A Bootstrapper’s Guide to Not Screwing Up

(too badly)

The Gillespie Law Group

Representing Startups and Growth-Stage Businesses

Dave Gillespiedgillespie@thegillespielawgroup.com

614-344-4842@GillespieLaw

www.thegillespielawgroup.com

Our goal

To create alarms that will be triggered when opportunities to screw up arise.

Don’t form your entity too late

Ideally: Use a lawyer. But if you cannot…

You probably are not screwing up if you:

File LLC papers with Secretary of State. Don’t need written partnership agreement. Until later stages, it’s not too hard to convert later.

You are probably screwing up if you:

Use Legal Zoom. Bad written agreements are usually worse than no written agreement

Don’t use fully vested stock for founders’ equity

Ownership is based on the work that you do in the future not an agreement you make today

Don’t Pay a “Finder”

• Who is a “Finder”?

• What are the consequences?

• What is the worst case scenario? criminal charges

Don’t Talk in Percentages

Why? Equity Grants require very precise language.

Correct: “Company will grant you X shares of [type] stock, at Y time, for $/work.”

Incorrect: “You’ll own X% of the Company.”Really? When? Forever?

Don’t tweet about your “private” offering

General Rule: You can’t sell stock without registering with SEC.

However, startups typically rely on “private offering” exemptions.Publicizing your “private” offering can ruin the exemption!!!!

Don’t EVER promise “no dilution”

1. Dilution isn’t always bad.

2. Anti-dilution ≠ no dilution.

3. Anti-dilution provisions are for down rounds only.

Don’t forget about your current employer

Rule of thumb: Don’t use company property or work on your idea during work hours.

Bad: Non-competition clauses.

Worse: Assignment of Inventions Clauses. You’re probably going to need to quit first or get a written exemption from your boss to be really safe.

Make sure your boss and your cofounder’s

boss don’t end up owning part of your

company.

Don’t use third-party developers or designers without a written agreement

Copyright must be assigned by a written

agreement.

Without one: your developer owns the

work product. Period.

SO….

1. Don’t form your entity too late.2. Don’t use fully vested stock for founders’ equity.3. Don’t pay a finder.4. Don’t talk in percentages.5. Don’t tweet about your private offering.6. Don’t promise “no dilution”.7. Don’t forget about your current employer.8. Don’t use third-party designers or developers

without a written agreement.

A Bootstrapper’s Guide to Not Screwing Up(too badly)