Paper: Automated Startup Legals (Investor Deck)

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Paper transforms Startup legal into a dynamic, friendly and engaging user experience. Investor Presentation – September 2016 Draft - Confidential Paper transforms Startup legal from static and fragmented to an intelligent and engaging experience.

Transcript of Paper: Automated Startup Legals (Investor Deck)

Paper transforms Startup legal into a dynamic, friendly and engaging user experience.

Investor Presentation – September 2016Draft - Confidential

Paper transforms Startup legal from static and fragmented to an intelligent and engagingexperience.

The future for the delivery of legal to small business is tech-driven, and the current legal-tech is dated and weak.

It’s like IKEA without the instructions and those stupid little Allen key things.

These platforms use documents as the primary interface and product. People hate legal documents. They don’t understand them or know how to interact with them.

This leads to negative business consequences and frustration. Ultimately, users end up needing a lawyer to

decrypt what legal arrangements have been made.

With transactional document delivery, there is little to no user flow or guidance between one legal action and another. For example, will the financing documents you purchased work with your capital structure? Sorry, you’re

on your own.

Modern LegalLet’s appoint a director with Paper

Intuitive Interface

Users can instantly execute super strong legal with a friendly, intuitive interface. All core legal content a Startup needs is

native to Paper and executable on demand. The document is never the

primary interface. The documents are always available to inspect or download.

Voting and Notifications

Paper intelligently knows which stakeholders need to consent to any action. Email alerts are programmatically sent out

to obtain the required consents before implementing any requested action.

Instant Legal Implementation

Once the required consents are obtained, Paper automatically executes the necessary documents and schedules

any required government filings. Notifications are sent out and users can view the executed documents anytime.

We did all of that without documents? Yup.

Legal is Code

Paper treats legal code like computer code: necessary for execution, but not

the primary interface. When legal is code, AI can be implemented to

allow non-lawyers to execute legal actions in compliance with internal rules (ex. by-laws) and external rules

(ex. securities regulations).

Friendly for Life

Paper is a friendly experience throughout the lifecycle of a Startup. From day one, Paper automates milestone events such as incorporation and financings as well as everyday functionality such as contract management and notifications. For non-core legal, users can hire In-

App lawyers for advice or custom work. Lawyers are provided by Caravel Law.

Connected and Smart

With core legal natively installed, Paper knows every term of a Startup’s legal

structure. Founders can confidently grow their Startup without worrying about the

“legality” of their actions. All relevant stakeholders are notified of a proposed

action automatically. Actions are executed only with the required consents. This

relieves enormous amounts of administration and confusion.

Product PrinciplesUsing AI, Cloud Infrastructure and Disruptive Concepts

Product Development Timeline

New Legal Spend AnnuallyWe estimate that new US Startups spend approximately $2.4b per year in legal services.3 With the US legal market estimated to spend $437b, that is only 0.006% of annual US legal spend.4

Unlocking the Pre-Incorporation Market Assuming that only 1 out of 10 Startups ever incorporate, there would be approximately 3.2 million new US startups formed in the US per year.

Structured RevenueWe expect Paper to be the first platform to offer SaaS-based legal content. LegalZoom and RocketLawyer offer subscription-models for access to their document libraries, but do not offer any tech-driven solutions such as automated vesting.

Rapidly Growing Market

Traditional Small

Business359,908

53%

Startups319,164

47%

Percentage of New US Startups Formed Annually1,2

319,164new US Startups incorporated each year.*

*This is the most conservative figure for the rate of new U.S. business formation we have identified. The Ewing Marion Kauffman Foundation’s 2016 Index of Startup Activity found that in 2015 approximately 0.33% of the U.S. population was a new entrepreneur. That is 10.5 million people. Assuming the average new business has two founders, that is 5.25 million new businesses formed in 2015 alone. To provide defensible figures, we have used to conservative data.

Global Scalability

From Lagos to Palo AltoWhat if a fledging Startup in Lagos or Mumbai could access the same quality of legal as a Startup in Palo Alto? With Paper that is possible. With high-population countries such as India and Nigeria experiencing explosive growth of Startups, we view a strong growth opportunity to build habit-forming experiences around our platform in global markets.

