It's really important to discuss how you'll split equity with your co-founder before diving into your startup. This helps avoid confusion and potential disputes later on.
You should clarify each person's roles and responsibilities right from the start. Knowing who does what can prevent misunderstandings as you work together.
Taking the time to talk about your motivations for starting the business will keep you aligned on goals. It's vital to be on the same page about why you're building this company together.
Using Safes for fundraising can lead to founders selling too much of their company without realizing it. This often happens when multiple Safes stack up over time, causing unexpected dilution.
Legal issues can pile up with Safes because many founders don't do thorough due diligence early on. When they finally need legal help for a priced round, hidden problems can cost them more to fix.
It may be better for founders to consider priced rounds instead of Safes, especially for larger raises. This can help maintain ownership and reduce complexity in legal documents.
If you're raising less than $1 million and need money quickly, a Safe round is usually the best choice because it’s simple and fast.
For larger amounts, like $1 million or more, especially with a lead investor, a priced round makes more sense despite taking longer and being more complicated.
In the end, think carefully about which option works best for your situation instead of just going with the common choice of Safes.
Investors should receive preferred stock, while those who contribute time and effort get common stock. This keeps things clear and avoids complications.
Issuing common stock to investors can inflate the stock price and make it harder for employees to buy in. Using preferred stock keeps the value lower for common shares.
Mixing stock types complicates corporate governance, making it tougher to manage rights and responsibilities. It's best to keep it simple with preferred for money and common for effort.
When an employee leaves with unvested stock, the company usually needs to buy it back within a short time, like 90 days. If they don't, that stock could stay with the former employee forever.
There are two main ways companies can handle unvested shares: by repurchasing them or by automatic forfeiture. It's really important to know which method your company uses.
After firing someone, companies should quickly check their stock agreements to see what to do about unvested shares. Handling it properly can prevent bigger problems later.
Intellectual property (IP) is super important for startups. If a startup doesn’t own its IP, it can be a big red flag for investors.
Getting IP assignments signed is crucial from day one. It's better to have this done early to avoid problems when raising money later.
There are different types of IP, like trademarks and patents. They protect different aspects of a business, so knowing what kinds you have is important.
Starting a business means deciding whether you'll bootstrap or pursue venture capital. If you want to raise VC funds, it's often best to start as a Delaware corporation.
Delaware is popular for startups not because of tax benefits, but due to its strong legal system and established corporate laws. This creates more certainty and less risk for businesses.
You can start your company in another state and later convert to a Delaware corporation if needed. However, this can be time-consuming and costly, so it's often easier to start in Delaware if you plan on seeking investors.
Vesting schedules are crucial for co-founders to avoid problems with 'dead equity.' If a co-founder leaves, they shouldn't keep their shares unless they earned them over time.
Equity is limited, unlike cash, so if someone has a large share without contributing, it can hurt company morale and deter investors. They want to see all founders actively working.
If dead equity happens, fixing it can be difficult and costly. It's better to prevent these issues from the start with clear agreements on equity and vesting.