Startup Company Lawyer

The best resource on term sheet basics is http://www.feld.com/blog/archives/2005/08/term_sheet_seri.html http://www.startupcompanylawyer.com is also often quite good on the basics.

It should be noted that the choice to allow "early exercise" is made by the company granting the options. While it might be a good tax strategy, you do not (to the best of my knowledge) have any guaranteed right to be allowed to exercise your options until they vest: http://www.startupcompanylawyer.com/2009/01/11/should-a-company-allow-…

I would have preferred a button to "show all annotations" -- inserting spaces in the text itself if necessary to have everything line up correctly. I found myself moving through each annotation even on sections I don't care about right now, because there's that possibility that annotation I skipped was "Hey this clause will totally get you in trouble with the SEC, the IRS, and the Attorney General ..." Would have been much faster if I could just skim the annotations as I read. Nice product, btw. I would love to see the same analysis done on the "Class F shares" company formation documents: http://www.startupcompanylawyer.com/2009/04/23/what-is-class-f-common-…

This article is not 100% clear on whether it means "true" investment or just paying for a service, which is not the same thing at all. But regarding "true" investment, It's something we looked at 18 months ago when raising our Series A. At the time it was impossible due to SEC regs around accredited investors and max number of investors (deeper analysis here: http://www.startupcompanylawyer.com/2012/05/26/is-crowdfunding-legal/) so we gave up. But it would be great to have simple ways of getting it done. https://wefunder.com/ and others (round-up here: http://www.thecrowdcafe.com/investment-crowdfunding-platforms-whos-fun… are trying to make it happen. Good luck to them :)

Most employees at a startup often get screwed. I recently joined a startup and I'm considering the value of my options to be zero. If they do pay off, it'll be a bonus for me. Go for either the learning experience, or if you really love working there. Chances are, if you aren't among the founders, you won't see much even on a successful exit. Tip: Do an early exercise (83b election) and convert your options into RSUs to avoid higher taxation. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election…

Check out: http://www.startupcompanylawyer.com/ There is obviously no replacement for situation specific legal advice from a real live lawyer.

One useful resource: (Just in case, if you have not seen it before.) http://www.startupcompanylawyer.com/ Some previous related discussions here: http://news.ycombinator.com/item?id=41308 http://news.ycombinator.com/item?id=37112 http://news.ycombinator.com/item?id=244009

Yokum is good people, constantly helping the entrepreneurial community understand the legalities and intricacies of funding and organizing start-ups. Check his website: http://www.startupcompanylawyer.com/

Yokum (one of the absolute best out there) quotes $5K as a barebones starter package. I'm sure he'd have helped us avoid overbuilding on the IP in addition to the overbuilding on the corporate stuff. http://www.startupcompanylawyer.com/faqs/ I refuse to believe you could get half as good as Yokum for twice the price.

I'll put up a post on http://www.startupcompanylawyer.com about these docs at some point in the near future.

It's never legally required to pay the founders. The founders' equity, which should be vesting over time, can be considered their only compensation. Be forewarned that this can still lead to massive tax pains later on if an 83(b) election isn't filed[1]. No matter how broke you are, you should be able to find a lawyer who can help you get set up. You can use the same founding documents, amendments, and appendices for your future bootstrapped ventures, so it's worth doing it right. Some firms will take equity in exchange for legal work, so that's also something to consider. I've never used a firm like that, so I don't know how that all works. A dangerous and extremely common side effect of doing your own legal work is in-fighting with co-founders. When you have rock-solid, thorough founding documents, you've already agreed on what to do for an exhaustive list of contingenies: what happens if someone wants to leave, if someone isn't pulling their weight, if someone dies, etc. etc. My founding docs are about 50 pages. It's extremely important that you set everything up right, and it shouldn't cost you more than $1,500. I've known firms that will give you a boilerplate package for your particular state for about $500, so shop around. 1. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election…

When 'pg' tweeted other day about all deals being convertible notes, I researched a bit about them. Following is my notes on em. Convertible notes make a lot of sense for both Angels and Founders as both are taking risks. If a startup ever makes it big, founders have benefit as angels are being discounted. If a startup doesn't make it, at least angels get the power and they can act according to the prior agreed conditions. For angels, tax advantages are also worth considering. Again, all the benefits depend on the fine details. Venturehacks has nice article. http://venturehacks.com/articles/debt-or-equity Summary is that, it is better to raise convertible debt for small amounts and it is better to go for the equity if bigger amounts are needed. There is an awesome write up by Yokum here http://www.startupcompanylawyer.com/category/convertible-note-bridge-f… There are many types http://en.wikipedia.org/wiki/Convertible_bond#Types I think it is safe to assume that a seasoned angel/vc won't screw founders - it only gets them bad reputation. That said, it is everyone's responsibility to know/read what they are getting into before signing.

