Demystifying Early Stage Angel &

Venture Capital Term Sheets

Will Bernat, Co-Chair, Emerging Companies

April 5, 2018
Food and Beverage Industry Group
• All aspects of high growth brand companies, including:

CORPORATE FINANCING DISTRIBUTION INTELLECTUAL MERGERS

PROPERTY & ACQUISITIONS
Food and Beverage Industry Group
• Practice supports:
Who We Serve- Emerging Brands
Who We Serve- Emerging Brands
Who We Serve- Growth Stage Brands
Who We Serve- Technology Companies
Acquired / Strategic Investment / Mergers

Merged with Acquired by Acquired by

Ruby’s Naturals Coca-Cola DPSG
Food and Beverage Insights

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Nutter’s Food and Beverage Industry Group

William J. Bernat Jeremy Halpern Erin M. Anderman Crescent Moran Chasteen

Partner, Industry Co-Chair Partner, Industry Co-Chair Partner Of Counsel
wbernat@nutter.com jhalpern@nutter.com eanderman@nutter.com cmchasteen@nutter.com

Tracy Chu Patrick J. Concannon Paul R. Eklund

Of Counsel Partner Partner
tchu@nutter.com pconcannon@Nutter.com peklund@nutter.com
Nutter’s Food and Beverage Industry Group

Joshua A. Gray Meghan E. Kelly Sarah P. Kelly

Associate Associate Partner
jgray@nutter.com mkelly@nutter.com eanderman@nutter.com

Robyn S. Maguire Elizabeth Norman Rory Pheiffer

Partner Partner Partner
rmaguire@nutter.com enorman@Nutter.com rpheiffer@nutter.com
Nutter’s Food and Beverage Industry Group

Heather B. Repicky Shagha Tousi Russell Michael E. Scott

Partner Partner Partner
hrepicky@nutter.com srussell@nutter.com mscott@nutter.com

Blake C. Tyler James G. Ward Melanie V. Woodward

Associate Partner Associate
btyler@nutter.com jward@Nutter.com mwoodward@nutter.com
Term Sheets 101
• Term sheets outline key deal points but are NOT binding
• Definitive documents will be negotiated and expand on
concepts in term sheets
• NVCA Model Documents
oStock Purchase Agreement;
oCertificate of Incorporation (Charter);
oInvestors’ Rights Agreement
oRight of First Refusal and Co-Sale Agreement
oVoting Agreement

14
Term Sheets 101
• Glossary of Term Sheets Topics:
• Equity/Debt • Board Approvals
• Pre-Money Valuation • Information Rights
• Liquidation Preference • Founder Vesting
• Dividends • Registration Rights
• Option Pool Size • Drag-Along Rights
• Anti-Dilution • Redemption Rights
• Investor Approval Rights • Rights of First Refusal and Co-Sale
• Preemptive Rights • Deal Cost Allocation
• Board Composition • Deal Specific Terms (size of round,
date of closing, etc.)
15
Term Sheets 101
4 Major Themes
• Economics
o Investors want a big enough slug of the equity to justify doing the deal;
they want to get paid back first; they want to make sure future equity
grants to employees don’t dilute their investment
• Management & Control
o Investors want to participate in the decision making process and control
certain founder behavior
• Investor Protections
o Investors want to protect the value of their investment and prevent others
from getting liquidity out ahead of them
• Exit & Liquidity
o Investors want to make sure they have a way to get their money back in
all possible scenarios

16
Term Sheets 101

4 Major Themes – How they are addressed in Documents

• Economics
• Liquidation Preference; Pre-Money Valuation; Dividends; Option Pool
• Management & Control
• Board Seat; Shareholder Approval Rights; Information Rights; Founder Vesting;
Assignment of Inventions/Restrictions Agreement
• Investor Protections
• Anti-Dilution; Preemptive Rights; Right of First Refusal/Co-Sale; Shareholder
Approval Rights
• Exit & Liquidity
• Drag Along Rights; Redemption Rights; Registration Rights

17
Term Sheets 101
Economics
• Liquidation Preference
o Right to be paid before other classes of stock (Downside protection)
o Preferred – Participating or Non-Participating
o Last Money In; First Money Out

• Pre-Money Valuation
o Tranched Funding – Predictability/Mitigation of Risk

• Option Pool – Pre or Post-Money Top Off?

