If I Launched a Startup in 2014

By Incorporation

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!


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