Sunday, July 10, 2011

Starting from basic

So what is it all about? Well nothing really.  I am a corporate lawyer, a partner in one of the largest law firms in Israel.  I am focused on technology clients.  From startups to late stage to public companies.  I see new companies and entrepreneurs all the time.  I love technology and love to see new stuff.   I think I have some knowledge about how to do it right, at least from the law side of things.  Let's start with basic stuff.  The first blog is about incorporation.

First rule - keep it simple.  Stick with ordinary normal corporation.  Forget about LLC, LLP or other structures.  If you want to raise money from VCs or angels, stick with what they know.  If you need to spend 5 minutes explaining why your structure is the best tax structure ever invented, you already lost the war.  There are only certain circumstances where the more complex structures make sense - trust me when I say it - you are not one of them, irrespective of what your father's tax advisor told you.  After you sell 3 companies and you feel you can sell an ice machine to a VC let's talk about it again, okay?

Second rule - don't start developing your company when you are working for someone else. I know this one is a tough one. People usually come up with the idea for their new startup while working for someone else. I get it, but do they really need to incorporate while they work for someone else? They don't. Do they need to file a PCT or a patent application when they work for someone? Not really. Don't register a trademark or a website, before you leave your position. Don't use your current employer laptop or facilities. This will get you in trouble later on.

Third rule - be nice to your old employer before you leave.  Don't piss them off.  You may think that once you left your old company, you don't have to be nice to anybody.  The problem is that there are many cases where you will have to go back to your employer and ask to get a waiver, clarification or something else that your investor will sometime ask as a condition for the investment.  They may not help, but at least you should be in a position to ask.

Fourth rule - if you are starting to work with the other founder before you have a founders agreement in place, at least make sure you guys have signed some document that assigned your IP to the startup. Many founders separate even before they start.  If you had someone write code, make sure he signed a paper that simply said that it is yours.  It will cost you a lot if you don't do it on time.

Fifth rule - don't wait for the first investor to set you straight.  If you don't have an employment agreement, founders agreement, IP assignment form, restricted stock agreement, when the VCs invest, I can promise you that the terms set by the VC will be much tougher than what you could have set by yourself.

That's it for now.  This was not legal advice.

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