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Global Innovation Labs Founders Bootcamp - Founders Agreement from Founders Point of View
 

Global Innovation Labs Founders Bootcamp - Founders Agreement from Founders Point of View

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Global Innovation Labs Founders Bootcamp - Founders Agreement from Founders Point of View Global Innovation Labs Founders Bootcamp - Founders Agreement from Founders Point of View Presentation Transcript

  • Founder’s Agreements
    A co-founder’s perspective
  • Introduction
    Martin Long
    University of Illinois
    London School of Economics
    20+ years experience in Business Development & Sales
    Martin-Long@rcn.com
    Worked at 3 startups
    Invested in 3 startups (one overlapping with work)
    Consulted / Mentored scores of startups
    Co-Founded one: Enertaq (www.enertaq.com)
    6/2/11
    2
    Martin Long
  • What I Am Not
    A Lawyer
    A Venture Capitalist
    A formal “Angel” investor
    6/2/11
    Martin Long
    3
  • What I Am
    Experienced
    6/2/11
    Martin Long
    4
  • Failure & Success
    Most Entrepreneurs have failed
    Many have also succeeded (thankfully)
    I’ve done both
    A Founder’s Agreement can help in both instances
    6/2/11
    Martin Long
    5
  • Enertaq As an Example
    3 co-founders
    Worked on a verbal agreement for months
    Talking to Angels and VCs got us moving
    6/2/11
    Martin Long
    6
  • What Do You Worry About?
    ?
    6/2/11
    Martin Long
    7
  • Good or Bad, This Is What I Worried About
    % Ownership
    Voting rights
    Vesting
    Tax Consequences
    Intellectual Property
    “Divorce”
    Angels and Venture Capitalists
    6/2/11
    Martin Long
    8
  • What do Founder’s Agreements Do?
    Defines the relationship between co-founders
    Equity and vesting
    Voting
    Intellectual Property
    Outside activities
    Non-solicitation
    Non-Compete
    Other agreements can (and should) include:
    Employees, advisors, service providers, board members
    Investors
    6/2/11
    Martin Long
    9
  • Get a Lawyer
    Talk amongst yourselves (or if you are the sole founder, get your thoughts together)
    Then get a lawyer
    Does not have to be with a major firm
    Does have to have a LOT of experience in Founder’s Agreements and business law
    I got a 2nd lawyer to review everything, who is my personal business attorney
    6/2/11
    Martin Long
    10
  • A Collection of Agreements
    Incorporation
    Founder
    Non-Founder
    NDAs
    Non-Compete
    83(b) Elections
    6/2/11
    Martin Long
    11
  • Founder’s Agreement
    Will now walk through the relevant sections of the Founder’s Agreement
    Stock Purchase and Restriction Agreement
    6/2/11
    Martin Long
    12
  • Section 1Purchase of Shares
    The Company hereby issues and sells to the Stockholder, and the Stockholder hereby purchases from the Company, subject to the terms and conditions set forth in this Agreement, an aggregate of 200,000 shares (the “Shares”) of common stock, par value $0.001 per share, of the Company (“Common Stock”), at a purchase price of $0.001 per share, or $200.00 for all Shares, payable in cash. The Shares shall be subject to the terms and conditions of this Agreement, including, but not limited to, the Purchase Option set forth in Section 2 hereof, the restrictions on Transfer (as defined below) set forth in Section 4 hereof, and the right of first refusal set forth in Section 5 hereof.
    6/2/11
    Martin Long
    13
  • Section 2Purchase Option
    In the event that the Stockholder’s Business Relationship (as defined in Exhibit A hereto) with the Company terminates, for any reason or for no reason whatsoever (“Termination”), prior to the date on which all the Shares become Vested Shares in accordance with the provisions of Exhibit A hereto, the Company shall have the right and option (the “Purchase Option”) to purchase from the Stockholder, for a purchase price of $0.001 per share (subject to adjustment as provided herein, the “Option Price”), all of the Shares that have not become “Vested Shares” as of the date of Termination in accordance with the provisions set forth in Exhibit A hereto (any such shares, “Unvested Shares”).
    6/2/11
    Martin Long
    14
  • Section 4Restrictions on Transfer
    (a) As long as the Stockholder maintains a Business Relationship with the Company, and for a period of one year after termination of the Stockholder’s Business Relationship with the Company (the “No Transfer Period”), the Stockholder shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “Transfer”), any Shares (Vested or Unvested).