I am trying to grok this bit. If I understand it, an 83(b) election allows me to buy stock in the company at the (say) day of employment, and recognise that as income on the same day (ie I buy the stock as I join). Then there is some restriction on me selling it during my employment (not quite vesting but similar). Which sounds sensible - but I may have misunderstood. Overall it seems either people are trying to make a simple situation seem complex, or the (US?) tax code is set up badly. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election…

Early exercise is a benefit provided by the company at the time of the option grant. Same company may choose to make the benefit available for some grants and not others (some reasons why they might not are listed here: http://www.startupcompanylawyer.com/2009/01/11/should-a-company-allow-…

There actually are other non-nefarious reasons. When employees exercise they become shareholders, and certain securities law regulations come into effect. A young startup might want to defer those until they are big enough to handle the administrative overhead. Also, while it's a tremendous tax benefit and pretty much a no-brainer to early employees, once the strike price constitutes an investment of tens of thousands of dollars, all of which could be lost, it's not necessarily a popular or prudent choice for later employees. So then it becomes this thing that only the early employees get, which perhaps might lead to some resentment and morale issues. Just some issues for companies to consider. Good overview of the pros and cons here: http://www.startupcompanylawyer.com/2009/01/11/should-a-company-allow-…

In case anyone else needs to look it up: "What’s the difference between an ISO and an NSO?" - http://www.startupcompanylawyer.com/2008/03/05/whats-the-difference-be… Even reading that, it's still not clear to me whether there would be tax implications at the time of conversion when converting incentive stock options (ISOs) to non-qualified stock options (NSOs).

Per 83(b): In order for an 83(b) election to be effective, the individual must file the election with the IRS prior to the date of the stock purchase or within 30 days after the purchase date. There are no exceptions to this timely filing rule. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election…

Read the first two entries here: http://www.startupcompanylawyer.com/category/convertible-note-bridge-f… The first entry explains the difference between Equity Funding(Give $x for y%) which you refer, and a Convertible Debt Note (can function just like a bank loan) which is what I reference. The second entry is specific to YC's Convertible Debt Note terms, but did not address my question.

That is misleading. I've worked in California. Firstly, obligatory invention disclosures are often enforceable if they're related to your employer's business, as they often exist to protect your mutual interests. http://www.startupcompanylawyer.com/2009/01/08/what-do-you-need-to-do-… Secondly, IP assignment is related to this entry in the CA labour code: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=02… Which clearly states that if you're working on the same area your employer is paying you for, it's not going to be trivial to claim it as your own even if you did it on your own time. In short, California has the benefit of making IP assignment unenforceable if it's on your own time, in an unrelated area to your employer. But it's not carte blanche.

The 'Outside Investment' number here in the 'Optional' section actually only matters if (A) the equity is participating preferred [1] or (B) the company sells for less than the preference would normally receive on a pro-rata basis. In 99.9% of the situations where a non-founder gets 'FU Money' (B) will not be the case, and (A) is increasingly rare. [1] http://www.startupcompanylawyer.com/2007/06/15/what-is-the-difference-…

This might give you some insights: http://www.startupcompanylawyer.com/2009/03/12/what-type-of-entity-sho…

Not sure where you can find a standard one, but my bet is 90% is boilerplate stuff. If you don't mind, what doesn't feel right? Did you make him explain each paragraph and reasons for it, and answer questions for you? I use attorney's quite a bit and really push them onto the hot seat, I learned early on they were quick to try and control my meetings with them which is just unacceptable to me. I did find this with some examples: http://www.startupcompanylawyer.com/category/convertible-note-bridge-f… and this: http://www.docracy.com/2740/convertible-note-term-sheet-template- Obviously I am not an attorney and I don't have any convertible notes so I can't answer from first hand knowledge but hopefully those help some.

The idea is that by letting founders sell some of their stock early, investors and founders will be aligned and founders will be less likely to want or demand an earlier, safer exit that doesn't meet their investors' expectations. Basically, it lets founders get a few hundred K now so that they're more willing to try to go for broke later. Founders Fund have even branded a share structure which allows easier conversion of co-founder (sometimes actually called Series FF) shares to shares of a later series sellable to investors in future rounds. I think that trying to grant early liquidity to founders has been common for at least two years and was a cause of major controversy during the Groupon IPO. See also: http://www.startupcompanylawyer.com/2007/12/22/what-is-series-ff-stock… http://www.quora.com/What-is-Series-FF-stock-and-how-does-it-work

There are a couple reason you might exercise you options. First is that options come in two flavors ISO and NSO (or Non-Qualified). If you are issues ISO options then you could exercise and hold to qualify for long-term capital gains. http://www.startupcompanylawyer.com/2008/03/05/whats-the-difference-be… 2. Your options are going to expire and you need to convert them to shares. 3. You are leaving and want to hold on to your shares. Typically you need to convert them within 3 months.

I recently read some blog posts by HN frequenters about the work they have their unpaid interns doing. I don't believe it's legal to have them doing that work without pay; if you treat an intern like an employee, you have to pay them, or you're violating both federal and state labor laws. Just a reminder. http://www.startupcompanylawyer.com/2010/04/15/can-a-california-compan…

I don't think the actual term sheet has been released publicly but heres a summary of the terms: http://www.startupcompanylawyer.com/2011/01/31/what-are-the-terms-of-y…

read Yokum's blog (http://www.startupcompanylawyer.com/2011/01/31/what-are-the-terms-of-y…

These are awesome but also not new-- YC released them a couple years ago. Here's some discussion on them, for example: http://www.startupcompanylawyer.com/2008/08/23/how-do-the-sample-y-com…

I think that's good advice. Either get a lawyer involved or avoid incorporation and complex legal documents entirely. One thing that you absolutely do not want to mess up is the IRS' 83(b) election rule: http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election…