18
Term Sheets 101
Control
• Board Seat/Observer
• Board Approval Rights
o Budget, incurring debt, etc.

• Shareholder Approval Rights

o Amending charter, authorizing more stock, sale/merger of the company

• Information Rights
• Founder Vesting
• Assignment of Inventions/Restrictions Agreement
19
Term Sheets 101
Investor Protections
• Anti-Dilution
o Adjustment to conversion price in the event of down round
• Preemptive Rights (i.e., right to participate in future financings)
o i.e., to maintain ownership percentage
• Right of First Refusal/Co-Sale
• Shareholder Approval Rights

20
Term Sheets 101
Exit & Liquidity
• Drag Along Rights
o If agreed upon threshold of Board and stockholders approve sale of company,
other shareholders agree to vote in favor of, and participate in, transaction
• Redemption
o Right to require redemption of shares if company not sold within agreed upon
time frame; Usually purchase price plus some return
o May also be tied to continued service of founder team (in lieu of founder vesting)
• Registration Rights
o Usually too early and not worth negotiating

21
Other Consideration
• Strategic Investors
o “Saleability” of Company
o Right of First Offer/Right of First Refusal
o Put/Call
o Negotiated Buyback
Term Sheets 101
Convertible Notes
• Punts many issues, especially pricing, down the road
• Structured as debt, meant as equity
• Interest
• Discount on Conversion

• Simpler paperwork, rolling closes

• Bridge vs. Pier
• Conversion: dilution without additional capital

23
Term Sheets 101
Convertible Notes
• Automatic Conversion
• Qualified Financing
• Valuation Cap

• Maturity Date
• 18-24 months. Then what?
• Repayment
• Forced Conversion?
• Use actual performance
• Multiple of Trailing Twelve Months’ Revenue
24
Types of Deal
• The GP/LP Style Founder=God Deal
o Common interests (not preferred) equal to founder’s
o No board seats
o No operational protective provisions
o No anti-dilution protection
o Sometimes preemptive rights
o Subject to drag-along obligations
o No equity pool in pre-money
o Pricing is modest

25
Types of Deal
• Founder Friendly Deal
o Non-Participating Preferred
o Proportional Board Representation (ex. 2 of 5 if 40%)
o Some operational protective provisions
o Some structural protective provisions
o Weighted Average anti-dilution protection
o Always preemptive rights
o [drag-along]
o Limited equity pool in pre-money
o Pricing is market (wide variety: 2-6 x TTM Net Revenue)

26
Types of Deal
• Investor Friendly Deal
o Uncapped Participating Preferred
o Anti-Dilution protections
o Many operational protective provisions
o Many structural protective provisions
o Split Board, ex: 2 Founder, 2 Investor and 1 independent
o Preemptive rights, often with 2x Multiplier
o Founder is subject to reverse vesting
o Founders may be subject to a drag with a price floor

27
Types of Deal
• Investor Friendly Deal (cont.)
o Large equity pool in the Pre-Money
o Accruing 6-8% dividend
o Redemption rights
o Some money may be milestone tranched
o Some money may come in as sub-debt
o Audited financials required
o Non-Compete and other founder lockups
o Pricing is low (1.5-2 x TTM Net Revenue)

28
Best outcomes driven by:
• Great (and extensible) brand
• Rock star team, board and advisors
• Strong margins
• High velocity per point of distribution (and growing)
• Loyal and passionate customers
• Compelling data story
• Product in long term high value category
• Product that tastes great!

29
Contact Information:
Will Bernat
Co-Chair, Food & Beverage
Practice Group
wbernat@nutter.com
617-439-2713

30
 William J. Bernat
Co-Chair, Emerging Companies Group

T 617.439.2713 F 617.310.9713 E wbernat@nutter.com

155 Seaport Blvd, Boston, MA 02210

William J. Bernat is a partner in Nutter’s Corporate and Transactions Department Practices

and co-chairs the firm's Emerging Companies Group. He is a member of the firm’s Commercial and Real Estate
Finance
Commercial and Real Estate Finance practice group. Clients routinely rely on Will to
Corporate and Transactions
help them navigate through private equity, venture capital, and angel financing
transactions, as well as mergers and acquisitions, commercial lending transactions, Emerging Companies

and other corporate governance issues. Mergers and Acquisitions

Private Equity
Tech, life sciences, consumer/retail, and food & beverage companies look to Will for Venture Capital and Angel
assistance throughout their entire lifespans, from initial planning and formation to Financing
operations and exit, including formulating the strategy to realize their business goals
Industries
and to build the foundation necessary to secure third party investment. Investors in
Emerging Companies and
emerging growth companies seek Will’s counsel when structuring their financing Entrepreneurship
transactions. Will has counseled clients in angel and venture backed financings
Food and Beverage
representing an aggregate of over $100 million in investment in local early stage
Information and Technology
companies.
Life Sciences and Medical
Devices
Banks and other financial institutions rely on Will’s expertise when structuring asset-
based and other commercial lending transactions with both emerging and Education
entrepreneurial companies and more mature borrowers. Will has guided both Suffolk University Law
lenders and borrowers through transactions representing aggregate commitments School, J.D., magna cum
laude
in excess of $1 billion.
Providence College, B.A.,
Notable Experience and Client Impact summa cum laude

