that they're as incentivized as the client to do it as efficiently as possible. I mean really we are kind of rowing the same boat on efficiency. [snorts] the desire

for lawyers to use AI, like we're on the same page. We all want to use as little manh hours as possible. Um, so I think that this perception that we have like opposite interest because I want to spend like 10 hours on a document, but you want me to spend one hour on a

document is false. It's a false premise. Um, and you know, I think it will change slowly, but at least for me, our team, we try to work on a fixed fees on projects as much as possible to prove to kind of put our money where our mouth is on that. Um, for the most part, those

fixed fees don't work out for lawyers because the inefficiency is usually in the time it takes to kind of work through changes or explain or negotiate, which are not easy to quantify. But you know I think I think if more people saw their service providers as being on their team and also understood

that those people are in touch with and know so many other people in their network. I think understanding how to get folks on side would be hugely beneficial to clients because everyone is happier when they feel appreciated. um when they feel like they're part of a team. As much as the clients are happy

when they know that I'm part of their team and in the trenches with them, I also feel good feeling accepted as part of the team. >> So, there's like this mutual benefit that comes out of >> treating each other that way. And and you know, you asked me at some point, maybe on camera, off, I can't remember,

who are my favorite clients. My favorite clients are the clients that know that I am on their team. I'm I'm effectively building the company with them and I want to see their success as much as they want to see their own success and and those clients become friends and and I think we also have really successful

outcomes because we're like sympatico on what needs to happen. >> So, well that's beautiful and I'm glad that that happens. Um >> yeah, it definitely happens. Right. Right. >> Otherwise, it would be a very like it would be much tougher job and I'm I'm a pretty happy lawyer. I think actually more more often than not I would say I

have that relationship with the clients that we work with and it's why I like this space so much. >> It's a lot easier to get into the trenches with a small company than with like a massive Fortune50 company.

Although it's doable. You can do it like we're I'm doing a deal right now. >> Um >> it's a massive company. Um but you know we're all working we all know that we all succeed if the deal goes well if uh the integration goes well and if you know in a year from now everyone's

making money like everybody is happy including me I'll be the happiest. >> Yeah. >> Yeah. >> Happy lawyer. I must be like a sticker. >> Yeah. Um, so typically when I ask people these questions, uh, especially first one is, you know, they're building businesses and they say, "Well, I just need more customers or something, uh,

simple." But for you, what is the biggest hurdle right now in your uh, in your role and what you're building? And how is it also an opportunity? >> Um, oh, this is actually kind of easy, though. I hope it's taken the right way.

For me, the biggest hurdle is doing what I do in Philadelphia, but it is also the biggest opportunity because it helps me. I I think Philly is often not viewed as the easiest city to be an entrepreneur in. And I I don't disagree with that overall. I also think it's a great place

to it's an easy place to stand out in, right? So, it's an opportunity for me to be one of the few people really charging the horse on ECBC work and working on really cool deals and getting some of the coolest local deals uh to do. On the flip side, it's a challenge because um

it's not the epicenter of this space. And the epicenter of this space um you know are the Austin's, the Silicon Valleys, >> um you know, the Rocky Mountains, like there's just other places that have become the epicenters of a lot of this type of work.

>> But I'm happy to be doing it from here. I was told when I said I want to work in ECBC in Philadelphia to my uh law school career advisor, I was told that that was like career suicide.

>> So, I'm happy that I'm doing it and I'm like I feel really good that that was not true. >> And what does that acronym mean real quick? >> ECDC. Yeah. >> Oh, emerging company and venture capital work. I was like, "Oh, I'm going to do emerging company work in Philly." And she was like,

>> "Yeah, you can only do that in Silicon Valley. [laughter] You cannot do that in Philly." And this was >> I feel the same way. So I'm glad that you're you're paving the path for other people like me.

>> Look, I I think the path is paved. People have done a lot of work in ECBC here, both service providers, entrepreneurs, and venture capital funds. I think there's a lot to do. I just it is an interesting, you know, it's an interesting thing to say I do ECBC from where I do it and it's a it's

70% of my work is emerging company venture capital work. I mean that is unique I think in this area of the world or in this city. >> Uh that being said I you know I see it still the the times are changing like that's not going to be true forever.

>> Yeah. Well with all this work to be done with all this uh if not paving the path at least you're walking it which is nice and >> it's fun. >> Uh with with all this work to be done what inspires you?

Um, I really am the thing I think about that I want for myself always is, you know, I used to say like I don't really want to go to a pizza shop that also sells sushi. Like I want to go to a pizza shop that specializes in like the best slice of cheese pizza, you know,

that you've ever had. Um, so I'm a real big, you know, geek about trying to be an expert in my space. uh really focused on getting what I'm doing to be perfect. >> Uh that being said, and that's always been like my underlying driver. I want to be great in my space. Um that being

said, uh what probably inspires me a lot is the relationship component of the work. So when [snorts] I think in hindsight, even though that's been the thing that has motivated me going forward and like pursuing new things, um the thing that like obviously keeps me doing what I'm doing, I think is great

clients that have become friends, that have become, you know, lifelong contacts that have, you know, shaped a lot more uh how I live my life than I thought that it would. >> Yeah, that's so cool. I love that. Uh, so if anyone else is inspired by your story and the info that you have, what's

the best way to follow along with your journey? >> Um, so I write for Technically Philly. Uh, you can check out Kim's Corner articles whenever you like. Uh, they're fun little cheat sheets into my brain. Um, I do a lot of eventing around the city. Um, we have met at various events.

I think we started our work together through events. So, I'm around doing events and uh yeah, available for any podcasting uh efforts that are out there. I like these tiny microphones. So, that's really the impetus. >> Well, I'm glad. [laughter] >> They're very cute.

>> That's beautiful. Well, thank you so much. And uh there's a lot of questions we didn't get to, but uh that makes me excited for the next one. >> Yeah, we'll do a part two. Thank you. Thank you.