A Framework For Managing Year 1 In A Startup : The practical steps of keeping control.
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Transcript of A Framework For Managing Year 1 In A Startup : The practical steps of keeping control.
A Framework For
Managing
Year 1 In A Startup:
The practical steps of keeping
control
Wayne Willis [email protected]
Entrepreneur / Co-Founder•Hyatt Legal Services (legal)•Global Currency Advisors (finance)•Vidtel (video conferencing)•ILLUMAI (shampoo/conditioner)
Chairman or Board Director •26 companies, mostly tech•Many different roles
Investor•≈50 companies
CEO of VC backed companies•Voice-Tel ($216m exit)•Healthscribe ($90m exit)•Ditto.com ($23m exit)•Cyracom (5 years on Inc 5000)
Other•Managing Partner – Nodal Partners•Business & Law degrees from Yale
“Startup
Legal”A Framework For Managing
Year 1 In A Startup
Agenda
• Corporate Records - A Framework For Control• The First Year – A Greyline Tour• Standard Documents• DIY Contracting & Liability Limiting Language • Financings and Options• Next Steps• Q&A
What’s A Corporate Record?
CompanySuppliers Customers
EmployeesIndependent
Contractors
Service Providers
Board, Stockholders
Property: Patents,
etc.
Purchase Orders
Sales Orders; Terms of Service;
Stock Purchase; Board Resolutions, Options, etc.
Employment ; Independent ContractorsLicense, Lease
Embrace E-records• Print doc’s to pdf to petrify; file .doc, xls, ppt• Scan paper to pdf; throw paper away**• Print key emails to pdf• Use e-signature service to sign to pdf• Use fax-to-email service if needed; to pdf** Paper records have two uses
– Litigation – “Scanned – Date” to pdf and keep paper in central place by date. Use pdf until trial.
– Temporary stuff that will be tossed (e.g., meeting agenda)
Make E-Records Easy To Find & Use
• Naming conventions for filenames– Unsigned, signed – Filed, confirmed– Dates, parties
• Foldering and filing conventions• Full text search (OCR scan when possible)• BACKUP!!! Frequently, redundantly, offsite too
Elects Board; Approval of Big Changes
Manages All Aspects of Company
Executes Orders
A Corporation Is A Legal “Person”• It’s an independent entity – not you • Multiple relationships – shareholder, board director, officer or employee• “A group of contracts flying in close formation”
State Statutes
Articles Of Incorporation
Bylaws
Shareholders
Board
Officers
Defines Entity and its “Constitution”
A corporation is like the OSI model of networking – distinct layers doing different things
Corporate Records In Context
• “Filing Cabinet” metaphor – Corp Records are mostly fixed and final content; not great for workflow
• “To Do” or Project Management – Workflowy, Basecamp • “Whiteboard” – Google Docs• “Policy and Procedure” (Personnel, Admin)• “Documents Under Development”
– Drafts – naming conventions, mark to show changes, doc management systems, google docs for collaborative drafting/commenting, etc.
– Github (and others) for version control – Can use Box or Dropbox, but keep separate from “Filing Cabinet” for
permanent records
Corporate Records ≠ Financial Records
• But embrace e-records there, too!• Use Expensify to track charges, cash and mileage. Invoice the
Company and have them pay you.• Download e-bank records• E-file taxes • Use Quickbooks at first; QBO for off-site support• Boundary conditions – contracts with vendors and customers
– sometimes managed with corporate records, sometimes with accounting records
Agenda
• Corporate Records - A Framework For Control• The First Year – A Greyline Tour• Standard Documents• DIY Contracting With Liability Limiting Language
• Financings and Options• Next Steps• Q&A
Where/When Does Legal Fit?
1. Satisfice (Don’t Optimize) Legal Requirements– Too much or too early is a waste of time or money– Too little or too late is very expensive … and sometimes lethal
2. My recommendation– Establish a FRAMEWORK for compliance and control - DIY– Rely on lawyer for standard dox, financings and big deals only– All other stuff done DIY, preferably in writing, using “liability
limiting language”
Incorporation Seed Funding Service Providers Options Series A Series B
www.NodalPartners.com/fico
Hypotheses Problem – Solution Fit
Product – Market FitLean canvas
ScalingUp
Agenda
• Corporate Records - A Framework For Control• The First Year – A Greyline Tour• Standard Documents• DIY Contracting With Liability Limiting Language
• Financings and Options• Next Steps• Q&A
Standard Documents
• Board– Sample Minutes– Sample Unanimous
Written Consent– Common resolutions
• Options approval• Election of officer(s)• Approval of deal that is
not “usual/customary” or “in the ordinary course”
• Shareholder– Sample Minutes– (Restricted) Stock
Purchase Agreement
• Options– Plan (and related)– Standard Grant /
Options Agreements
• Employee– Offer Letter– I-9, W-4, inventions
assignments, non-disclosure, non-solicitation, etc.