Admissions
General Corporate/Emerging Companies
Massachusetts
■ Serve as transactional and corporate counsel to an artwork rental and rotation
startup on multiple financing rounds
■ Act as corporate counsel for a leading sunglasses producer in the United States,
including store-within-store partnerships
■ Play a key role in expanding the original fantasy sports-game retailer beyond
board-game enthusiasts to online and mobile users through joint ventures and
co-promotion arrangements with sports media outlets and developers

www.nutter.com
 William J. Bernat

■ Act as corporate and fundraising counsel for a bike sharing company that serves leading university and business
campuses, resorts, and residential communities
■ Serve as corporate and fundraising counsel to an all-natural snack food company, protein-based beer company,
and organic fitness beverage company
■ Advise a nationally recognized full-service mobile app development company in multiple transactions

M&A

■ Advise on $40 million joint venture between a photoelectric sheeting company and a commercial solar panel
producer
■ Represent a co-working space provider, including multiple partnerships and joint ventures with a national retailer
■ Advise on the sale of a privately-held wide format digital printing company to a strategic buyer
■ Provide counsel on the acquisition of a medical device coating and surface treatment business by a private
biomedical company for a combination of cash and equity
■ Advise on the acquisition of a UK-based asset management risk model business by a privately-held strategic
buyer
■ Advise on the sale of a venture-backed digital photography asset management software company to a privately-
held strategic buyer
■ Provide counsel on the sale of a dietary supplement and pharmaceuticals business to a privately-held strategic
buyer
■ Advise on the sale of an educational research, marketing, and branding business to a publicly traded media and
marketing company
■ Advise on the acquisition of Golf Digest-rated “Best Places to Play” golf course on Cape Cod by private buyers

Commercial Finance

■ Represent syndicate of five of the largest U.S. banks in connection with $500+ million loan facility to diversified
real estate investment/CMBS, multi-family mortgage and LIHTC syndication company

A leader in Boston’s innovation and startup community, Will serves on the partners’ committee of, and is a frequent
lecturer and panel member at, The Capital Network, a nonprofit organization that brings together Boston’s largest
active community of investors and startup experts to provide practical, hands-on education and personalized
mentoring to young entrepreneurs to help them navigate the fundraising process. In addition, Will serves as a mentor
and holds regular office hours at MassChallenge, a startup accelerator, and Golden Seeds, one of the nation’s most
active early-stage investment firms.

Will frequently serves as a lecturer and guest speaker at the MIT Enterprise Forum, the Babson Entrepreneurship
Forum, and Massachusetts Continuing Legal Education, where he presents on topics such as the fundamentals of
term sheets and capitalization tables, and general corporate finance and formation issues.

www.nutter.com
HIGH GROWTH FOOD AND BEVERAGE PRACTICE
REPRESENTING THE NEXT GENERATION OF INNOVATIVE FOOD AND BEVERAGE COMPANIES
Food and beverage brands face enormous challenges as they grow and scale their
businesses in massively competitive marketplaces. High growth brands face additional
challenges as they expand their product lines and enter into new markets, all while raising
growth capital with high expectations of value creation. With a deep understanding of this
marketplace, Nutter’s Food and Beverage Practice Group is an interdisciplinary team of
lawyers with expertise in:
• Corporate organization and structuring • Patent, copyright, trademark, trade secret
• Angel, venture and private equity financing protection
• Venture lending • Real estate acquisition, financing, leasing
• Asset based lending and permitting
• Vendor, co-packing and co-manufacturing • Labor, employment, employee benefit and
arrangements incentive compensation matters
• Distributor and broker agreements • Antitrust support and government investigations
• Sales agency agreements • Products liability litigation
• Trademark licensing agreements • Recall support
• Warehousing and fulfillment • Commercial litigation, including distributor
• Tax planning, including for international expansion termination
• Liquor licenses and common victualler licenses • Trusts, estates, and succession planning
• Strategic partnerships

