Advisors are great for startups. They can provide your startup with guidance on a wide range of topics and typically take a seat on your startup’s advisory board.

But sometimes a person who gives your startup infrequent, casual advice will broadcast to the world that he or she is an advisor to your startup in an “official” capacity — which is (shocking) news to you and your co-founders. Awkward.

How did this “advisor” turn into a creeper?

The Genesis of the Startup Creeper

Most startup founders do a tremendous amount of networking. Through this networking, a founder may become acquainted with someone willing to provide some expertise, advice and/or connections. Most of the time, startups and the “advisor” have no problem with this unofficial, undocumented relationship. The startup isn’t looking for routine advice or time from the advisor, and the advisor isn’t looking for anything from the startup (e.g., cash, equity, geek cred).

But occasionally this “advisor” makes his or her role unilaterally public creating the awkward situation.

A founder will typically find out when someone he or she knows in the startup ecosystem tells the founder, “Hey, [Startup Creeper Name] told me he was an advisor to your startup.” Or maybe news of the official relationship is on their Twitter or LinkedIn page. Regardless, this “official relationship” is news to you and your co-founders. The casual advisor relationship has now turned creepy.

I got married before the Myspace/Facebook era, but I imagine this is something like going on a first date and coming home to find your date’s Facebook profile lists them as “in a relationship with” you. Creepy.

Don’t Lead Them On

You lead on a startup creeper by continuing to either solicit or accept their advice and connections. You may think they’ve been giving some decent advice, but you don’t really know why they are hanging around — or you are trying to figure out their angle. At this point, you have both failed to bring up the status of your startup-advisor relationship.

The Decision

No matter how you arrived at this point with your Startup Creeper, you have 2 choices:

(1) Make it official and offer them a position on your advisory board.

If the initial shock wears off and you are OK with it, immediately sign up the advisor to an advisory board agreement. Anyone providing more than casual advice should be signed up to an advisory board agreement — especially someone receiving confidential information regarding your startup and/or identifying themselves as an advisor.

This is an important task because the advisory board agreement will most likely contain provisions such as a nondisclosure of confidential information, inventions assignment, and a no conflicts rep & warranty. Your advisor will likely be privy to various inside info regarding your startup and it is to document that he or she cannot use it for someone else’s benefit, or more importantly, to the disadvantage of your startup.

(2) Kick the Startup Creeper to the curb, in the most tactful way possible.

If you are still feeling slimy after the initial shock wears off, then you need to wrap up the relationship in an expeditious manner. Difficult conversations are a part of business and this type of situation presents a great time to tackle your (likely) first one.

But do so without burning a bridge — no matter how creepy the advisory relationship is. Communicate in private, and opt for in-person over telephone conversations. If you cannot meet in person, choose telephone over email. Don’t forget to thank them, because they did share their expertise, time, and/or connections with your startup. And the situation would likely not have reached this level of awkwardness without leading them on in some capacity. Now, maybe they can shift their focus on another project or startup.

Conclusion

There are tons of great startup advisors out there (although they are hard to find). People want to help your startup and that’s a good thing. But you have to manage these relationships, before they turn into awkward situations like the Startup Creeper scenario.

The Dodd-Frank Wall Street Reform and Consumer Protection Act probably won’t fix or prevent anything, but it was successful at modifying a portion of the definition of an accredited investor.

Official Language in the Dodd-Frank Act:

———-
SEC. 413. ADJUSTING THE ACCREDITED INVESTOR STANDARD.

(a) IN GENERAL.—The Commission shall adjust any net worth standard for an accredited investor, as set forth in the rules of the Commission under the Securities Act of 1933, so that the individual net worth of any natural person, or joint net worth with the spouse of that person, at the time of purchase, is more than $1,000,000 (as such amount is adjusted periodically by rule of the Commission), excluding the value of the primary residence of such natural person, except that during the 4-year period that begins on the date of enactment of this Act, any net worth standard shall be $1,000,000, excluding the value of the primary residence of such natural person.
———-
Translation: Now, your house (primary residence) can only hurt your status as an accredited investor under the “net worth” test:

Example 1 — if you own a $500,000 house free and clear, $0 is added to your net worth for the $1,000,000 test.

