Cooley GO

There's a lot on Cooley's website -- http://www.cooleygo.com I have not been through much of it, but the General Counsel of a former employer pointed me there. What I've seen looks good. To answer another question on this thread, the attorneys I spoke with all recommended incorporating in DE if you're thinking about approaching "professional" angels or VCs.

Thinking about this even more, the company is only cash flow positive because they are not paying you. And if they are not paying you, the question begs who else are they not paying. Just because the CEO has sold multiple companies and realized profits for previous investors, does not automatically make this a golden egg as well. Finally, just because the CEO says you are at the top of the stack and future funding will not dilute you, does not mean it will not happen. In fact it is fairly certain to happen if additional, bigger investors come on board. If you want to get an idea of the dilution, Google an Excel cap table example (there's actually a pretty good one on http://cooleygo.com) and play with the numbers a bit. I would honestly skip the whole deal, push for either them to pay you what you are owed to date or go with a convertible note. I would also talk to an attorney before I made any decision. It just seems to me that the CEO is trying to make it sound like a great deal with no risk, when in essence the risk is enormous.

> except in cases where you are let go or decide to leave The IRS is only involved at the time of exercise [1][2]. Companies are the ones making ISOs expire, versus convert to NSOs, three months following termination of employment. [1] https://thestartuplawblog.com/incentive-stock-options-post-termination… [2] https://www.cooleygo.com/isos-v-nsos-whats-the-difference/

And the best law firms understand that. Take Cooley's terms of use generator for example: https://www.cooleygo.com/documents/terms-use/

CooleyGo is great: https://www.cooleygo.com/documents/

That adds some nuance, but doesn't dramatically change the incentive structure. A PBC is still for-profit: https://www.cooleygo.com/glossary/public-benefit-corporation.

At both startups we bought our shares early using Section 83(b) of the IRS tax code. That first year when we bought the shares I had to file extra paperwork but it shifts the tax rate to long term capital gains. https://www.cooleygo.com/what-is-a-section-83b-election/ So I ended up writing checks of $60 and $100 to buy thousands of shares at $0.0001 a share. I left both startups before they went under but everyone lost that small amount. When people ask me how much money I made at the startup I joke that I lose $60.

"Unison Computing, a Delaware public benefit corp. Our mission: advance what is possible with software and work to make software creation more delightful and accessible to all. " Never heard of a public benefit corp before, but in looking it up, seems like a cool thing. Wonder if Unison Cloud falls under that also... "What is a Delaware public benefit corporation? A Delaware public benefit corporation (PBC) is a for-profit corporation intended to produce a public benefit and operate in a responsible and sustainable manner. A PBC must be managed in a way that balances the interests of the stockholders, the company’s key stakeholders, and a specific public benefit that the company commits to in its charter." https://www.cooleygo.com/faq-delaware-public-benefit-corporations/

Actually it can be either way: https://www.cooleygo.com/what-is-a-section-83b-election/#:~:text=So%20…

It was most likely a grant with early exercise: https://www.cooleygo.com/early-exercisable-stock-options-what-you-need… Any company claiming to be employee-friendly should offer this while its 409A valuation is low. 10-year exercise windows take care of the people who come later and should also be standard at this point.

Every time one of these is written, it comes off as if the 90-day window is something startups came up with to try and screw employees. A reminder that the 90-day window is a requirement by law in order for options to qualify as Incentive Stock Options, and receive favorable tax treatment for employees [1]. If you want to do 10-yr exercise, that's fine, but until the law is changed those will be NSOs and not receive that special tax treatment and will be taxed on exercise instead of on sale. [1] https://www.cooleygo.com/isos-v-nsos-whats-the-difference/

Wrong, I've exercised pre-vesting at several companies. https://www.cooleygo.com/early-exercisable-stock-options-what-you-need…

Someone must have put time (labour) into making the list. There's law specific to database copyright in the UK https://www.cooleygo.com/what-you-need-to-know-about-uk-database-right…

Not a lawyer advice below. OK so you should not worry about this. Delaware uses Authorized Share Method to calculate franchise tax. With 10 million shares this ends up being a hefty sum. Instead, you could pay using Assumed Par Value Method and your tax will go down to something like $250/year including penalty. You can select preferred method while paying this tax online. See https://www.cooleygo.com/so-you-owe-thousands-in-delaware-franchise-ta… for example.

Relax :) This is what you need to know: https://www.cooleygo.com/so-you-owe-thousands-in-delaware-franchise-ta… You should owe $400 ish based on issued shares and assets.

just going to leave this here: https://www.cooleygo.com/so-you-owe-thousands-in-delaware-franchise-ta…

Careful with Delaware, shares and taxes. If I hadn't consulted a CPA I would have had a large tax burden. This is a pretty good write up: https://www.cooleygo.com/so-you-owe-thousands-in-delaware-franchise-ta…

Cooley and Fenwick track a lot of term sheet trends. See https://www.fenwick.com/topics/pages/topicsdetail.aspx?topicname=vc%20… and https://www.cooleygo.com/trends/. The Fenwick reports go back at least a decade. Maybe someone will a lot of free time will put them on a graph someday :)

Anyway else think it's interesting that $4.6m could be labeled "seed funding"? Seed round 2016 average is around $1m per Crunchbase: https://techcrunch.com/2016/09/07/crunchbase-sees-rise-in-average-seed… Cooley has seed round pre-moneys at $4-6m. (Thus, a $5m check is pretty much out of question at that stage.) https://www.cooleygo.com/trends/ So, this is much more like a Series A? I wonder if they were advised to call it seed funding to leave open the possibility of a "big" Series A, due to the level of interest. It does seem like SV VCs are making somewhat large bets on F/OSS-based companies, so maybe that is wise. I also realize a lot of this is semantics.