The Nutter Food and Beverage Practice Group represents clients at every stage of growth,
from startups to large public companies. Clients include:
• Brands • Wholesalers
• Brand executives • Enabling technology companies
• Retailers • Angel, venture, private equity and strategic
• Distributors investors

REPRESENTATIVE CLIENTS

155 Seaport Blvd / Boston, MA 02210 / 617.439.2000 / nutter.com

ALL ASPECTS OF HIGH-GROWTH BRAND COMPANIES, INCLUDING:

DISTRIBUTION INTELLECTUAL MERGERS

CORPORATE FINANCING & ACQUISI TIONS
PROPERTY

WHO WE SERVE

78% BRANDS
9% EXECUTIVES
7% TECHNOLOGY COMPANIES
4% INGREDIENT MANUFACTURERS
2% INVESTORS

INDUSTRY CO-CHAIRS

WILLIAM J. BERNAT JEREMY HALPERN

PARTNER PARTNER
wbernat@nutter.com jhalpern@nutter.com

155 Seaport Blvd / Boston, MA 02210 / 617.439.2000 / nutter.com

 INSIGHTS

“Founders need to understand that ever y provision in a term sheet is

included for a specific reason and each generally works in concer t
with the others...”

Negotiating a Term Sheet? Entrepreneurs, Take Note

WHAT DO ENTREPRENEURS NEED TO KNOW ABOUT TERM SHEETS IN ORDER TO GET
A DEAL DONE?
WILLIAM BERNAT: Term sheets are not “one size fits all.” Since most of a term sheet’s
provisions are meant to protect the investors’ investment, it’s not uncommon for investors and
founders to have vastly different expectations of what a deal will look like. Getting a signed
term sheet is one of the biggest early milestones for a company to achieve, but it doesn’t
guarantee an investment—that comes only when the parties are able to agree on the definitive
deal documents that spell out the specific provisions in the term sheet, among other matters.
Founders need to understand that every provision in a term sheet is included for a specific
reason and each generally works in concert with the others, meaning that modifying the terms
in one section will likely have a rippling effect elsewhere.
William J. Bernat
WHAT’S COVERED IN A TERM SHEET?
WB: A lot, all focused around four major themes—economics, management and control,
PA R T N E R
investor rights and protection, and rights upon exit/liquidity. The economics of the deal are C o - c h a i r, E m e r g i n g C o m p a n i e s
usually at the forefront, with the pre-money valuation being one of the hardest terms to reach 6 17.4 3 9 . 2 7 1 3
agreement on. Investors generally want a big enough piece of the pie to justify doing the deal, w b e r n a t @ n u t t e r. c o m
to get paid back first in a down-side scenario, and to ensure future equity grants to
employees don’t dilute their investment. Term sheets also cover management and control William J. Bernat is a partner in
the Corporate and Transactions
issues, as investors want to participate in the decision-making process and control certain
Department and a member of the
founder behavior; investor protections, so that investors can protect the value of their firm’s Emerging Companies and
investment and prevent others from getting liquidity out ahead of them; and exit and liquidity, Commercial Finance practice groups.
where investors want to ensure they have a way to get their money back in all possible scenarios. His practice is focused on private equity,
venture capital and angel financing
HOW CRITICAL ARE OPTION POOLS IN CONDUCTING NEGOTIATIONS AND HAMMERING transactions, mergers and acquisitions,
OUT TERM SHEETS? and corporate governance issues.
WB: Options and other equity incentives are the main way that early stage companies attract
and motivate key employees, so investors will require a company to increase the number of
shares available to be issued under the pool to a certain agreed-upon percentage (10 to 20%)
to ensure that the company has the ability to do so. The negotiation isn’t usually around the
size of the pool, however, but rather whether the increase should be made on a pre- or
post-money basis.
P R E S S C O N TA C T:
OF COURSE THE ECONOMICS ARE IMPORTANT, BUT WHAT ABOUT THE BALANCE
Heather Mer ton
OF POWER? Senior Communications Manager
WB: Valuation is important, but not the most important thing. Founders often focus too 6 17.4 3 9 . 2 1 6 6
heavily on it, not understanding that a savvy investor may be able to “undo” most of what was h m e r t o n @ n u t t e r. c o m
gained through the valuation by modifying the other terms in the term sheet. Governance, Nutter is a Boston-based law firm that
management and control—where investors will receive certain contractual rights that can limit provides legal counsel to industry-leading
companies, early stage entrepreneurs,
the founders’ actions regarding major decisions arising during the company’s lifespan—are
institutions, foundations, and families,
also key concepts. Investors may have the right to approve a sale of the company or the across the country and around the world.
issuance of future rounds of stock. The investor designee on the board of directors may also The firm’s lawyers are known for their
client-centric approach and extensive
have veto rights with respect to certain types of transactions, like incurring debt or increasing experience in business and finance,
executive salaries. These are all critical components of making a fair deal and important intellectual property, litigation, real estate
aspects of creating a workable term sheet. and land use, labor and employment, tax,
and trusts and estates. Co-founded in
1879 by Louis D. Brandeis, who later
became a renowned justice of the U.S.
Supreme Court, Nutter is dedicated to
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. helping companies prosper in today’s
Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising. Copyright © 2018
2017 competitive business environment.
Nutter McClennen & Fish LLP. All rights reserved.
 INSIGHTS