Example 2 — if you own a $500,000 house with a $300,000 mortgage, $0 is added to your net worth for the $1,000,000 test

Example 3 — if you own a $500,000 house with a $600,000 mortgage, $100,000 is subtracted from your net worth for the $1,000,000 test.

I’ve seen a few subscription docs floating around that don’t account for this recent modification to the accredited investor definition. Thus, it’s a good idea to take a look at what your subscription docs and/or accredited investor questionnaire say regarding the $1,000,000 net worth test for individuals.

Occassionally, a startup will get a term sheet from an angel with a pre-money valuation less than the investment amount (i.e., the angel wants control of the startup). And “control” isn’t just defined as a majority of the shares of the company — if the angel asks for approval of all budgets & hires or for a board seat (and they would represent 1/2 of the board) they are still asking for control.

When this occurs, you need to determine the reason why your potential angel investor wants control. Is it based out of fear or corporate narcissism?

That is, you have to figure out whether your angel wants control because he or she doesn’t know any other way to protect the investment in your startup or because he or she believes they can run the startup better.

If the request for control is based on fear, the investor needs to either (a) not invest in your startup, or (b) get educated on various terms of an investment that could help protect their investment. This education could come from you or your lawyer, but preferably from the angel’s lawyer.

If the request for control is based on corporate narcissism, you probably need to find a new investor. Most angels have the ability to make an angel investment in your startup because they successfully managed/owned/exited a company or ten. And they probably started this when you were busy collecting Garbage Pail Kids. Thus, they likely you view as “not ready from primetime” and their future employee.

If the corporate narcissist angel’s background involves tech (or at least something similar to what your startup is implementing), then the control aspect can be somewhat tolerable…in the short run. But you never want to end up with an angel controlling your tech startup during the day, then calling you at night because he can’t get his iPad to work on his wifi network.

Investor fear is workable, but corporate narcissism is a deal breaker. At the end of the day, don’t give up control to any angel. And from my experience, the good angels don’t want it.

Several weeks back, 37signals asked “Employment Contracts: What are they good for?” on Signal vs. Noise. Basically, they questioned the value of their employment contracts since they have never had an employment dispute:

“Why have we become so dependent on lawyers to control every relationship inside our companies? Why is “just in case” the default answer when asking questions about contracts? It sounds more like insurance than legal counsel. And the premiums are sky high.”

I get it. No one likes to pay for anything without receiving a quantifiable ROI.

For example, I’ve worn my seat belt, bought cars with airbags, and paid for car insurance since I was 16. But I’ve never had an accident, moving violation, or even a parking ticket. Where’s my ROI?

But should I ditch my seat belt and/or car insurance because I’ve never been in an accident?

I am lucky that I haven’t gotten into a car accident. Who knows when and if my luck will run out? Also, my lack of tickets and accidents could also mean I’m just a really cautious, alert driver. I suspect 37Signals is just a really good employer, and maybe they have been a bit lucky to avoid employment-related issues thus far.

The best way to prevent employment issues is to install good employment practices (i.e. be a good employer). But if the shit hits the fan, you’ll be much better off with a great employment contract. Much like you’d rather have insurance, an airbag, and your seat belt on if you get into a car accident.

I don’t counsel new startups to vest their founders shares so that I can increase my “insurance premium” charge (and for what it’s worth, I don’t charge any more or less for drafting a stock purchase agreement with vesting or fully-vested shares). I counsel new startups to vest their shares since I’ve seen plenty of startups fail because their shares didn’t vest.

And I’m guessing 37signal’s lawyers have seen many clients go through painful employment-related disputes.

(Disclaimer: The author of this post gets paid to draft contracts.)

Why does it seem like those who claim to be the “miracle solution” for your startup end up letting your startup down?

