Bootstrappers Guide to Not Screwing Up

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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.

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Bootstrappers Guide to Not Screwing Up

  1. 1. A Bootstrapper’s Guide to Not Screwing Up<br />(too badly)<br />
  2. 2. The Gillespie Law GroupRepresenting Startups and Growth-Stage Businesses<br />Dave Gillespie<br />dgillespie@thegillespielawgroup.com<br />614-344-4842<br />@GillespieLaw<br />www.thegillespielawgroup.com<br />
  3. 3. Our goal<br />To create alarms that will be triggered when opportunities to screw up arise.<br />
  4. 4. Don’t form your entity too late<br />Ideally: Use a lawyer. But if you cannot… <br />You probably are not screwing up if you: <br />File LLC papers with Secretary of State. <br />Don’t need written partnership agreement. <br />Until later stages, it’s not too hard to convert later. <br />You are probably screwing up if you: <br />Use Legal Zoom. <br />Bad written agreements are usually worse than no written agreement<br />
  5. 5. Don’t use fully vested stock for founders’ equity<br />Ownership is based on the work that you do in the future not an agreement you make today<br />
  6. 6. Don’t Pay a “Finder”<br />Who is a “Finder”?<br />What are the consequences?<br />What is the worst case scenario?<br /> criminal charges <br />
  7. 7. Don’t Talk in Percentages<br />Why? Equity Grants require very precise language. <br />Correct: “Company will grant you X shares of [type] stock, at Y time, for $/work.”<br />Incorrect: “You’ll own X% of the Company.”<br />Really? <br />When? <br />Forever? <br />
  8. 8. Don’t tweet about your “private” offering <br />General Rule: You can’t sell stock without registering with SEC.<br />However, startups typically rely on “private offering” exemptions.<br />Publicizing your “private” offering can ruin the exemption!!!! <br />
  9. 9. Don’t EVER promise “no dilution” <br />Dilution isn’t always bad. <br /> Anti-dilution ≠ no dilution.<br />Anti-dilution provisions are for down rounds only. <br />
  10. 10. Don’t forget about your current employer<br />Make sure your boss and your cofounder’s boss don’t end up owning part of your company. <br />Rule of thumb: Don’t use company property orwork on your idea during work hours.<br />Bad: Non-competition clauses. <br />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. <br />
  11. 11. Don’t use third-party developers or designers without a written agreement<br />Copyright must be assigned by a written agreement. <br />Without one: your developer owns the work product. Period. <br />
  12. 12. SO….<br />Don’t form your entity too late.<br />Don’t use fully vested stock for founders’ equity.<br />Don’t pay a finder.<br />Don’t talk in percentages.<br />Don’t tweet about your private offering.<br />Don’t promise “no dilution”.<br />Don’t forget about your current employer.<br />Don’t use third-party designers or developers without a written agreement.<br />
  13. 13. A Bootstrapper’s Guide to Not Screwing Up<br />(too badly)<br />

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