TCN Live - 8 Mistakes Founders Make


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8 Mistakes Founders Make
February 26, 2013
You have the next billion dollar idea. Now you have to transform your idea into a company.
Our friend Bob Bishop of Goodwin Procter can warn you about the Top Eight Mistakes founders make and how to avoid them before they happen.
Bob Bishop - Goodwin Proctor

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TCN Live - 8 Mistakes Founders Make

  1. 1. Founders Workbench •  A free, online resource to help entrepreneurs navigate many of the legal and organizational challenges faced by start-ups •  Resources include the Capital Calculator, Deal Dictionary, Document Driver, and Founders Workbench blog •  Site includes self-service tools for generating initial company incorporation and related documents Legal Standard of Excellence Award Winner Web Marketing Association 1st Place “Your Honor” Awards Web Site Winner CIO 100 Award Winner for Information Technology Department
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  3. 3. 8 Mistakes Entrepreneurs Make Robert E. Bishop ©2009. Goodwin Procter LLP
  4. 4. 8 Mistakes Entrepreneurs Make (cont d) 1. Failing to Pay Attention to Corporate Formalities •  •  •  •  Formation Stock Issuance Founder Agreements Give corporate and legal matters the same respect as your source code/lab notebooks/ engineering documents 2
  5. 5. 8 Mistakes Entrepreneurs Make (cont d) 2. Complicating the Formation Process •  •  •  •  KISS Principle Choice of entity (corporation vs. LLC) S corp vs. C corp Where to incorporate 3
  6. 6. 8 Mistakes Entrepreneurs Make (cont d) 3. Refusing to Subject Founders Stock to Vesting •  Founders departure triggers repurchase of some shares by company •  83(b) elections are critical •  Transfer restrictions – ROFR and IPO lock-up 4
  7. 7. 8 Mistakes Entrepreneurs Make (cont d) 4. Dwelling on Valuation •  Focus on winning before worrying about your share of the win •  A company never went out of business because of dilution 5
  8. 8. 8 Mistakes Entrepreneurs Make (cont'd) 5. Failing to Raise Enough Money (for fear of dilution or otherwise) •  Everything costs twice as much as you think it will •  Everything takes twice as long as you think it will •  Management needs to run the business rather than be preoccupied with fundraising efforts 6
  9. 9. 8 Mistakes Entrepreneurs Make (cont'd) 6. Spending Money Too Quickly •  Hire conservatively and purposefully (programmer vs. CFO) •  Consider equity compensation (with vesting) 7
  10. 10. 8 Mistakes Entrepreneurs Make (cont'd) 7. Failing to Pick Advisors Who Add Value to your Business •  Investors •  Directors •  Service Providers and Advisors 8
  11. 11. 8 Mistakes Entrepreneurs Make 8.  Failing to Adequately Protect Your Intellectual Property Assets •  Rights of former employers •  Rights of consultants and other third party developers •  Lack of adequate trade secret protection (NDAs) 3515293-1 9