Of course, as a service provider to startups I’m in a bit of a quandary writing this post. (Your startup might need a lawyer; it might not.) But if a lawyer or any other service provider company promises your startup magical results, it’s probably a good sign that your startup needs to look elsewhere for services. And that is assuming your startup even has a need for such services.

Here’s a few examples of miracle-result pitches that have hit my email inbox from service providers wanting to gain either (1) my business and/or (2) access to my client list:

- “Hire me the SEO King/Social Media Exert and I’ll help your clients go viral…”

- “Hire me the Business Plan Guru and your clients will get awesome projections that investors will love…”

- “Hire me the investor finder and I’ll get your clients funded…”

It’s pretty easy for me to hit the DELETE key when these hit my inbox. But a startup (especially one with first-time founders) may be vulnerable to service providers and other business that promise your startup the path to glory. You’ll need to avoid the temptation to believe that any service provider is your knight in shining armor.

Those that are selling the hardest and promising the most are usually the most desperate and least likely to deliver. Knights in shining armor sell wolf tickets — not tickets to easy street.

Here’s what I’d do in the beginning:

Incorporation

(1) Entity Choice: Corporation or Corporation
(2) State of Incorporation: Delaware
(3) Authorized Shares in Charter: 10,000,000 Shares
(4) Type of Shares: Common Stock
(5) Par Value of Common: $0.0001
(6) Initial Founders Issuance: 8,000,000 Shares
(7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations
(8) Vest Founders Shares?: Hell Yes
(9) Vesting Schedule for Founders Shares: 4 years with a One Year Cliff
(10) Consideration for Founders Shares: Cash & IP
(11) Handling of “Lost Founders”: Lock Down the IP (then Wish Them Well)

Raising Capital

(1) Length of NDA: 0 pages
(2) Fees Paid to Pitch my Startup: $0
(3) Investors: Accredited Investors
(4) Structure of First Capital Raise up to $1MM: Convertible Notes

Many entrepreneurs treat their startup like their baby. And rightfully so. The entrepreneur has likely shed blood, sweat, tears, and some cash on the startup, therefore the entrepreneur wants to keep the startup in its grasp and control at all times.

But once you issue equity in exchange for services or investment, your startup isn’t your own anymore. You now have joint-custody.

Sure, you can (and should) still care for and nurture your startup as if it were only yours. But face it, you are slowly selling off your baby when you issue equity.

Most entrepreneurs get that, but there are still some that view any other equity holders (key employees, consultants, investors) as “The Others” and remain in a constant state of fear that all the other equity holders are going to steal their startup from them.

Being vigilant about keeping control of your startup is fine. You should always be prudent about any equity issuance. But being paranoid about it is only going to paralyze you from either (a) teaming up with people that can assist in the development of your startup, or (b) bringing in the necessary capital to take your startup to the next level.

In order to make your startup work, you are going to have to work with many different types of people, including employees, contractors, consultants, and maybe even investors. Be vigilant about issuing equity to these people, not paranoid.

I get about 4 emails a week from law students and attorneys with questions about launching a law practice. It’s an awkward and humbling experience for me. I’m not a law practice management expert and several years ago I had many of these same questions. But I try to answer as many emails and calls as I can.

I wish more startup veterans would do the same and provide mentorship to new entrepreneurs, such as taking a seat on a startup’s advisory board. A lot of the startups I work with placer a higher value on mentorship than investment capital, and would have no issue with a small equity grant to a good advisor. Do you really think startups flock to TechStars and Y Combinator for the cash?

Why does it feel like most successful startup participants have their success and fall back into the shadows of the city? Maybe it’s just Dallas. But I’m pretty sure this problem exists in most startup communities.

There are successful startup veterans in every community. They just don’t engage with the local startup scene for one reason or another. But I’m willing to bet these startup veterans received good advice along the way–or wish they did–and would be willing to return the favor.

I think it’s time to start a Startup-Advisor Dating service, in the spirit of Founder Dating. In addition to the hacker meets pixel pusher events, how about hacker & pixel pusher meet advisor events?

Maybe there’s one around that I’m missing. Anybody?

Your startup should never have to pay $$$ to pitch to potential investors. Period.