Platforming Legal Expertise and Best PracticesBest practices (ex. vesting), legal expertise and quality legal content for high-potential Startups is well developed in advanced economies. Paper packages this value into scalable frameworks and makes them available globally via an intuitive interface at accessible prices.

By 2018, an additional 3b people will come online.

6 billionthe number of people with internet connection by 2018.

Business/Revenue Model

Use Paper once or a hundred times a day, it always costs the same. Paper plans start at free and rise to $8/m, $90/m and $170/m for enhanced functionality. We intend to focus on pricing during our two university pilot projects this fall.

Meet with experienced business lawyers anytime, via in-app video chat. Get expert advice or custom legal work for $215 per hour, Paper collects 20% commission of all lawyer work. Lawyers are provided by Caravel Law.

Founders have access to a full marketplace of non-core, commercial contracts. Advanced or niche contracts will be supplied by third-parties and readable by Paper for seamless integration. Users can send installed contracts externally for execution by email. Paper takes a 30% commission on all marketplace purchases.

Monthly Subscription In-App LawyersPremium & Marketplace Contracts

Direct and Marketplace Revenue Streams

User Acquisition Channels

We have a referral program that big law firms can’t resist. Law firms refer Startups they can’t take into their Startup programs to Paper, rather than letting them go into the ether. Paper automates and refers the winners back for high-value work. Talks are underway with Dentons to implement this program.

With weak job markets, universities are intentionally producing massive cohorts of student entrepreneurs. University entrepreneurship courses in the US have grown from 250 (1985) to 5,000 (2008).5Universities have high-density of early-stage Startups in a well-structured environment. We are in discussions with the University of Calgary’s business school to pilot Paper in January 2017.

Many incubators identify legal cost as a major barrier to Startup success. Incubators and accelerators have large flows of early-stage Startups in structured environments, making deployment easy. We are in discussions with the University of Waterloo’s Velocity Accelerator to pilot Paper in fall 2016.

Law Firm ReferralUniversity Partnerships

Incubators and Accelerators

Teams of any size can use Paper for free, for as long as they want.

Super-low barrier to entry. The market provides high-barriers to exit.

We have designed scalable, organic marketing channels to bring our customer acquisition costs (CAC) down.

The Vision: Platform

From eShares to IronClad, the user-direct legaltechmarket is growing rapidly. Rather than try to develop niche functionality, we intend to design Paper as a platform application so that third-parties can implement their functionality via a Paper Store.

We also view a later opportunity for integration with related services such as banking, fintech and traditional law firms to provide complementary functionality.

By designing Paper as a platform hub for Startup legal, we will leverage the network effect for defensible technology. Paper can then aggregate legal-tech spend in the segment. This will also allow Paper to deliver specialized functionality to Startups as they grow and require advanced legal services (ex. complex capital structures, IP management, etc.).

Network Revenue and Defensible Technology

TimelineThe  app  is  built  and  we  have  strong  user  demand.  We  need  to  refine  and  scale.  

Adrian tests market for pre-incorporation founders

agreements to early-stage Startups.

Agreement signed with DentonsCanada LLP for the review of in-app

Pre-Incorporation Founders Agreement and related documents.

Why Now?

The current model of alternative consumer and business legal was established in the late 1990s and has not been significantly disrupted or modified since.

Like early human resources Startups (Monster, Workopolis, etc.), the old model of legal-tech is ripe for disruption. DIY document generators such as Rocket Lawyer and lawyer marketplaces like UpCounsel are low-innovation platforms that do not solve major friction users have with legal. They simply replicate traditional models of legal services online.

Rather than join the herds of legal-tech Startups moving into these categories, we are going against the trend by combining smart technology with strong legal content to deliver a remarkable legal experience to entrepreneurs.

With well capitalized players in the legal-tech space, we are organizing significant resources to ensure we enter with high-velocity and defensible technology.

No one is over here, just us.

Early Financial ProjectionQuick Break EvenWith a lean team and low cap-ex, we anticipate beingcash flow positive at 30,000 total pre-incorporation usersby monetizing our current app build (pre-incorporationmodule). With no competition in the pre-incorporationspace, we are confident that we can reach this volume byQ2 2017. Once we turn on dynamic corporatefunctionality, we can enter a higher value market spaceand comfortably charge $100+ monthly subscriptions.