“The breadth of deal variet y stems from both the makeup of investors
and the potential for a more nuanced return of investment thesis.”

For Food & Beverage Entrepreneurs, Financing Deals

Often Come In More Flavors Than Just Vanilla
Q: HOW ARE EARLY STAGE FINANCING DEALS DIFFERENT IN THE FOOD & BEVERAGE
(F&B) SPACE?
WILLIAM BERNAT: Unlike tech or life science, food & beverage deals tend to come in more
varieties. Convertible note and preferred stock deals are still the most prevalent vehicles for
investment, but it’s not unusual to see early deals structured through the sale of common
stock. If the company has the leverage to do it, issuing common stock to early investors
allows the founders to maintain many of the controls that often get diluted in a preferred stock
deal. This is often important for early stage entrepreneurs implementing their vision.
Companies also more frequently remain as LLCs in early F&B deals, as opposed to converting
into C-corporations as part of the transaction. Although complex, LLCs provide the most
William J. Bernat
flexibility to divorce economics from control and provide the most efficiency in situations
where a growing company may want to distribute profits to its members.
PA R T N E R
Q: WHY DO THESE DIFFERENCES EXIST? Emerging Companies
6 17.4 3 9 . 2 7 1 3
WB: The breadth of deal variety stems from both the makeup of investors and the potential for
w b e r n a t @ n u t t e r. c o m
a more nuanced return of investment thesis. Investors in these deals (if they aren’t friends and
family) are in many cases industry insiders, such as venture arms of bigger players, distributors, William J. Bernat is a partner in
co-packers, other service partners or dedicated F&B angel or venture groups. Their investment Nutter’s Business Department and a
thesis often differs from a tech or life science investor at a similar stage. For example, a member of the firm’s Emerging
distribution partner may be willing to buy common stock in a company that vests upon Companies and Commercial Finance
achievement of certain milestones. Similarly, a strategic partner may be willing to get in early practice groups. Clients in the tech,
life sciences, consumer/retail, and
with a purchase of common stock in a potential target company as a prelude to a future
food & beverage industries rely on Will
acquisition. to help them navigate through private
F&B companies tend to be less binary in their opportunities for success. In biotech, the equity, venture capital, and angel
technology either works or it doesn’t, and companies are often either huge home runs or fail. financing transactions, as well as
mergers and acquisitions, commercial
Similarly, in most technology deals, because of the pace of technological innovation, companies
lending transactions, and other
are either successful or get quickly bypassed. In contrast, while many F&B companies can corporate governance issues.
secure huge wins, many can be slower-growing highly profitable companies with a fanatical
customer base. This allows companies to become profitable and offer investors the opportunity
P R E S S C O N TA C T:
to monetize their investment through distributions in advance of an exit. F&B entrepreneurs Heather Mer ton
may not always be successful in obtaining more “founder-friendly” terms, but there are Senior Communications Manager
opportunities for creativity in structuring. 6 17.4 3 9 . 2 1 6 6
h m e r t o n @ n u t t e r. c o m
Q: WHAT’S THE BIGGEST TAKEAWAY FOR F&B ENTREPRENEURS?
Nutter is a top-tier, Boston-based law
WB: Deal terms are important, but so is the fit between the company and its investors. While firm that provides legal counsel to
a founder may instinctually gravitate towards the deal with the highest possible valuation, industr y-leading companies, early stage
entrepreneurs should look at the deal holistically and weigh valuation against other control entrepreneurs, institutions, foundations,
and families, across the countr y and
features that they might be giving up as part of the transaction. Dilution isn’t so bad if the around the world. The firm’s lawyers are
investors and board members joining the company can help grow the company and increase known for their client-centric approach
and extensive experience in business
everyone’s share of the pie, especially while letting the founders steer the ship. and finance, intellectual property,
litigation, real estate and land use, labor
and employment, tax, and trusts and
estates. Co-founded in 1879 by Louis D.
Brandeis, who later became a renowned
justice of the U.S. Supreme Court, Nutter
is dedicated to helping companies
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances.
prosper in today’s fast-paced business
Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising. Copyright © 2017
environment.
Nutter McClennen & Fish LLP. All rights reserved.
 INSIGHTS

“Companies should think carefully about grants of exclusivit y, sales or

production minimums, termination fees, non-compete obligations,
and retainer obligations, to list a few potential pitfalls.”

