Startup Killers -- and Killer Startups
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Starting companies is like launching a rocket: If you’re off 1/10 degree at launch, you’ll miss your target completely. We all know the dismal statistics about how many startups fail. But what is less known is the common causes that lead to startup failure. With smart planning, founders can eliminate (or at least minimize) the "startup killers" that threaten the health of their startups. This presentations, from Kevin Smith, Founder and CEO of SEEDCHANGE, and Glenn McCrae, Chief Strategy Officer for Early Growth Financial Services, identifies the top startup killers and how to prepare for, steer clear of, and survive them. Topics include: - Founders' agreements - Protecting your IP - How to build a supportive infrastructure - Restricted stock agreements and convertible notes - and more!
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Startup Killers -- and Killer Startups
- 2. About Your Hosts 2 Kevin Smith Founder and CEO Glenn McCrae Chief Operating Officer SEEDCHANGE and The VAULT
- 5. Killer #1: Founders Bloomberg Businessweek 'People Problems' Sink Most Startups By Karen E. Klein on April 02, 2012 SEEDCHANGE®
- 6. Founders Agreement • Who? • What? • How? • How much? • Why? • What if? SEEDCHANGE®
- 7. Killer #2: IP SEEDCHANGE® Intellectual Property Ownership • Do you have IP? • Who owns it? • How do you know? • How do you keep it?
- 8. Daily Conversations in SV SEEDCHANGE® Scenario #1: “I couldn’t afford the lab equipment for this product before but now I have some funding and I’m ready to leave BigCorp. to start my own company. “ Scenario #2: “My co-founder is a brilliant coder and he developed all the code for this product.” Scenario #3: “We are constantly meeting with strategic partners and potential hires. Should they sign something?”
- 9. Prove You Own Your IP SEEDCHANGE® Intellectual Property Issues •Corporate Invention Assignment & ConfAgmt. •Founders Agreement •Startup Invention Assignment & Confi Agmt. •Non-Disclosure Agreement
- 10. Killer #3: Accounting/Compliance • Open business banking account • Separate personal and business expenses • Keep records of receipts and invoices • Be mindful of tax obligations • Collect payments • Select payroll provider • Stay on top of stock records
- 11. Killer #4: Structure SEEDCHANGE® Company Creation: • S-Corp, LLC, C-Corp or LLP? • Arizona, California, Delaware or Nevada? • 1mm, 5mm, 10mm or 20mm shares? • 1, 2, 3 or 6 directors on the board? • Does a(n) [Arizona/Delaware/Nevada] corporation have to register in California? • Board meets 1/wk., 1/mo., 1/Q or 1/yr.?
- 12. Incorporate in Delaware SEEDCHANGE® Company Creation: • C-Corp • Delaware • 10mm or 20mm shares • 3 directors on board • Register in California • Conduct Board quarterly meetings
- 13. Killer #5: Stock SEEDCHANGE® Issuing Securities: • Vesting • IRS filing • Friends and family • Debt or equity – what’s the difference? • “Do we have to file anything?”
- 14. Restricted Stock Agreement & Convertible Notes SEEDCHANGE® Issuing Securities: • Vesting: 4/1 • 83(b): 30 days! • Friends and family: Accredited only • Debt or equity: Debt, then equity • File with the state, file with the SEC
- 15. It’s Not Rocket Science, But… SEEDCHANGE® “Starting companies is like launching a rocket: If you’re off 1/10 degree at launch, you’ll miss your target completely.” Founders Agreement Invention assignment, confidentiality and non-disclosure agreements Segregate accounts/understand compliance obligations C-Corp in Delaware Restricted stock agreements + vesting + state/federal filings Convertible notes with accredited investors
- 16. Thanks and Contact Us SEEDCHANGE® Glenn McCrae 415-234-3437 contact@earlygrowthfinancialservices.com @EarlyGrowthFS Kevin Smith 1.650.703.3749 (c) kevin@seed-change.com @seedchange
Editor's Notes
- Who’s working on a startup now? Most of you are doomed to fail. It’s a fact. There are things you can do to improve the odds---Living in SV helps, so does having Stanford on your diploma---but the most important thing you can do is understand the threats. So let’s look first at the funding market.
- In the past 5 years, investors have started trying to identify the causes of startup success and the causes of startup failure. Little hard data, many observations and anecdotes. But bc success has many fathers and failure is an orphan, it’s easier to identify what makes a company go bust than what makes one succeed. So let’s look at some legal issues that have killed startups. They’re really not complicated, they aren’t expensive and they’re easy to get right.
- Founders leave for all kinds of reasons: Lost passion; different life stage; going back to school; different values; new mortgage, divorce or baby. One founder to another 2 years in: “Have you retired or are you serious about this business?”
- Who are the founders and what are their roles and titles? What are we contributing? How much equity do we have? How do we issue it? What happens if we split?
- Issue-spotting exercise
- Issue-spotting exercise
- Here’s a multiple choice quiz for you.