Bootstrappers Guide to Not Screwing Up

A Bootstrapper’s Guide to Not Screwing Up
(too badly)

The Gillespie Law GroupRepresenting Startups and Growth-Stage Businesses
Dave Gillespie
dgillespie@thegillespielawgroup.com
614-344-4842
@GillespieLaw
www.thegillespielawgroup.com

Our goal
To create alarms that will be triggered when opportunities to screw up arise.

Don’t form your entity too late
Ideally: Use a lawyer. But if you cannot…
You probably are not screwing up if you:
File LLC papers with Secretary of State.
Don’t need written partnership agreement.
Until later stages, it’s not too hard to convert later.
You are probably screwing up if you:
Use Legal Zoom.
Bad written agreements are usually worse than no written agreement

Don’t use fully vested stock for founders’ equity
Ownership is based on the work that you do in the future not an agreement you make today

Don’t Pay a “Finder”
Who is a “Finder”?
What are the consequences?
What is the worst case scenario?
criminal charges 

Don’t Talk in Percentages
Why? Equity Grants require very precise language.
Correct: “Company will grant you X shares of [type] stock, at Y time, for $/work.”
Incorrect: “You’ll own X% of the Company.”
Really?
When?
Forever?

Don’t tweet about your “private” offering
General Rule: You can’t sell stock without registering with SEC.
However, startups typically rely on “private offering” exemptions.
Publicizing your “private” offering can ruin the exemption!!!!

Don’t EVER promise “no dilution”
Dilution isn’t always bad.
Anti-dilution ≠ no dilution.
Anti-dilution provisions are for down rounds only.

Don’t forget about your current employer
Make sure your boss and your cofounder’s boss don’t end up owning part of your company.
Rule of thumb: Don’t use company property orwork on your idea during work hours.
Bad: Non-competition clauses.
Worse: Assignment of Inventions Clauses. You’re probably going to need to quit first or get a written exemption from your boss to be really safe.

Don’t use third-party developers or designers without a written agreement
Copyright must be assigned by a written agreement.
Without one: your developer owns the work product. Period.

SO….
Don’t form your entity too late.
Don’t use fully vested stock for founders’ equity.
Don’t pay a finder.
Don’t talk in percentages.
Don’t tweet about your private offering.
Don’t promise “no dilution”.
Don’t forget about your current employer.
Don’t use third-party designers or developers without a written agreement.

A Bootstrapper’s Guide to Not Screwing Up
(too badly)

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Bootstrappers Guide to Not Screwing Up

by Gillespie Law Group on Oct 11, 2011

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