The guys discuss the beneficial license granted to Fig Newmans from Nabisco and also answer the question, “What things can I do to make my C Corp more attractive to investors?”
NASIR: Welcome to Legally Sound Smart Business. This is Nasir Pasha.
MATT: And this is Matt Staub.
NASIR: And welcome to the business legal podcast where we cover business in the news and also answer some of your business legal questions that you, the listener, can send in to our podcast at ask@email or…
MATT: I feel like you’re doing it on purpose now.
NASIR: No, I’m not – email@example.com. You can email us at ask@email. Ah, all right, just don’t even email us. Just call us and leave a message. But you can also send us a tweet at @askbizlaw as well. And that’s our episode!
MATT: I don’t even have a comment. Yeah, I feel like that took the entire time.
NASIR: Oh, yeah, I’m sorry about that. I was just so excited about today’s episode that I got distracted.
MATT: Yeah? You’re a big fan of Fig Newtons or Fig Newmans?
NASIR: It’s kind of confusing. I went to get a snack out of the pantry and I found some Fig Newmans and I didn’t even know they were Fig Newmans. In fact, my wife and I had a whole conversation about figs in general for some reason and we kept referring to Fig Newtons and I’m like, “Wait a minute! These aren’t Fig Newtons. They’re Fig Newmans!” and she was like, “No, I thought I bought Fig Newtons.” But, apparently, there’s this other brand that’s called Fig Newmans that is pretty much the exact same thing as Fig Newtons and it was a little confusing. I was trying to figure out how the heck did this company name their brand? Was this some kind of generic brand or what have you and somehow they were able to get away with this trademark infringement? Because it’s so obvious. There’s no likelihood of confusion; we were confused! We thought we bought Fig Newtons but we didn’t. And so, I was very frustrated so I had to some legal research on some of the trademark. First thing I found was that both Fig Newton and Fig Newman were registered as a trademark under the same category. It was like some weird category like cookies or miniature cookies or something like that so I couldn’t figure it out. I had to do some research on it.
MATT: Yeah, I’ve heard of the Newmans. I didn’t know they made Fig Newmans. I started laughing multiple times because I just can’t stop thinking of Newman from Seinfeld – how this would be like Kramer’s knock-off product that he could create, Fig Newmans.
NASIR: There was no picture of Newman on the outside in the old man’s uniform holding these cookies.
MATT: You know, you looked into this. How did this happen? I looked into this story, too. For those of you that don’t know, Fig Newtons are owned by Nabisco which I think people have heard of. I guess one of the guys started Fig Newmans, they were just trying to make these Fig Newmans, he wrote a letter to the president of Nabisco and said, “My daughter’s got a great idea for a product. Can we sit down and talk about a small royalty deal? All the profits will go to charity.” I guess the president just wrote back, “You know what? This sounds good. How about $1.00 a year?” which is pretty unbelievable that this would ever happen. I mean, obviously, I don’t think Fig Newtons were really worried about losing a chunk of the market or any sort of significant amount – not worried about that at all. But we talk about so many bad things that happen in the intellectual property world. You know, the fact that they can come to this sort of agreement that there’s no sort of infringement on the name, it’s finally nice to hear a good story.
NASIR: It also shows you that I did more research. I couldn’t figure out if it’s still going to charity or not because I was like, “Oh, well, at least we’re contributing to something,” but I think what’s funny in this concept is that the legal department of Nabisco had said that they had a fit because, obviously, it’s like basically you waived our rights to the trademark and what’s funny is that there was nothing that they could do afterwards. And so, I’m wondering if they even wanted to really retract that or not or were happy to do so. It’s unclear but I thought it was just hilarious how that ended up coming out. But it also shows you though that, once you have this trademark, you have authority to actually make money off of it. You can relicense it and, obviously, it may dilute your brand and so forth, but it obviously something that can be a money-maker as well.
MATT: Yeah, Nabisco obviously could have made money off of this. I think another thing too, I mean, it shows that the Newmans people actually approached Nabisco and, you know, didn’t try to just create this product secretly and see what happens. They actually approached them knowing that they were going to be infringing on what Nabisco had. I’m guessing this wouldn’t happen in most cases but, you know, sometimes it can help.
NASIR: One thing though about Newmans I think they have an organic kind of background to it and so forth so I guess that’s how they differentiate but obviously I don’t know if we’ve made that decision in the buying process. I’ll have to ask my wife. “Why did you choose Newman?”
MATT: That’s a good question. I haven’t had Fig Newtons in a long time but we do have a fig tree in our backyard so I’ve had figs recently which I don’t think I’ve ever even had figs separate to Fig Newtons until we had this tree in the backyard that has tons of figs.