    Exceptions:
    Family
    Post-IPO
    Other (Right of First Refusal)
    6/2/11
    Martin Long
    15
  • Section 5Right of First Refusal
    (a) If the Stockholder proposes to make a bona fide Transfer of any Shares, the Stockholder shall first give written notice of the proposed Transfer (the “Transfer Notice”) to the Company.
    (b) If the Company wishes to accept the offer pursuant to Section 5(a) hereof with respect to all or any part of the Offered Shares, the Company shall, within 45 days after the Transfer Notice is delivered to the Company (the “Exercise Period”), deliver to the Stockholder a written notice (the “Exercise Notice”) that the Company is exercising the offer pursuant to Section 5(a) hereof.
    6/2/11
    Martin Long
    16
  • Section 9Stand-Off Agreement
    The Stockholder hereby agrees that he will not, without prior written consent of the managing underwriter of an underwritten public offering, during the period commencing on the date of the final prospectus relating to the Company’s initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed 180) days (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any of the Shares held immediately prior to the effectiveness of the registration statement for such offering…The foregoing restriction shall apply only to the initial public offering and shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement….
    The Stockholder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s initial public offering that are consistent with this provision or that are necessary to give further effect thereto.
    6/2/11
    Martin Long
    17
  • Section 10Restrictive Legend
    All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws:
    “The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a certain Stock Restriction Agreement between the corporation and the registered owner of these shares (or his predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”
    6/2/11
    Martin Long
    18
  • Section 11Investment Representation
    (a) The Stockholder is purchasing the Shares for his own account for investment only
    (c) The Stockholder can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding such Shares for an indefinite period.
    (e) The Stockholder understands that (i) the Shares have not been registered under the Securities Act and are “restricted securities” within the meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available
    6/2/11
    Martin Long
    19
  • Section 13 (j)“Section 83(B) Election”
    The Stockholder shall have the SOLE obligation to determine whether he wishes to file an election under Section 83(b) of the Internal Revenue Code and, if so, to file it PROPERLY AND IN A TIMELY MANNER and take such other actions as are prescribed by the Internal Revenue Service for such elections. Note: An election under said Section 83(b) must be filed within thirty (30) days after the purchase of the Shares.
    6/2/11
    Martin Long
    20
  • Exhibit AVesting Schedule
    4(a) None of the Shares are sold and issued to the Stockholder as fully Vested Shares.
    4(b) As long as the Stockholder maintains a Business Relationship with the Company, 25% of the Shares shall vest and become Vested Shares upon the first anniversary of the date of this Agreement, __________________.
    4(c) As long as the Stockholder maintains a Business Relationship with the Company, the remaining 75% of the Shares shall vest and become Vested Shares in 36 equal monthly installments commencing on _____________, until fully vested.
    Notwithstanding anything to the contrary contained herein, other than pursuant to the provisions set forth below relating to the acceleration of vesting, all vesting shall cease and no Shares shall vest or become Vested Shares after termination of the Stockholder’s Business Relationship with the Company for any reason whatsoever
    6/2/11
    Martin Long
    21
  • Exhibit AAcceleration of Vesting
    5(a) From and after the execution and delivery of this Agreement, if the Stockholder’s Business Relationship is terminated by the Company (or its successor) without Cause (as defined below), or by the Stockholder for Good Reason (as defined below), then the vesting of the Stockholder’s Shares shall accelerate with respect to that number of Unvested Shares that would become Vested Shares if 12 months were added to the period during which the Stockholder is deemed to have maintained a Business Relationship with the Company as of the effective time of such termination; provided, however that if such termination occurs during the 12 month period following the closing of an Acquisition (as defined below), that is not a Private Transaction (as defined below), then all of the Shares that as of such termination are Unvested Shares shall immediately vest and become Vested Shares.
    5(b) Upon the closing of an Acquisition that is not a Private Transaction, fifty percent (50%) of the Shares that as of such closing are Unvested Shares shall immediately vest and become Vested Shares.
