Startup Lawyer | If I Launched a Startup in 2014
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If I Launched a Startup in 2014

Posted 02 Jan 2014

I thought I would expand upon and update my “If I Launched a Startup” post from 2010 to include recent issues such as incubators and crowdfunding.

So in 2014, here’s what I’d do in the beginning:

Incorporation

(1) When: As soon as I was serious about making my startup a business, but after I checked my current job’s employment contract
(2) Type of Legal Entity: C Corporation, and not an S Corporation or LLC
(3) State of Incorporation: Delaware (since I’m at least potentially looking to raise capital)
(4) Authorized Shares in Certificate of Incorporation: 10,000,000 shares of Common Stock
(5) Par Value of Common Stock: $0.00001 per share
(6) Aggregate Stock Issuance to the Initial Founders: 6,000,000 shares
(7) Founders Equity Split: Depends on the Team, But Quickly but only after the Difficult Conversation(s)
(8) Vesting For All Founders?: Heck yeah
(9) Vesting Schedule: 4 years with a 1-year Cliff with Double-trigger Acceleration
(10) Payment for Founders’ Shares: Cash and Intellectual Property
(11) Handling of “Lost Founders”: Get an Assignment and/or Release (then wish them well)
(12) Freak-Out on My Lawyer When I get My Delaware Franchise Tax Bill?: No

Incubators, Mentors, Advisors and Developers

(1) Choosing an Incubator: It’s all about the mentorship
(2) Incubator Funding Documents: Easy and Light
(3) Strike a Deal with a Mentor During the Incubator Program?: Probably not
(4) Raise a Round Before Demo Day?: No, wait until after…unless it’s a great Series A.
(5) Option Grant Size to an Advisor: 0.10% to 0.50%, but only after execution of an Advisor Agreement
(6) Outsource all Technical Development?: No

Raising Capital

(1) Length of Investor NDA: 0 pages
(2) Fees Paid to Pitch: $0
(3) Investors: Accredited only (no crowdfunding until the rules are easier on startups)
(4) Seed Round Structure: Convertible Notes
(5) Convertible Note Incentive: Discount and Price Cap, but with a liquidation preference regulator.
(6) Convertible Note Interest: 2-8%, but hopefully 2%
(7) When to Hold Closing: On a Rolling Basis
(8) First Purchase after Closing: A Legit Scanner

Best of luck to you in 2014!

11 Comments
  • Mike
    Posted at 09:48h, 03 January Reply

    Bookmarking for next go round!

  • Jay
    Posted at 12:35h, 03 January Reply

    Great post to get 2014 going, shall be reaching out to you when things fall into place!! Bookmarking this page as well, just like Mike!! Thanks Ryan and keep vital articles like this coming!!

  • Benjamin Walker
    Posted at 13:37h, 03 January Reply

    I genuinely love how your descriptions of very verbose terms are always succinct without losing any accuracy.

    Solid work as always, Ryan!

  • Lili Balfour
    Posted at 20:03h, 03 January Reply

    Great post!

    What about non-equity crowd funding? I ask because I’ve seen it used to bring in non dilutive capital and PR. I think it’s a win-win.

  • Scott Rafer
    Posted at 21:55h, 03 January Reply

    One major flaw (but only one!). Founders should vest, but only against each other, not against the cap table. A founder leaving should not undilute the entire cap table — just the other founder(s).

  • Alex Miller
    Posted at 02:20h, 06 January Reply

    Great, concise summary of structures for a US entity. Has this changed since 2013? Also, I think there’s probably a great post like this waiting to be written about international structures.

  • Nick
    Posted at 08:58h, 08 January Reply

    Thanks for this article. It’s this kind of articles I link to in my hockeystickweekly email newsletter.

    As most of my audience is Europe based, do you have any idea to what extend your advice translates to Europe?

    Thanks!

  • THE 5 MOST INTERESTING THINGS I READ THIS WEEK: 12TH JAN 2014 | CaptainKinnard
    Posted at 09:56h, 12 January Reply

    […] 2.┬áIf I Launched a Startup in 2014, January 2nd 2014 […]

  • Steven Swanson
    Posted at 16:12h, 30 January Reply

    Incredibly useful springboard, thanks Ryan :)

  • Parham
    Posted at 20:52h, 26 February Reply

    hands-down, one of the best sources of legal info for entrepreneurs! great work Ryan…

  • Ariel Castellanos
    Posted at 03:19h, 04 July Reply

    Wow, you are like a real life Harvey Specter.

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