#7 legal hacks for start-ups

Kristian Holte, start-up lawyer

mission

cut start-up legal fees in half

hack #1

vesting

3 co-founders own ⅓ each

1 co-founder decides to leave

what happens?

without vesting you silently cry inside

with vesting you continue building

with vesting shares must be sold back

vesting creates an incentive to stay and work

vesting is good for everybody … almost

how does vesting work?

#1each founder owns 100%

up front

#2shares are “earned” over

time, say 5 years

#3if founder leaves early,

shares must be sold back

#4price depends on how

founder leaves

founder decides to leave=

lower price

founder is forced to leave=

higher price

#5vesting is placed in

founders’ agreement

hack #2

use equity

start-ups don’t have cash

start-ups have equity

use equity instead of cash

how to use equity?

#1options & warrants

#2time or performance

#3exit or control

#4leaver scenarios

#5tax

hack #3

know your term sheet

what is a term sheet?

most important terms for an investment

top 5 terms for start-ups

#1: valuation

the price investor pays

pre-money vs. post-money

how to set the valuation?

#2: veto rights

investor’s right to block decisions

investor’s right to block decisions

#3: board seats

some investors want to control the board

#4: anti-dilution

dilution of value vs.

dilution of ownership %

#5: use the edison SAFE or

a convertible note

old way =

slow, expensive, painful

new way =

better, cheaper, faster

hack #4

think about ip

intellectual property rights=

product rights

software, design, hardware

does your start-up own its own ip?

consultants vs. employees

ip before you incorporate

patents, trademark & copyright

hack #5

be investable

#1: minimize “dead” equity

#2: don’t give vc terms to angels

#3: start an aps not an ivs

#4: have contracts with everybody

#5: everything in english

#6: avoid funding brokers

hack #6

choose the right lawyer

the 5 commandments

#1: fixed price

#2: no juniors

#3: start-up lawyer

#4: get your own lawyer

#5: talk to 3 lawyers & get 3 quotes

hack #7

embrace conflict

“war is the father of all”

Heraclitus

relationsips hurt, also in business

decide & execute quickly

fully accept the consequences

What would you do if you knew you couldn’t fail?

Kristian Holte, start-up lawyer