– Termination letter (or memo to file)
• Advisory– Advisor Agreement
(NDA, Inventions Assignment, Advisory Agreement )
– Standard Grant / Options Agreements
• Contractors– Consulting
Agreement
• Strategics– Non-disclosure
Agreement
Agenda
• Corporate Records - A Framework For Control• The First Year – A Greyline Tour• Standard Documents• DIY Contracting & Liability Limiting Language • Financings and Options• Next Steps• Q&A
Liability Limiting Language (1)• Generic Contract – offer, acceptance, consideration
– Parties– Deliverables by each, terms
• Who, what, when, where, how good, how fast and how much?
– Conditions, before and after (optional)– Term and termination; renewal– “Reps and warranties” (optional from here on)– Breach, Damages, Indemnification; limits of liability– Boilerplate
• Agreement formed … and enforced – can be oral– Partial performance– Accepted by action
Liability Limiting Language (2)• Generic Contract – offer, acceptance, consideration – “Discussion Draft”; “Non-
binding term outline”; “not binding … definitive legal agreements”– Parties – deal only with honorable people; observed/enforced; dogs and fleas– Deliverables by each, terms
• Be super clear; don’t waffle. Better to say “no” than get sued.• Limit your risks – small amounts at first; inspection/rejection; option; negotiate!
– Term and termination; renewal• This is the most overlooked “gotcha” and best door out. Termination on X days, either way;
no auto-renewal for long periods.– Breach, Damages, Indemnification; limits of liability
• Limit liability to the amount paid;– Boilerplate
• Use a Rider “Notwithstanding anything in the main agreement to the contrary, the parties agree that X, Y, Z….
• Agreement formed … and enforced – can be oral– Partial performance – use email to confirm and be sure there’s a “meeting of the minds”
before proceeding. – Accepted by action – make clear than only written documentation
Agenda
• Corporate Records - A Framework For Control• The First Year – A Greyline Tour• Standard Documents• DIY Contracting With Liability Limiting Language
• Financings and Options• Next Steps• Q&A
Financing
Pitch and Fundraising
Term Sheets; Commitments Closing
• Executive Summary
• PowerPoint Deck
• Forecast & Budget
• “Business Plan”
• Term Sheet (you)
• Term Sheet (them)• Private Placement
Memorandum
• Stock Purchase Agmt
• Convertible Note Purchase Agmt
• $ Investment
• The security issued
Options
“Plan” Created and Approved
Board GrantsOption
Expiration or Exercise
• Board & Shareholder approval
• Reserves shares to be sold when options exercised
• Board approves “grant”
• “Grant” is a contract where option holder has right but not obligation to buy shares at X price during Y period
• Vesting
• Acceleration
• Board resolution
• Agreement prepared and signed by holder and company
• Expiration -- earlier of:
• 10 years
• X days after term-ination of service
• Exercise
• Sign the form and submit a check
• X days after term-ination of service
Agenda
• Corporate Records - A Framework For Control• The First Year – A Greyline Tour• Standard Documents• DIY Contracting With Liability Limiting Language
• Financings and Options• Next Steps• Q&A
What Do You Do Next?• Find a good lawyer; negotiate deferred fee arrangement• Ask for a simple incorporation and “standard” agreements
– Restricted Stock Agreements (and 83(b) election) for co-founders– Employee and IC agreements (NDAs, inventions assignments, work-for-hire, etc.)– NDA– Maybe customer or channel contracts
• Set Up YOUR Framework – Dropbox* or Box• Learn to use the standard agreements and drive them to final, signed documents,
filed inside the framework.• Use Google to research other documents; avoid chit-chat with lawyer• CYA with “liability limiting language” • Buy your attorney lunch once a quarter (off the meter)• Engage your attorney for funding and thereafter.
* make sure to back it up!!