The Founders’ Intro to Raising Startup Capital

The Founders’ Intro to Raising Startup Capital

For many startup founders, what led them into the risky but thrilling world of starting their own company was technology, innovation, the ability to affect the world, and the freedom of being their own boss. Learning the ins and outs of financing, attracting investors, and understanding how to comply with state and federal securities laws is probably not at the top of the list of a startup founder’s most favorite things. But, given that the vast majority of startups will rely on outside financing in their early years while they progress in stages of production and expansion, their founders are going to eventually need to do some real-world study in the basics of how raising capital works in order to grow their business while protecting their vision. [Read more…]

Should Founders Subject Themselves to a Vesting Schedule?

When advising startup clients, I frequently recommend that they subject the shares issued to their founders (as well as those issued to any equity-compensated employees and contractors) to a vesting schedule. This conversation often leads the founders to look at me as if I had just asked them to grow a second head. It’s not hard to see why they would be somewhat confused as to why I recommend this course of action. As a technical matter, usually (but not always) my client is the startup itself and not the founders personally. And while I am always very clear about this with my clients, as I must be as an attorney, my clients’ founders often see me as their adviser, at least on some instinctual level. In addition, at the early stages of a startup, before any significant investors are involved, the founders have complete control over the company.  So they often ask why would they do something like subjecting their own shares to a vesting schedule that appears to be contrary to their own interests and why I would recommend that they take such an action. After all, they can only lose by subjecting their shares to a vesting schedule, right? [Read more…]

Venture Capital Term Sheet Negotiation — Part 21: No-Shop and Confidentiality Provisions

This post is the twenty-first and final in a series giving practical advice to startups with respect to understanding and negotiating a venture capital term sheet.

In the prior twenty posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions and discussed valuation, cap tables, and the price per sharedividends on preferred stockliquidation preferencesthe conversion rights and features of preferred stockvoting rights and investor protection provisionsanti-dilution provisionsanti-dilution carve-outs and “pay to play” provisionsredemption rightsregistration rights,  management and information rightspreemptive rightsdrag-along rights, representations and warranties, rights of first refusal and co-sale, closing conditions and expenses,non-competition and non-solicitation agreements, non-disclosure and developments agreements, board matters, and founders’ stock. In this final post, we will discuss no-shop and confidentiality provisions. [Read more…]

Venture Capital Term Sheet Negotiation — Part 20: Founders’ Stock

This post is the twentieth in a series giving practical advice to startups with respect to understanding and negotiating a venture capital term sheet.

In the prior nineteen posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions and discussed valuation, cap tables, and the price per sharedividends on preferred stockliquidation preferencesthe conversion rights and features of preferred stockvoting rights and investor protection provisionsanti-dilution provisionsanti-dilution carve-outs and “pay to play” provisionsredemption rightsregistration rights,  management and information rightspreemptive rightsdrag-along rights, representations and warranties, rights of first refusal and co-sale, closing conditions and expenses, non-competition and non-solicitation agreements, non-disclosure and developments agreements, and board matters. In this post, we will discuss founders’ stock.

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Venture Capital Term Sheet Negotiation — Part 19: Board Matters

This post is the nineteenth in a series giving practical advice to startups with respect to understanding and negotiating a venture capital term sheet.

In the prior eighteen posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions and discussed valuation, cap tables, and the price per sharedividends on preferred stockliquidation preferencesthe conversion rights and features of preferred stockvoting rights and investor protection provisionsanti-dilution provisionsanti-dilution carve-outs and “pay to play” provisionsredemption rightsregistration rights,  management and information rightspreemptive rightsdrag-along rights, representations and warranties, rights of first refusal and co-sale, closing conditions and expenses, non-competition and non-solicitation agreements, and non-disclosure and developments agreements. In this post, we will discuss board matters. [Read more…]