Today, Alex Muse posted on his Texas Startup Blog about a recent encounter with an investor group asking $4,500 to pitch from ShopSavvy, one of my clients.

Alex has written about why a startup should never have to pay to pitch time and time again. Thus, the investor group would have been wise to check out his blog before asking for the cash.

Jason Calacanis authored an epic post on the topic of paying to pitch as well. It’s a great read.

Just remember that no matter how hard it is to source funds, your startup should never have to cough up its own funds.

As mobile applications continue to gain popularity, more white-label mobile app deals are popping up. And while both the startup and the large company will certainly contract with respect to intellectual property asset ownership, an asset that may be overlooked is the ownership of the white-label mobile app’s users. Worst-case scenario, ownership of the white-label mobile app users can be insurance against the large company bailing out of the white-label deal.

Nothing New

The importance and value of a mobile app’s users isn’t novel. I’m pretty sure Alamofire, maker of Gowalla (ex-Southlake represent), recognizes this importance and values each user they acquire. And I’m also pretty confident Alamofire owns its Gowalla users. But Gowalla isn’t a white-label app. Different issues and incentives apply.

The White-Label User Ownership Wrinkle

At first glance, large company ownership of the white-label app’s users seems like common sense: the white-label app is branded as the large company’s app, so ownership of its users should flow to the large company. But depending on the terms of the white-label deal, the mobile app startup should consider staking at least a joint-ownership claim of the white-label app’s users.

In most white-label deals, the large company doesn’t want to bet their white-label app’s success on an unproven startup. Additionally, the large company has their own brand reputation at stake and most likely just isn’t used to working with small startups. Thus, the large company will push for various provisions in the white-label agreement that will allow them to terminate the agreement early (of course, the large company will not want to extend these same early-termination provisions to the startup). Furthermore, the large company is typically not willing to throw a bunch of immediate cash the startup’s way.

Early-Termination Issues

The large company will likely push for a short initial term and attempt to include various events that would each trigger an early-termination right for the large company. The startup will be held to various performance obligations and representations & warranties. Additionally, other early-termination provisions may exist in a service level agreement.

A trigger of any such early-termination provision and the startup could be given the boot…regardless of how successful the white-label deal is for the large company. Based on the white-label agreement, the large company could find it in their best interests to exercise early-termination and replace the startup with another company or in-house developers.

If a startup gets paid via a revenue share arrangement, the potential exists for the large company to exercise their early-termination rights and get their white-label app’s users free-of-charge (or worse, the IP). But even if the white-label agreement vests the startup with all IP ownership, including both the startup’s mobile app and the white-label app, the large company could still receive the free benefit of the jointly-grown user base.

The Distribution Channel

A requirement that the large company remove the white-label app from the various mobile app distribution channels will not prevent the large company from getting a free mobile-app user base. The large company could simply replace the white-label mobile app with a new mobile app via an “update” to all the existing white-label app users. Therefore, a large company should not be able to replace the white-label app, unless the startup commits some pretty serious performance-related offenses or rep & warranty breaches under the white-label agreement.

Conclusion

Heard of the term “starter wife?” Well, a startup could be the “starter developer” for a large company if too many large company-favorable provisions exist in the white-label mobile app agreement.

As a general practice, white-label mobile application agreements should include provisions concerning ownership of the white-label mobile application’s users. Additionally, ownership (sole or joint) of the white-label mobile app’s users can be a hedge against the large company terminating your white-label agreement in good times and bad.

If you recognize this post’s title, then you are always welcome at my table. For those of you in the dark, the title of this post is the secret code from the video game Contra. The Contra secret code let the video game player begin Contra with 30 lives.

30 lives on Contra was virtual invincibility. Enter the secret code, you will beat the game. (Presuming of course, you have an ounce of video game skills.)

Unfortunately, there is no 30 lives cheat code that can be woven into your startup legal documents. Whether you got your documents on the cheap from LegalZoom or you paid top dollar for a large law firm to draft them, your legal docs are not a shield of invincibility. Your startup can have the prettiest set of legal documents ever drafted and your startup still may not beat the game.