Food and Beverage Companies:

Get the Dish on Commercial Agreements
Q: FOOD AND BEVERAGE COMPANIES FREQUENTLY TURN TO OUTSIDE PARTNERS
WHEN LAUNCHING THEIR BRANDS. DOES SIGNING THESE COMMERCIAL AGREEMENTS
POSE ANY RISKS?
JEREMY HALPERN: Early stage food and beverage companies often consist of only the
founders and one or two key employees. Rather than hiring and doing things in-house, they
typically outsource many key functions of the company by working with flavor houses,
product development consultants, co-packers, co-manufacturers, brokers, sales management
agencies, public relations firms, etc.
But these commercial agreements can be massive traps for the unwary. Companies should
think carefully about grants of exclusivity, sales or production minimums, termination fees,
non-compete obligations, and retainer obligations, to list a few potential pitfalls. Jeremy Halpern
Entrepreneurs should avoid deals that solve problems for the short term but which may inhibit
or even prohibit future growth. For example, granting exclusivity to a copacker on the East
Coast with attractive pricing might be great today, but may lead to massive shipping costs PA R T N E R
when the company expands to the opposite coast. Emerging Companies
6 17.4 3 9 . 2 9 4 3
In every case, these deals should support real growth in terms of creating sustainable gross j h a l p e r n @ n u t t e r. c o m
margins for the product, and repeatable sales into a broad customer base. Additionally, these
deals should always create alignment in the performance incentives so that both sides have Jeremy Halpern is a partner and the
the opportunity to win. Director of Business Development for
the Emerging Companies Group at
Q: WHEN DOES IT MAKE SENSE TO BRING ON AN OUTSIDE PARTNER? Nutter. Jeremy’s practice focuses on
JH: There is a real danger of paying retainers to too many agencies for too many things too emerging companies, private equity,
early in the company’s launch process. Virtualizing a salesforce or bringing on a broker will venture capital and angel financing
reduce a company’s human capital overhead, but the company is still effectively committed to transactions, mergers and acquisitions,
spend cash. Those retainers will be particularly painful when the company hasn’t yet achieved executive and team compensation
product-market fit and there is insufficient sales traction to justify the costs. Often these matters, and general start-up support.
relationships make more sense as an expansion tool when the company is slightly later stage. Serving as the firm’s entrepreneur-
That said, retainers may make more sense in the early going when a brand can link up with a in-residence, Jeremy works with
top tier service firm, where such firm is in high demand and can afford to be selective in its companies, investors, and executives
clients. In that instance, the retainer is effectively the cost of entry for the brand. in technology, life sciences and the
food and beverage industry.
Q: WHAT ARE SOME CONSIDERATIONS WHEN SELECTING A PARTNER?
JH: First, the relationship is everything. Entrepreneurs should find partners that subscribe to
P R E S S C O N TA C T:
the vision for the company, including the pace and method of rollout and expansion. Service
Heather Mer ton
providers should have experience working with early stage companies and should be willing Senior Communications Manager
to engage on flexible terms. 6 17.4 3 9 . 2 1 6 6
Second, entrepreneurs should perform due diligence. They should select partners based h m e r t o n @ n u t t e r. c o m
upon strong references from other brands and should check with other industry players to see
Nutter is a top-tier, Boston-based law
how the potential partner is viewed.
firm that provides legal counsel to
Lastly, early stage food and beverage companies should pick firms that understand that industr y-leading companies, early stage
things will go wrong—because things always go wrong. Having a smart, flexible, constructive, entrepreneurs, institutions, foundations,
and families, across the countr y and
and proactive extended team ensures that the problems will be fixed quickly and allow the around the world. The firm’s lawyers are
company to reach its full potential. known for their client-centric approach
and extensive experience in business
and finance, intellectual property,
litigation, real estate and land use, labor
and employment, tax, and trusts and
estates. Co-founded in 1879 by Louis D.
Brandeis, who later became a renowned
justice of the U.S. Supreme Court, Nutter
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. is dedicated to helping companies
Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising. Copyright © 2017 prosper in today’s fast-paced business
Nutter McClennen & Fish LLP. All rights reserved. environment.
 INSIGHTS

“When a potential investor or acquirer is doing due diligence o n a

business, they want to see that trademark applications are fil ed for
the company name and impor tant product names, and that
appropriate domain names are registered.”

