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StartupPercolator

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April 14, 2014

Seeing the Big Picture

 When starting a new company, it’s easy to focus entirely on the business you are building, but it’s also important to make sure that you see the big picture. View blog post
Startup - Intellectual Property
March 6, 2014

NDAs Decoded: What They Are and When to Use Them

 A nondisclosure agreement (or "NDA") is a contract illustrating how confidential information will be shared and protected by two or more parties. View blog post
Startup - Equity Compensation
February 19, 2014

The Double Edged Sword: Why Founders and Investors Should Avoid Fixed-Multiple Change of Control Premiums in Convertible Note Financings

 In a convertible note financing (or an increasingly popular SAFE financing), the change of control premium—the benefit given to a lender if the company has an exit before the notes convert—is an easily overlooked term. This is because it is rarely applicable, especially when the financing is a seed-type investment. View blog post
Startup - Equity Compensation
February 12, 2014

The Problem With Percentages

 Unfortunately, too often I hear founders say things like “I promised her options for 2% of the company,” or worse, we see statements to that effect in employee offer letters or other agreements. In the worst cases, founders will even expressly agree to issue an investor or service provider a “fixed percentage” of the company’s ownership going forward. View blog post
Startup - Governance and Risk Management
January 21, 2014

A Start-up’s First Office Lease Agreement – Focus on the Economics

 Nearly every start-up begins in a garage, basement or home office. Some of today’s largest technology companies fall into that category, including Google, Apple, Hewlett-Packard and Amazon. But, at some point hopefully, the start-up outgrows its humble beginnings and needs to lease office, retail or storage space in order to meet consumer demands. View blog post
Startup - Fundraising
January 8, 2014

Thinking About Raising Capital Through a "General Solicitation"? Make Sure You Understand the Hidden Costs

 The passing of the JOBS Act created much fanfare, especially given the relaxation of the securities laws with respect to the use of "general solicitations." Notwithstanding the excitement from the blogosphere, the revised rules also come with some hidden costs that make using a “general solicitation” in fundraising less attractive. View blog post
Startup - Equity Compensation
October 25, 2013

Do I need to file a Section 83(b) election if vesting is imposed on my stock after it has been issued?

 In a prior Founder Tip of the Week we discussed how the Internal Revenue Code (the “Tax Code”) characterizes unvested founder stock as not being purchased until it has vested, and that this characterization can have adverse tax consequences for the founder because the Tax Code treats as taxable income the excess, if any, of the fair market value of stock at the time it vests over the purchase price of the stock (the “spread”). View blog post
road through mountains
August 2, 2013

Get to Know the Delaware Public Benefit Corporation

 A new Delaware law, signed on July 17 by Gov. Jack Markell, allows companies to be formed as public benefit corporations (PBCs), which balance stockholders’ returns, the impact on other people affected by a company's business activities, and the creation of an overall public benefit. Starting on August 1, Delaware companies will be able to form or reincorporate as PBCs, or merge with PBCs. View blog post
Startup - Fundraising
June 18, 2013

Include a Capitalization Table in the Term Sheet

 Whether a financing, merger or other acquisition, or other major transaction, parties often outline the major provisions in a non-binding term sheet or letter of intent. A principal benefit of this approach it to help the parties identify major areas of disagreement early to avoid wasted expense on additional diligence and drafting of the definitive agreements. View blog post
road through mountains
June 11, 2013

Three Steps to Limit Liability and Avoid Veil Piercing

 A corporation is a separate entity with its own liabilities for which the individual owners cannot be held personally liable. It is a concept that is old as dirt and right as rain, right? Surely everyone accepts this basic premise of doing business as a corporate entity? Well, perhaps everyone but the plaintiff’s attorney seeking to hold someone with deep pockets financially responsible for his client’s injuries. View blog post
Startup - Fundraising
June 7, 2013

Term Sheet Basics – Dilution

 Dilution is a term that is frequently discussed in the context of preferred stock financings. However, it is important to understand that there is a difference between dilution in the general sense and the type of dilution with respect to which preferred stockholders receive protection. View blog post
Startup - Fundraising
May 10, 2013

Term Sheet Basics – Pre-money Valuation

 “Pre-money” or “pre-money valuation” is a term that entrepreneurs will hear and use a lot in the context of securing equity financing, so I thought it would be a good idea to make sure entrepreneurs have a clear understanding of it. View blog post
Startup - Governance and Risk Management
March 29, 2013

"Backdating" In M&A?

 The date of an agreement is an important part of most business transactions and M & A is no exception. Many acquisition agreements begin with an “Agreement between” the parties “effective as of” a given date. Does it matter if this effective date is prior to the date the parties actually entered into the agreement? And if so, is this ‘backdating’ problematic or even potentially illegal? View blog post
Startup - Fundraising
March 13, 2013

Promising Board Seats to Your Investors the Right Way

 A commonplace among emerging companies is the need to promise investors seats on the board of directors. For a lot of different reasons, it makes sense to make this promise. It is usually a condition to receiving the investor’s capital, so there’s that. View blog post
Startup - Governance and Risk Management
March 7, 2013

M&A Tips for the Bootstrapped and Early-Stage Technology Startup

 You've developed your idea into a business. It's taken a lot of sweat and hard work, and there have been more than a few rough spots. Acquirers are now taking note and making inquiries. Maybe investment bankers are courting you. You have arrived!! Well, almost . . . . View blog post
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