Instead, startup legal documents are a safety net.

What if a co-founder decides to bolt? Good startup legal documents make sure your startup doesn’t free fall to the ground (i.e., vesting schedule and company repurchase option). What if your startup’s rockstar developer claims ownership of the startup’s IP? Good startup legal documents make sure your startup doesn’t go down in flames (i.e., inventions assignment agreement).

Legal documents assist your startup along its path, but they don’t guarantee your startup will be successful. I’m a startup lawyer and earn my living drafting documents for startups. But I never have–and never will–draft a legal document containing anything equivalent to the Contra 30 lives secret code.

Why don’t federal, state and local governments make it easier for startups to launch, grow and thrive? Colorado’s governor is proposing fast-tracking a software tax to be effective March 1.

I realize these various governments need to raise tax revenue. But they end up with asinine and short-sighted “solutions” to do so, since no politician has the balls to propose an income tax increase. They know doing so would be political suicide. (Of course, governments could reduce expenditures, but I’m not holding my breath.)

So rather than making (almost) everybody pitch-in via an increased income tax, politicians are going to tax various segments of American society. The segments that will be targeted for taxation are those that carry the least pull or don’t speak out against the tax. Thus, it’s imperative people speak out against Colorado HB 1192.

I have no connection to Colorado other than this blog has received 160 visits from the state in the last 30 days. But I am afraid other tax-revenue desperate state lawmakers will catch wind of this tax. Only about 12 states in the country have this type of tax–it should be zero.

Learn how you can speak out against Colorado HB 1192 here.

My good friend Babar Bhatti, Chair of the MIT Enterprise Forum DFW Chapter and CEO/Founder of MutualMind, is hosting an “Effective Pitching” this Thursday night. Here’s the scoop from the MIT Forum site:

MIT Enterprise Forum DFW Chapter is pleased to announce our January event: Effective Pitching.

As an entrepreneur you have often heard about the elevator pitch. There is more to pitching than 30 second pitches. It is critical for entrepreneurs to sell their ideas and products to customers and investors. Can you effectively communicate the value of your products and ideas? Do you know what does it take to sell to a CEO? What are the things that investors want to hear? Our panel of experts will share what works and what does not work.

Learn the rules for Effective Pitching with:
* Jeff Crilley, an Emmy award winning communication expert
* Laurence Briggs, President of InvestIn Forum, Private Investor Network
* JR Atkins, Sales specialist and social media speaker

Date: Jan 28, 5.30pm.
Location: Company|Dallas, Floor 2, 1701 N Collins Blvd, Richardson TX 75080
Cost: $20 including Food and refreshments.
Registration: Register here – limited seating.

About MIT Enterprise Forum DFW Chapter

The Dallas-Fort Worth Chapter of MIT Enterprise Forum is focused on supporting technology entrepreneurs in the DFW metroplex. The group is open to anyone who is interested in technology entrepreneurship. You don’t have to be a MIT alumni to be involved.

TechCrunch has an interesting story about how Facebook is revoking vanity URLs for violating Facebook’s policies and then giving them to companies.

This isn’t your typical namesquatting case because the person’s vanity URL was /harman and the alleged namequatter’s name is Harman. But Facebook still sent Harman a message notifying him that his vanity url did not have a “clear connection” to his identity. Uh, ok.

The /harman vanity URL was then given to Harman International, which tried to negotiate a transfer of the vanity URL only a few days earlier. Basically, someone at Harman International “friended” Harman on Facebook and then began the “negotiations.”

I also find this story interesting because one of my unresolved tweaks to this blog is to get my Facebook page to iframe via the explore drop-down. For some reason, my Facebook vanity url /startuplawyer brings up a “page not found” Facebook message:

I’ve tried multiple “support” requests from Facebook without answer. I would rather have a vanity URL of some derivate of my own name, but my name is pretty common so I lost out on the Facebook vanity URL grab.

If I don’t resolve the /startuplawyer issue on Facebook, I’ll probably just create a fan page for this blog and use that as my Facebook iframe on this site.