A Thoughtful Approach to Trademarks is

Important for Food and Beverage Companies
Q: HOW DO TRADEMARKS COME INTO PLAY WHEN A FOOD AND BEVERAGE COMPANY
LAUNCHES?
PATRICK CONCANNON: Protecting the flagship brand generally is the most compelling
intellectual property protection need for food and beverage companies. Getting off to a good,
“clean” branding start is important because it’s how a company is known in a very crowded
marketplace.
Brand identity is not just all about the words that appear in a company or product name, but
also the graphics and color scheme on packaging, point-of-sale displays, and at the website.
It all comes together to form part of a larger brand that consumers identify and, hopefully,
identify with.
Patrick J. Concannon
Part of the process of launching a brand is ensuring that it is available, which requires
trademark research. This process needs to be thorough enough to search for unregistered
PA R T N E R
brands, as potential competitors might not apply to register their marks, in which case they Intellectual Proper t y
wouldn’t show up in registry searches. 6 17.4 3 9 . 2 17 7
p c o n c a n n o n @ n u t t e r. c o m
Companies need to have their filings in place and their act together on a brand front for the
purposes of satisfying potential investor inquiries and carving out a niche in the marketplace.
Patrick J. Concannon is a partner in
Nutter’s Intellectual Property and
Q: WHY ARE TRADEMARKS IMPORTANT TO POTENTIAL INVESTORS AND ACQUIRERS?
Business Departments, with over 20
PC: When a potential investor or acquirer is doing due diligence on a business, they want to years of experience devoted to helping
see that trademark applications are filed for the company name and important product businesses establish and protect their
names, and that appropriate domain names are registered. brands, including more than 15 years
as a practicing trademark attorney.
Investors and acquirers also like to see a story behind the brand and how a founder’s He focuses his practice on U.S. and
personal background ties into the product because it makes the company more relatable. international trademark clearance,
Conveying a positive, authentic message helps smooth the way to fruitful investor interactions. trademark portfolio management and
protection, and trademark and
Q: WHY IS IT IMPORTANT TO POLICE A BRAND? copyright licensing.
PC: A company must constantly watch for those who come along and use a brand that’s too
similar to their own in relation similar products. There are tools available, such as trademark
“watching” services, that can help identify situations that require action. The danger is that if a P R E S S C O N TA C T:
company allows others to muddy the waters, their trademark could become “weak” or they Heather Mer ton
Senior Communications Manager
could lose their trademark.
6 17.4 3 9 . 2 1 6 6
h m e r t o n @ n u t t e r. c o m
Q: ARE THERE ANY COMMON MISSTEPS THAT FOOD AND BEVERAGE COMPANIES MAKE?
PC: Yes. It can be tempting to use a word to describe a product that directly tells consumers Nutter is a top-tier, Boston-based law
about the product, but words that directly identify a product, its ingredients, or its benefits firm that provides legal counsel to
industr y-leading companies, early stage
generally aren’t protectable as trademarks. For example, “corn flakes” directly and obviously entrepreneurs, institutions, foundations,
describes what the food is like, and accordingly can’t be trademarked. and families, across the countr y and
around the world. The firm’s lawyers are
known for their client-centric approach
Q: DOES A TRADEMARK FILED IN THE UNITED STATES EXTEND TO WORLDWIDE PROTECTION? and extensive experience in business
PC: No. Companies need to make cost benefit decisions about whether it’s worthwhile to and finance, intellectual property,
litigation, real estate and land use, labor
protect their brands outside the U.S. Many smaller companies only protect in Canada. This and employment, tax, and trusts and
decision is a matter of budget and realistic business plans. Each country has their own estates. Co-founded in 1879 by Louis D.
application process and fees, and most registration need to be renewed every 10 years. So it Brandeis, who later became a renowned
justice of the U.S. Supreme Court, Nutter
can get costly, but it is important if you want to do business abroad. is dedicated to helping companies
prosper in today’s fast-paced business
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. environment.
Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising. Copyright © 2017
Nutter McClennen & Fish LLP. All rights reserved.
 INSIGHTS

“Perhaps more ominous than the threat of regulator y action is that of

a consumer class action brought by the plaintiffs’ bar. These claims
can var y from product liabilit y claims alleging physical harm to false
or misleadin g adver tising claims.”

