Igor Bogicevic - All things you didn’t want to know
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Presentation held by Igor Bogicevic on topic "All things you didn’t want to know" at Startup Academy course in Belgrade. More details at startapakademija.com.
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Igor Bogicevic - All things you didn’t want to know
- 1. All Things You Didn’t Want to Know Igor Bogicevic, Seven Bridges Genomics, CTO/Founder igor.bogicevic@sbgenomics.com
- 2. Opening a Company • You're not building a company, you're building product and business... • ... however you still need a legal framework to operate on market • I'll be covering US entities, or to be exact 2 entities - LLC and C Corp • LLC is much simpler and cheaper to setup, simple from tax standpoint, great for a small business • ... however it doesn't really allow for shareholders and classes of stock • If you're looking for "smart" (sophisticated angels and VCs) investment you will have to switch to C Corp (Delaware) • This also means you will need to have a board of directors and keep your finances in order
- 3. Structuring a company • I can't stress this enough... • DO IT BY THE BOOK • DO IT BY THE BOOK • Use template charter and bylaws • Hire a good lawyer, there are founder friendly firms
- 4. Stock Options and Classes • Several classes of stock options • Investors - Preferred stock options • Founders, Employees - Common stock options • Liquidation preference • Dividends - interest on investment • Minority shareholder rights • Again, hire a good lawyer
- 5. Mechanic of an Investment • Negotiations starts with the term sheet • Learn how to make a cap table - it's simple at the beginning • Common way to structure investment is through trading stock options or convertible debt (or both) • Convertible debt became very popular recently (much simpler and cheaper) • Convertible debt can be with, or without cap • Investment is a long term partnership, both sides should happy and have the same incentive • Either do stock (+ part in convertible debt without or with cap), or convertible debt with cap • It's super important to align the interests, try to amortize dilution for minor shareholders (employees) • Investors don't invest in your idea, they invest in product and team • Yet again, hire a good lawyer
- 6. Vesting • Share options are good incentive for hiring talent • ... actually the only one if you don't have much money in the bank • Create employee share option pool that will last for 2 years • Vesting is a good mechanism to give employees incentive to stay with the company • Industry standard terms are 4 years vesting period, 1 year cliff and then 1/48 of vested stock each month • Do a founder vesting, smart investors will ask it anyways • Don't be defensive, but be smart - do accelerated vesting upon job termination • Again, align interests - you want stable team delivering a great product, structure option pool around that • Use template documents for stock options
- 7. Mechanics of Exit • Happy, happy, joy, joy • You can either IPO, or you can get acquired by other company • This is so-called "liquidity event" • That's when you pay taxes • First step of acquisition is LOI (letter of intent) • It's still doesn't mean you're acquired, it only means the start of negotiations • Acquihires have become popular recently - not really success, especially for investors, minor-medium success for founders • Just in case you thought I'll forget to say, hire a good lawyer