MMR CalculationsThe blue, orange and grey angled paths plot monthlyrecurring revenue (MMR) based on an assumption of 3%conversion* of total users to paid users multiplied by the“MMR Rate”. Each “MMR Rate” includes the hypotheticalmonthly user price ($8, $14, $100) plus $3.33 per month.$3.33 is Paper’s monthly pro-rated gross revenue for eachone hour of in-app lawyer time purchased per year.

Scalable Pre-Incorporation ModuleThe pre-incorporation module is scalable to anyjurisdiction where English is accepted as a contractlanguage. This will allow us to aggressively take marketshare and generate a broad revenue base.

*3% is widely considered to be the average conversion rate for B2BSaaS applications.

$0.00

$50,000.00

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$350,000.00

0 20000 40000 60000 80000 100000 120000MMR  (Gross)

Total  Users  (Assume  3%  Conversion  to  Paid  Users)

MMR  Models  vs  Monthly  Burn  Model  (USD)  

MMR  ($8) MMR  ($14) MMR  ($100)  -­‐ Not  Yet  Built Monthly  Burn

Strong revenue turns on once we have dynamic corporate functionality built out.

The functionality for these revenue sources is now complete or will be complete by end of September 2016.

These are hypothetical monthly prices. We will test pricing during private beta.

A Great Team

Mark Tinana, B. Eng* (Front End/UX)7 years of project management experience in contract manufacturing and supply chain.

Shane Fast, B. Eng* (DB Engineering)Developed a personal Bitcoin farm that generated $330 MRP.

Charles Bird, B. Eng*** (Business)Been in business longer than Andrew has been alive.

Andrew Dravucz, B. Eng* (App Engineer)Developed an Apache Spark engine that made millions of calculations per day.

Kyle MacInnis, B. Eng* (Tech Lead)Nearly a decade experience in app and game development.

Adrian Camara, JD*** (Business)Graduated in top ten percent of class at Western Law. Former McCarthy Tétrault LLP.

Andre Garber, JD* (Strategic Advisor)Director of Startup Programs, Dentons Canada LLP. Advisor to NextLawLabs (growth-stage legaltech venture fund)

* Indicates the number of prior businesses founded.Names listed left to right in photo.

Seed Financing: September 2016

After 3 months of self-funded development, we are looking to raise $100,000 CAD to fund 10 months of run. $45k is already committed.

1. Costs related to the pilot launch of the pre-incorporation component of Paper at the University of Calgary and University of Waterloo.

2. Development of the Incorporation and Basic Incorporation functionality, with intention to pilot in Q1 2017.

Rolling Convertible SAFE Note Raise

Use of Proceeds

We anticipate generating revenue in early fall 2016 via the In-App Lawyer functionality and a $8/m optional subscription that will be available in the pre-incorporation functionality of Paper. For every lawyer hour billed, Paper takes a 20% gross commission or approximately $50 per hour billed via Paper. At 10 hours per day billed, that is $500 per day, $15,000 monthly.

Due to the competitive per unit cost of In-App Lawyer advice, we expect to a reasonable usage rate to start.

Revenue Generation1. Investment amount equals the Note’s

principal value.2. 20% Discount Rate 3. $5 million cap on conversion. 4. $2,500 minimum.

Terms of the SAFE Note

Lean TeamProceeds will fund founder salaries of approximately $2,000 to $2,500 per month and necessary business costs. We expect to have no office space payments, cell phone bills, or server costs.

Contact: [email protected]

IS PAPER LEGAL OR OTHERWISE COMPLIANT WITH REGULATIONS PROHIBITING THE PRACTICE OF LAW BY NON-LAWYERS IN THE US AND ELSEWHERE?Yes. Paper occupies the same regulatory space as LegalZoom, Clerky and RocketLawyer: it provides “legal product” rather than “legal services”. The delivery of legal services is generally the exclusive monopoly of lawyers qualified in a jurisdiction. However, “legal product” captures self-help providers, including Paper.