It’s time for the entire startup world to cease spelling “startup” with a hyphen.

I realize that most dictionaries have “start-up” as the main entry. But if “vlog” and “webisode” can be added to the dictionary, I’m pretty sure the startup hyphen can be eliminated from those same reference books.

In addition to just looking cleaner without the hyphen, think of all the keystrokes we’ll save over our lifetime. By eliminating the startup hyphen, we’ll probably be able to push back our first bout with carpal tunnel syndrome a few months.

It’s no secret that a good founder team is an essential step for a successful startup venture. You hope that your co-founder has the mental toughness to stay strong through the bootstrapping process where short-term milestones typically go unrecognized and bank accounts dwindle. But what about your co-founder’s wife, husband, girlfriend or boyfriend?

Your Partner’s Partner

While it’s difficult for your co-founder to maintain course, it’s even more challenging for your co-founder’s significant other to continue “believing in the dream” and remain on board with the startup because:

(1) No matter how many times your co-founder explains it, the significant other can’t visualize the startup’s concept and/or monetization strategy;

(2) Like you, your co-founder is smart and can probably seek out and land a “real, paying job” (the significant other’s words, not mine); and

(3) During your startup’s bootstrapping period, 4,000,000 shares of your startup’s restricted stock won’t purchase that Prada Soft Calfskin Leather Satchel at Saks , or more importantly, put food on the table.

End of the Beginning

Your co-founder can only say “we’re almost there” so many times before his or her significant other gets restless and pressures your co-founder to find an immediate-cash-flow-positive opportunity. Once this occurs, it’s likely only a matter of time before your co-founder does.

Even if your startup put its founders on a vesting schedule, the loss of momentum from losing a co-founder can still be painful. While you can try to poach a founder from the 37signals Job Board, it won’t be a quick recovery. If you lose a portion of the team you can’t replace in a timely manner, the startup may be over.

Conclusion

I’m not suggesting startups should run background checks on prospective founders’ significant others. Rather, co-founders should simply realize that their partner’s partner matters.

And if your startup has significant others that stay on board, thank them. Repeatedly.

I’ve been seeing a lot of white-label deals for startup clients in the past couple months.

For example, Big in Japan struck a deal with CBS Interactive (CNET) to white-label ShopSavvy as the custom app “CNET Scan and Shop.” Also, ParaTweet came to terms with Royal Caribbean on a white-label custom app used for a private Rihanna concert on board Oasis of the Seas — the world’s largest cruise ship.

A white-label product or service is a product or service produced by one company (the startup) that another company rebrands for their own use or distribution. The company desiring to rebrand the startup’s product or service may just want to overlay their custom skin on the startup’s app. More frequently, the company will also request the development of new features for the white-label app.

Here’s my completely unsupported thesis of why large companies are approaching startups to do white-label deals:

2007 – Large company learns about social media and smartphones.
2008 – Large company learns about social media apps and smartphone apps.
2009 – Large company determines it would be nice to have large company-branded social media and smartphone apps & that it would be easier to strike a deal with a startup rather than start from scratch.

White-label deals can be great for startups because it allows the startup to obtain cash, recognition, and/or a strategic partner. The startup can expand their network and extend their runway without giving up equity. And if the startup is hoping to attract venture capital or other investment, the client and revenue is a bonus.

Have you ever been jacked? The only time I recall being a victim of theft was during undergrad at USC. Someone broke into my car while it was parked in the garage of my downtown L.A. apartment complex and the bandit(s) made off with my CD collection.

While I was relatively unscathed by the theft (hey, there were some pretty great CDs in that collection), I still felt immense anger from the incident. Thus, I can only imagine the amount of rage a founder might experience when their startup idea is stolen from them.

On the topic of startup ideas and theft, the frequent mantra is: “Team + Implementation > Idea” or “Ideas are worthless.” And while helpful, these mantras only offer solace to the startup idea theft victim, rather than provide guidance going forward.

So how should founders act post startup idea theft? How does a founder properly channel the rage?

