If I Launched a Startup in 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!

8 Responses to “If I Launched a Startup in 2014”

  1. Mike January 3, 2014 at 9:48 am #

    Bookmarking for next go round!

  2. Jay January 3, 2014 at 12:35 pm #

    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!!

  3. Benjamin Walker January 3, 2014 at 1:37 pm #

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

    Solid work as always, Ryan!

  4. Lili Balfour January 3, 2014 at 8:03 pm #

    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.

  5. Scott Rafer January 3, 2014 at 9:55 pm #

    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).

  6. Alex Miller January 6, 2014 at 2:20 am #

    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.

  7. Steven Swanson January 30, 2014 at 4:12 pm #

    Incredibly useful springboard, thanks Ryan :)

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