HOW IS PAPER DEVELOPING THE LEGAL CONTENT?We are working with Dentons Canada LLP and intend to work with Dentons US LLP to develop the legal content. Presently, the pre-incorporation segment of Paper is complete. For this piece, we developed the content in-house and have contracted Dentons Canada LLP to review it. We are developing a trajectory of legal content that a Startup would need to satisfy its major corporate, governance and financing milestones through to a major financial event (financings, acquisition, etc.) in order to rationalize the tech build with the legal dynamics.

HOW DO USERS ACCESS NON-STANDARDIZED LEGAL CONTENT (EX., PRIVATE CONTRACTS)?We are working to finalize certain definitive agreements with Caravel Law Professional Corporation to make their “virtual” lawyers accessible via in-app video chat (Twilio) for legal advice or to develop custom legal content for users. We will take a 20% commission from these transactions.

IS PAPER SCALABLE?Yes. Like Stripe, Uber and other infrastructure-level technologies, we have to expend resources in order to develop processes compliant with local practices. Our biggest bottleneck will be to develop processes to efficiently incorporate Startups. Fortunately, in the US most Startups incorporate as Delaware entities. It is also increasingly becoming common for foreign companies to form as Delaware entities to access the US market and financial infrastructure. Although these are bottlenecks, they are barriers that can be overcomer in structured and efficient ways in order to unlock new markets.

IF YOU ARE CANADIAN BASED, WHY ARE YOU LOOKING AT THE US AND GLOBAL MARKETS?Paper is a scalable business model. Canada is our sandbox to refine our product and processes. Once we get this down, we intend to scale into new markets.

If you have other questions, please email or call Adrian Camara: [email protected] or +01 (403) 461 5844.

Common Questions

ENDNOTES

1. The total number of new “business establishments” in the United States in 2015 was 679,072 according to the United States Department of Labor’s Bureau of Labour Statistics in its Business Employment Dynamics dataset (available here: http://www.bls.gov/bdm/entrepreneurship/bdm_chart1.htm).

2. The chart at page 6 herein titled Percentage of New US “Startups” Formed Annually (the “Chart”) displays that 47 percent of new US businesses are “Startups”. As the term “Startup” has no scientific meaning, it is often loosely used to define new businesses developing innovative products or services with scalable business models. The term “Startup” as used hereto adopts the definition set-forth in the Global Entrepreneurship Monitor (“GEM”) - Adult Population Survey Measures, 2015 for the “New Product early-stage Entrepreneurial Activity” measurement: new entrepreneurs who identify their product or service as new to at least some customers. According to GEM, 47% of new US entrepreneurs surveyed identified their “product or service as new to at least some customers”. We have applied this figure of 47% to the number of new business establishments in the US as referenced in Endnote #1 to calculate the figure of 319,164 as represented in the Chart.

3. According to the report “The Legal Needs of Small Business: A Research Study Conducted by Decision Analyst Commissioned by LegalShield”, the average small business in the U.S. spends an average of $7,600 annually on legal expenses and 20% indicate that they spend $10,000 or more annually (available here: https://business.legalshield.com/sites/default/files/reports/legal-needs-of-small-business_0.pdf). In order to reach our annual market-size for Startup legal spend, we multiplied the rate of new US Startups by $7,600 to reach the number $2.4 billion. Legal spend from certain regions may distort the estimated rate of legal spend. For example, in a report published by AttorneyFee.com titled “Silicon Valley’s Legal Eagles”, the average legal bill for a pre-series A Startup in Silicon Valley was $23,000 (available here: http://visual.ly/silicon-valleys-legal-eagles).

4. The US legal market is worth $437 billion annually according to a report titled “How Big is the U.S. Legal Services Market?” published by Thomson Reuter’s Legal Executive Institute (available here: http://legalexecutiveinstitute.com/the-size-of-the-us-legal-market-shrinking-piece-of-a-bigger-pie-an-lei-graphic/).

5. According to the Ewing Marion Kauffman Foundation’s ”Entrepreneurship in American Higher Education” report (available here: http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20covers/2008/07/entrep_high_ed_report.pdf).

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