I came across an article on this very topic while checking my rss feeds this morning: Someone Stole My Startup Idea. In the article, serial entrepreneur Steve Blank provides a candid look at how he dealt with having his startup idea stolen (slides and all) and ultimately left his startup idea thief “in the dust.”

Steve offers this piece of advice in his “Never Get Even, Get Ahead” approach:

Successful companies are about the learning, discovery, iteration on your initial ideas. If someone can do a better job iterating hypotheses and executing than you can, you deserve to fail.

Steve understood that his startup idea theft didn’t mean the end of his startup. And that thinking allowed his startup to persevere. Check Steve’s full story here.

This is a re-post of an article that I wrote about common founder mistakes for StartupLucky.com and Killerstartups.com (not sure if it went out yet).

1. Spending Too Much Time Keeping Your “Unique” Idea Top Secret. Some founders attempt to have everyone within 25 feet of them sign an NDA. Instead of spending time drafting and then obtaining signatures on a NDA, a founder should use that time to implement the unique idea. It’s highly likely the idea isn’t unique, and a founder could turn off some good investors/partners/mentors by asking for a NDA signature.

2. Not Vesting Founders’ Shares. It’s easy to believe that vesting your own founder shares doesn’t help you, but take a look around the founder table. Now think how you’ll feel if your co-founder decides to try out for American Idol and take his 33% of his vested ownership with him to Hollywood while you and the rest of the founders pound keyboards all day and night.

3. Forgetting to Make the 83(b) Election. If you decide to vest your founder shares, don’t forget to make an 83(b) election with the IRS. You have 30 days to do so after purchasing your founder shares, but there’s not reason to wait more than 1 day post-purchase.

4. Issuing Preferred Stock to Minor Seed Investors Like Your Uncle Bob. Sure, Y Combinator and TechStars get preferred stock for their $18,000 seed investment, but your Uncle Bob (probably) is not Paul Graham or David Cohen, Uncle Bob is not running a startup mentorship program for your team, nor does Uncle Bob have a massive amount of relevant startup industry connections.

5. Concentrating Only On Valuation When Raising Capital. There’s a reason why term sheets are several pages long. Keep reading after you get halfway down the first page to “pre-money valuation”—there are many important terms on subsequent pages. Also, consider whether the investor or investor group is a good fit for your startup. Don’t choose an investor group solely by the highest pre-money number, if you are lucky enough to have a few term sheets in front of you.

“We want to have 30% of the startup company at exit.”

-Anonymous Startup Founders

Occasionally, founders will plan out their startup’s lifespan to the point of pre-determining their final equity figure after all hires and investments have been made. Usually, a set of founders want to end up with a final equity percentage in the 25% – 51% range. I call this number founders (mentally) reserve for future issuance the “Issuance Pool.”

While an Option Pool is a key tool for a startup in order reaching the next level, creating an Issuance Pool is of no tangible benefit.

First, the Issuance Pool creates the potential hazard that founders will operate and make equity issuance decisions, whether for a developer or angel investment, as though the Issuance Pool is pre-authorized like an Option Pool. A common mistake made by founders is acting as though they own the 25% to 51% they plan on owning instead of the 100% they actually own as a group after incorporation and before any other equity issuances. Thus, there is the tendency for founders at future issuances to think “This 10% issuance leaves us with 39% left for our (planned) future issuances.”

Your startup could over-issue equity to consultants, advisors, employees, and investors simply because you believe there’s a large amount of equity left in your Issuance Pool. Alternatively, your startup could turn off new hires and investors if you attempt to under-issue equity because your Issuance Pool is running low.

Second, the Issuance Pool should not be used as a barometer of success. Is your startup any more successful because it only issued 75% of your Issuance Pool? Maybe. But the goal should be that all equity issuances work to increase the value of the startup and generate great returns– not that your equity percentage is greater than what you planned months, if not years, ago.

While the Issuance Pool doesn’t show up on your startup’s cap table, it can still be harmful to your startup. There’s nothing wrong with planning, but an Issuance Pool should be discarded quickly after incorporation.