Check the Box to Avoid Food & Beverage

Packaging Litigation
Q: HOW CAN PRODUCT PACKAGING TRIGGER LITIGATION FOR FOOD AND BEVERAGE
COMPANIES?
SHAGHA TOUSI RUSSELL: Food and beverage companies face the possibility of two sources
of litigation based on their product packaging and labeling: regulators and plaintiffs’ lawyers.
With respect to regulatory action, the Food and Drug Administration (FDA) and the Federal
Trade Commission (FTC) share overlapping jurisdiction on the labeling of food and beverage
products. While FDA enforces regulations on the content of product labeling, FTC enforces
instances of allegedly false and deceptive advertising. FDA’s primary enforcement tactic is to
send a Warning Letter which services as official notice to the company. From there, FDA can
seek remedies including injunctions, recalls, seizures, civil penalties, and criminal
prosecutions. Similarly, FTC can bring claims for false advertising against the company. Shagha Tousi Russell
Perhaps more ominous than the threat of regulatory action is that of a consumer class action PA R T N E R
by the plaintiffs’ bar. These claims can vary from product liability claims alleging physical P r o d u c t L i a b i l i t y a n d To x i c To r t
Litigation
harm to false or misleading advertising claims. Even if the company is in full compliance with
6 17.4 3 9 . 2 8 7 2
FDA and FTC regulations, plaintiffs’ lawyers can pick apart the packaging and advertising for s r u s s e l l @ n u t t e r. c o m
any particular product, identify a single lead plaintiff who allegedly was misled into buying the
Shagha Tousi Russell is a partner in
product, and initiate costly and protracted litigation which the company will either have to Nutter’s Litigation Department and a
settle or commit resources to fight. member of the firm’s Business
Litigation and Product Liability and
Q: WHAT TYPES OF PACKAGING DO PLAINTIFFS’ LAW YERS OFTEN FOCUS ON? Toxic Tort Litigation practice groups.
STR: Plaintiffs’ lawyers tend to harp on areas where FDA has spoken negatively (e.g., the Clients rely on Shagha’s counsel to
term “evaporated cane juice”) or hasn’t defined a term. One example is the term “natural,” deal with disputes arising with their
which FDA has not yet regulated, resulting in active litigation by plaintiffs’ lawyers around organization’s product marketing
labels using terms like “natural” or “all natural.” initiatives, sales force, and competi-
tors. She advises food and beverage
Q: SHOULD MANUFACTURERS BE WORRIED ONLY ABOUT WHAT IS ON THEIR companies, clients in the life sciences
NUTRITION LABEL OR PHYSICAL PRODUCT PACKAGING? industry, and other organizations
relying on large sales networks as a
STR: No. While many FDA regulations apply specifically to the product’s nutrition label, the
core component of their business.
remainder of the product’s physical packaging as well as all of the company websites, tv ads,
social media platforms, and other materials touting the product are subjected to regulatory
P R E S S C O N TA C T:
and litigation scrutiny. Even an action as simple as “re-tweeting” another’s praise of the Heather Mer ton
product can be deemed to have been adopted by the company. Senior Communications Manager
6 17.4 3 9 . 2 1 6 6
Q: HOW CAN A COMPANY AVOID BEING SUBJECT TO A REGULATORY ACTION OR h m e r t o n @ n u t t e r. c o m
CLASS ACTION LITIGATION ON THE BASIS OF THEIR PRODUCT LABELING?
Nutter is a top-tier, Boston-based law
STR: Companies should avoid making claims that go beyond scientifically proven attributes of firm that provides legal counsel to
their products or ignore data going in the opposite direction. Definitive statements such as industr y-leading companies, early stage
“proven to improve health” and “proven to cause weight loss,” as well as undefined terms like entrepreneurs, institutions, foundations,
and families, across the countr y and
“pure” and “wholesome” can be traps. Manufacturers should consult with a food and around the world. The firm’s lawyers are
beverage products liability lawyer to determine if their marketing claims leave them vulnerable. known for their client-centric approach
and extensive experience in business
and finance, intellectual property,
litigation, real estate and land use, labor
and employment, tax, and trusts and
estates. Co-founded in 1879 by Louis D.
Brandeis, who later became a renowned
justice of the U.S. Supreme Court, Nutter
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. is dedicated to helping companies
Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising. Copyright © 2017 prosper in today’s fast-paced business
Nutter McClennen & Fish LLP. All rights reserved. environment.