NASIR: Wow. That’s cool. I know a lot of people that like figs. I’m not a big fan. I think the small seeds taste weird to me.
MATT: Yeah, I mean, the squirrels that eat them every day seem to really like it.
NASIR: Good reviews from the squirrels.
MATT: All right, question of the day.
“What things can I do to make my C Corp more attractive to investors?”
NASIR: You know, we actually do get this question a lot. “How do we structure an entity so that we can attract investors?” and, you know, there are some obvious things that you can do but the reason I fundamentally just do not like this question is because, first of all, as an investor, definitely not the first and not even the second thing that an investor looks at is how your entity is structured to see how they can benefit from it because, to me, from an investor’s perspective, it’s a matter of familiarity. Some are sophisticated to know that it doesn’t matter what your entity structure is, all they care about is getting their money back and their investment back and profit over that and control, if they want it, and that can be done through any entity. But, if they don’t have a very intimate knowledge of how entity structures work, they’re going to have specific things that they want because they’re familiar with it, they’ve gone through it before, you know, people go with what they like and so forth. A lot of times, they’ll be like they’ll make sure that it’s only a C Corp and they make sure that they have certain provisions in the by-laws that allows them seats on the board and so forth. But, a lot of times, that kind of structuring in details are dealt with during negotiation of those actual terms. There’s some obvious stuff like making sure you have enough shares, authorize in a C Corp and things like that. But, to me, it’s more important to have a good business to attract investors than to worry about how the business is structured because, frankly, if they’re giving any kind of sizeable amount, your entity is going to be restructured from A to Z anyway because they’re going to have a number of changes and they’re going to want to have it exactly how they want it – whether it’s incorporating or Delaware and things like that – and that goes to that question of whether you incorporate in Delaware for investors. Well, again, it depends. You know, some investors care about that, some don’t. It depends how much they’re giving to.
MATT: That’s exactly right and I’ve watched tons of episodes of Shark Tank. How many times have they ever asked what type of entity they were? That’s far down on the list of questions and, even if they care about it, they can just change it anyway or request to be changed. There’s a lot of other considerations that need to go into play. It’s all kind of maintaining sort of power or keeping whatever power in control the investor can – you know, whether that be seats on the board, whatever ownership stake they have, other distributions go – there are so many considerations. I wouldn’t worry so much about the entities. Even before you approach the investor, I wouldn’t worry so much how it’s structured because, like you said, they can always just request that things be changed anyway.
NASIR: Which is very common. One thing I would say that an investor may ask you how you’re structured is not because they want to know how they’re going to be put into the picture but they may be asking to see what your sophistication is. “Okay, you’re running a business; you’re filed as an entity, right? You’ve done some basic stuff to protect your business.” They may be looking to see how sophisticated you are to whether you know your stuff as well. That’s why it’s important for start-up companies that are looking for funding and so forth to know this stuff – maybe not as good as attorneys but at least as good as the investors. But, at the same time, you know, let’s be fair that whenever you’re offering some kind of funding in your company, you do talk percentages, you do talk ownership structure and so forth – whether it’s through a convertible note or straight equity and you do have to know that but, again, you can do that in pretty much every single entity whether it’s a C Corp or even an S Corp. Well, actually, an S Corp, the convertible note might be an issue but in LLCs and also a limited partnership and so forth.
One last thing, another reason why I don’t like this question is that, to me, it gives too much importance to investors. Investors are important but just because someone has money doesn’t mean that they should control your business. it doesn’t mean that they should dictate how you run it and that’s why I’m a very big advocate of control of the founders. I think a lot of businesses, because someone’s investing in your company, they’re too quick to give up quite a bit of control, and I’m not saying that it’s not fair to give them control. I’m just saying that there’s cases where it’s given up too easily.
MATT: Basically, you told this person all the reasons why you didn’t like that question is what I gathered from this. “Another thing I don’t like about it…” You’re worse than the investors, I think.
NASIR: We don’t represent a lot of investors, so to speak, on that end. We’re usually on the company’s side and so that’s why I’m just venting my frustration with the question because it’s just the wrong attitude.
MATT: Fair enough.
NASIR: All right. Well, thank you for joining us for our Monday episode. Let us know if you have any other questions that you can send in. We’ll try our best to answer it and that you can send in to firstname.lastname@example.org. Also, leave some positive reviews on iTunes. That’d be really appreciated. Thank you.
MATT: Yeah. As always, keep it sound and keep it smart.