Founding stages for startups and basic documentation
This document discusses the stages of founding a startup company and the key documentation involved. It outlines the stages as internal founding with just a founder or co-founders, then expanding to friends and family investors. External founding stages include seed rounds, Series A/B funding rounds, and potentially an IPO. Key documentation for internal stages is minimal but as a company seeks external funding, documents like a term sheet become important to outline the investment terms before legal agreements are drafted. The term sheet should cover details like the investment amount, stake received, valuation, and optional clauses around rights and preferences. While US documents like stock purchase agreements are common, Polish companies would use documents like an investment agreement and changes to the company agreement.
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Founding stages for startups and basic documentation
- 1. STARTUP LEGAL Founder Institute session 2013-05-20
- 2. Agenda • How Founding Works? • Documentation
- 3. Stages of Founding • Internal founding – Founder – Co-Founders – Friends and Family (…and Fools) • External founding – Seed round – Round A, B… – IPO
- 7. External founding Seed round PLN 200 k (at PLN 1 M valuation) Founder 31,2% Co- Founder 31,2% Uncle 4,2% Seed fund 16,7% Option pool 16,7% $ Stages
- 8. External founding Round A PLN 2 M (at PLN 4 M valuation) Founder 19,2% Co- Founder 19,2% Uncle 2,6% Seed fund 10,3% First employee 1,8% VC 33,3% Option pool 13,6% $ Stages
- 9. External founding IPO PLN 235 M (at PLN 2,6 bln valuation) Founder 17,6% Co- Founder 17,6% Uncle 2,4% Seed fund 9,5% First employee 1,7% VC 30,5% Public 8,3% Option pool 12,4% $ Stages
- 10. Agenda • How Founding Works? • Documentation
- 11. US vs PL documents USA • Term Sheet • Stock Purchase Agreement • Certificate Of Incorporation • Investor Rights Agreement • Voting Agreement • Right of First Refusal and Co- Sale Agreement • Management Rights Letter • Indemnification Agreement • Model Legal Opinion PL • „Term Sheet” - opcjonalnie • Umowa inwestycyjna • Zmiany do umowy spółki
- 12. Term sheet • A term sheet is a bullet-point document outlining the material terms and conditions of a business agreement – It implies the conditions of a business transaction • A term sheet generally covers the more important aspects of a deal, without going into every minor detail and contingency covered by a binding contract – For example, a term sheet from a venture capital company that is investing in an early-stage company may contain such details as: the amount of investment, the percentage stake sought, anti-dilutive provisions and valuation • Used to prepare final agreement – Binding (all terms are obligatory) – Non binding (it guides, but is not necessarily binding the final terms of their agreement)
- 13. Term sheet should include: • Closing Date • Investors • Money raised (the investment) • Price Per Share • Pre-Money Valuation • Capitalization (structure of capital) • Additional Clauses (optionally): – Dividends – Voting Rights – Drag-along rights („Pociągnięcie”) – Tag-along rights („Przyłączenie”) – Liquidation Preference – Participation Preference – Anti-dilutive – Clawback – ect.
- 15. Sources
- 16. Sources • http://en.wikipedia.org/wiki/Term_sheet • http://nvca.org/index.php?option=com_content&view=article&id=10 8&Itemid=136 • http://www.investopedia.com/