Didn't you just describe FundersClub's [1] business model? Basically a crowdsourced investment platform for startups. Yeah, it was limited to "accredited investors" in compliance with SEC and tax laws in the US, but even that is changing, at least on paper [2]. [1] https://fundersclub.com [2] https://www.cooleygo.com/can-you-raise-money-from-unaccredited-investo…

CooleyGo is a good resource. This article about shareholder agreements is probably beneficial to read: https://www.cooleygo.com/founder-shareholder-agreements/

I fully agree with you, with a small caveat though: the mechanism to use is called IRS section 83b election. It is applicable when instead of the stock options companies offer restricted stock, in a similar way founder stock works. This should solve the problem for at least early employees, for whom the tax paid upfront will be almost negligible: while the company valuation is still low, the shares are inexpensive. https://www.cooleygo.com/what-is-a-section-83b-election/

Did you file an 83(b) when your stock was issued and purchased? https://www.cooleygo.com/what-is-a-section-83b-election/ Is there a vesting schedule?

Surpiringly just one mention of the 83(b) process in this fairly well populated thread. Here's a good explanation of why you must know this to avoid a huge tax bill in case of your stock options becoming valuable some day. https://www.cooleygo.com/what-is-a-section-83b-election/

Yes: Similar to the startup's financial investors, take a portfolio approach to spreading risk. As you are investing time instead of money, that means spreading risk over time: decide at 3mo, 1yr, and 2yr if this is the outlier to double down on. Likewise, if senior and in a non-engineering role, negotiate a single/double trigger in the case of an early exit / acquihire: https://www.cooleygo.com/what-are-single-and-double-trigger-accelerati… . RE:Preferred shares, Investors get preferred shares -- first money out -- to protect against something like someone raising a round and instantly selling. If the investors were common, the founders would be self-enriching at the direct cost of the investors (and the pension funds etc. funding them.) Your protection against that sort of thing is initially worse -- vesting cliff means no stock for 1yr. This generally gets compensated by a signing bonus to the new firm, but not a big win/loss either way, beyond being grounds to get a new lottery ticket elsewhere (losing you say 6mo on that ground: it was a dud). After that, more about whether the company has raised more (including participation multiples) than it sells for. With today's megarounds at all stages, this is quite the danger. So it's about knowing how much they need to exit for before common shares convert, and who has the voting rights on that/when, which is a very fair question (vs. seeing the cap table, which is unlikely). Likewise, another…

I used Clerky in 2016. I found them pleasant and easy to work with. Took the time to answer all of my questions. Prices quite reasonable. Unfortunately, this data point is a bit out of date. I regularly work with companies that use all of the above. All seem to produce decent documents. You can also compare their sample documents against ones from CooleyGo [1] and the like. There are things you may desire as a founder that won't necessarily come standard in template docs from Clerky/Stripe/Gusto. Single-trigger acceleration [2] is the obvious example I can think of right now but I'm sure there are others. Also, be sure to do your 83(b) election ASAP -- definitely within 30 days of incorporation. [3] (Not a Cooley shill - they just produce good content.) -- [1] https://www.cooleygo.com/documents/ [2] https://www.cooleygo.com/what-is-double-trigger-acceleration-and-how-d… [3] https://www.cooleygo.com/what-is-a-section-83b-election/

It could be helpful to understand that there are multiple governmental entities that could tax the income of a Delaware corporation: (1) Federal Corporation Income taxes -- through the IRS; and (2) State Corporate Income/Franchise Taxes -- through the relevant State agency. (There may be other local taxes such as business license and sales taxes, but that is not relevant here to your franchise tax issue). You are required to file separate tax returns each year to each entity (so you pay both federal and state taxes). (If you are from Canada, "states" are roughly equivalent to "provinces".) Since you mentioned "franchise taxes", it looks like you are looking at the State of Delaware's taxes (and not the IRS). In Delaware, franchise taxes can generally be calculated using two different methods: (1) Authorized Shares Method (number of shares you authorized); and (2) Assumed Par Value Capital Method (generally based on the value of the assets in your company). See https://corp.delaware.gov/frtaxcalc/. Most startups have been told to authorize 10 million shares in their incorporation paperwork. In Delaware, if you select the calculation method based on the number of shares, and you authorized 10 million shares, you could be surprised by a very expensive "initial" franchise tax calculation. Others have already linked to a good article discussing this "surprise" bill: https://www.cooleygo.com/so-you-owe-thousands-in-delaware-franchise-ta… The solution is to look…

It's also important to note that much of the value of any company created in the future as it grows, matures, etc. It sometimes happens that people default to ascribing value based on history or past contributions -- which certainly does matter with respect to the idea, tech, product, early customers, etc -- but is an incomplete ascription of anyone's particular value with respect to the life of a company. Depending on what stage the company is in -- but because we are talking about formation we can assume it is early -- much of the work is likely yet to come. If the past is too heavily weighted, it can cripple the company in the future. Among other things, vesting can help protect founders against over-indexing on the past while ensuring the team is aligned on the future of the company and that are all in it "for the long-haul". Plenty of other reasons to do so as noted in the other comments throughout the thread. Here is a useful link from Cooley (a large, well-respected law firm) that goes into some of the nuance of these things: https://www.cooleygo.com/founder-basics-founders-stock/