    6/2/11
    Martin Long
    22
  • Definition: “Cause”
    “Cause” means any one or more of the following: (i) the Stockholder’s reckless or grossly negligent conduct, in each case that relates to the Company and causes the Company material harm or damage, or the willful and repeated refusal by the Stockholder to perform any specific lawful direction of the Company's Board of Directors that is within Stockholder's duties at the Company and within his reasonable control, after written notice of any such refusal to perform such direction is given to the Stockholder,  and if susceptible of cure, the Stockholder is provided a reasonable opportunity to cure such refusal to perform; (ii) the Stockholder’s deliberate and unauthorized disclosure of the Company’s confidential information or trade secrets, or any other material breach of the terms and conditions of any agreement or instrument between the Company and the Stockholder applicable to the same, or a material breach of any non-competition, non-solicitation, non-use or confidentiality covenants provided therein or under any applicable legal principle; (iii) if applicable to the Stockholder, a material breach of the Stockholder’s duty of loyalty to the Company as a director or officer under the applicable corporation law; (iv) the Stockholder’s commission of an act of fraud, theft, misappropriation or embezzlement with respect to the Company or in connection with its business; (v) the Stockholder’s conviction of, or pleading nolocontendere to, a felony or any other crime involving moral turpitude; or (vi) the Stockholder’s deliberate failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Stockholder’s cooperation.
    6/2/11
    Martin Long
    23
  • Definition:“Good Reason”
    “Good Reason” means any one or more of the following: (i) any reduction by the Company in the overall compensation (base salary, targeted bonus and benefits) of the Stockholder as in effect immediately prior to such reduction without the Stockholder’s consent, other than a reduction generally applicable to substantially all officers or senior employees of the Company and in general similar proportion as for other similarly situated officers or senior employees; (ii) any change which materially reduces the duties and responsibilities or level of management assigned to the Stockholder by the Company that are inconsistent with the Stockholder’s position at the Company immediately before such change so as to constitute de facto demotion (other than any change in connection with an Acquisition in order to integrate the business and operations of the Company into the business and operations of the acquirer or successor entity); provided, however, that a change to the Stockholder's position shall not be deemed a change that materially reduces the duties and responsibilities or level of management assigned to the Stockholder for purposes hereof, so long as the Stockholder continues to serve as an executive officer or vice president of the Company with responsibilities that include oversight of an operating or functional unit within the Company (e.g., business development, product development, sales, marketing, finance, etc.); (iii) a material breach by the Company or its successor of any of its material obligations under this Agreement or any a material breach by the Company of the terms of any employment or consulting agreement between the Stockholder and the Company, that is not cured within 14 days after written notice from the Stockholder to the Company to that effect; or (iv) the Company requires, prior to the third anniversary of the date of this Agreement, that the Stockholder be based at any place outside a 50 mile radius from the Stockholder’s current residence as of the date of this Agreement, or during the period between and including the third year anniversary and the fourth year anniversary, that the Stockholder be based at any place outside of the continental United States, in either case except for reasonably required travel by Company pertaining to its business, and except for relocation of the Stockholder with his consent (it being understood that any relocation that occurs prior to Stockholder delivering to the Company written objection to such relocation shall be considered to be with the Stockholder’s consent); provided, however, in each case that the Stockholder delivers a written notice of resignation within 60 days after the occurrence of the event that gives rise to such resignation.
    6/2/11
    Martin Long
    24
  • Exhibit AAcceleration of Vesting
    5(c) In the event that prior to the first anniversary of this Agreement the Stockholder dies or, in the good faith determination of the Board of Directors, becomes permanently disabled, and the Business Relationship with the Company existed at the time of such death or disability, then 25% of the Shares shall vest and become Vested Shares upon the date of such death or determination of such permanent disability, and no additional Shares shall vest hereunder.
    6/2/11
    Martin Long
    25
  • Other Things We Considered
    “Step up” right – to invest funds at the same price third parties are offered to invest in order to keep the founders’ percentage interest from being diluted
    “put right” – a right on the part of a departing schedule, price typically being FMV for vested stock. This could be ove4 4-6 years, and could even have a 15% penalty.
    6/2/11
    Martin Long
    26
  • Uncovered
    What is covered in other agreements:
    Intellectual Property assignment
    Invention Disclosure
    NDAs
    Non-Compete
    Non-Solicitation
    Do not forget these!
    6/2/11
    Martin Long
    27
  • Don’t Forget
    Venture Capitalist’s needs
    How you incorporate
    Vesting schedule
    All terms
    6/2/11
    Martin Long
    28
  • Questions
    ?
    6/2/11
    Martin Long
    29