StartUp Documents and Agreements

Posted: February 19, 2011 in General Discussion

Agreements.  Yes you need them.  In fact you need many types but you do not have to pay an arm and a leg to a lawyer for them.  For some this will be rather pedantic yet I will add a nuance or two concerning these matters so maybe you will pick something up.  Remember even experts should do the basics over and over just to keep sharp.

The reason I am writing about this seemingly pedantic and rather boring subject is that many companies and people take HUGE amounts of valuable time and money going over and over and over these documents.  Yes you want to get the basics down but a startup SHOULD NEVER SPEND EXORBITANT  MONIES AND TIME ON THESE DOCUMENTS.  If your dealing with someone who is being overly difficult concerning getting all of the minutiae detailed up front and perfect – get rid of them and get someone else – unless they are writing a really big check!  I have seen several companies spend two much time working on these documents when they are essentially free.  TheFunded (http://www.thefunded.com/) has a great set of documents that were gifted by Wilson Sonsini Goodrich and Rosati.  Don’t know who they are? Do some homework.

Here is a short list:

  • C-Corp Filing: Ok for some of you I can hear the groans or rebuttal.  Yes YouTube was a special case of and LLC.  Nowadays I am asked if companies are Del C Corp.  So please get the 250.00 or so put 2000.00 in and create your 20M shares.
  • Non-Disclosure Agreement – basically says you wont tell the world everything about the latest NewCorp.  A gentleman’s agreement if you will.   I would cap it at 3 years which actually should be 1 year but hey just sign it and get talking.
  • Offer Letters: Do not make it overly complicated.  State the basic work items of what you expect, meeting granularity, percentage equity stake, strike price based on current valuation, vesting schedule and retainer if any.  For employees also list salary if applicable
  • One Pager”: This discusses the company in a snapshot and allows you to quickly intro your company.  Here is what you want in the one pager: Who are the Founders, Industry, Business, Accountants, Current Investors, Your Ask in Dollars, Use of funds, Number of Employees, Clients, Exit Strategy, Contact information, Summary of Company, Market, Products, Company Management, Board Members (list companies they worked for and advise) and your Logo with address
  • Convertible Note: This eases the pain of raising seed and angel funding.  I am not going into the specifics here but suffice to say there are ways for debt financing and equity financing that can be clean no muss no fuss. Sign seal and get to coding.
  • CAP Table: This is who has what and at what price.  Important for raises.  It should be a very simple excel spreadsheet allowing you or others to put in raise amounts and compute dilution as well as percentages.  This also lists founder, restricted and common stock issuance
  • Your Deck: The pitch deck.  Know it love it and recite it in your sleep
  • Business Plan: What do those forecast look like and why are you going to take on Google, Apple, Microsoft and Facebook?
  • Stock Plan: This is usually referenced in the offer letters so at least have some version so the SEC wont freak out when you file your raise with them!

I have found that some people will try and get fancy with these documents because well honeslty they do not know any better and they want to appear smart.  Please if your faced with any of these documents just say you dont know what such and such is and get an answer instead of negotiating around the points.  Also just ask for what you want.  Say I want to have 10% restricted shares that vest immediately upon me hitting such and such milestone.  Especially if you’re a founder or a coder.  You have the ideas and the coding ability so you control the show.  I would recommend one item at the very least is ask for restricted stock for tax consequences.  If you’re a founder you should have founders shares.

So main point is that the document are out there and you don’t have to spend a ton of money.

My other point is if you run into someone that wants to grind on these documents instead of working them out in concurrence with taking your Idea To The Bank then tell them you don’t have  time and need to get someone who wants to start creating.

I would love to hear from others out there or any comments and questions.

Until Then,

GO BIG OR GO HOME!

 

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Comments
  1. SCStartups says:

    Great blog. I am repeatedly amazed at those who waste valuable time and energy making documents and terms too complex in the hopes they’ll find a way to be the only guy wearing a parachute if the plane goes down. Keep it simple and focus on building value and everybody wins. Yes, there are basic documents you must have. Yes, it’s going to be a lot easier if you know some of the fundamentals of startup finance and law. But if you spend your time on complex documents, especially when it’s all out there on the web to see, you aren’t building your company. It IS Go Big or Go Home. If you aren’t comfortable being direct, agreeing to simple but competitive terms and haven’t done your basic homework to be able to evaluate your own contract, either get there fast or go home.

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