sv winter 2016 7- startup legal & ip - wayne willis

8/19/2019 SV Winter 2016 7- Startup Legal & IP - Wayne Willis

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A Framework ForManaging

Year 1 In A Startup :

The practical steps of keeping control



Wayne Willis

[email protected]@gmail.com

Entrepreneur / Co-Founder

•Hyatt Legal Services (legal)

•Global Currency Advisors (finance)

•Vidtel (video conferencing)

•ILLUMAI (shampoo/conditioner)

Chairman or Board Director•26 companies, mostly tech

•Many different roles

Investor•≈50 companies

CEO of VC backed companies

•Voice-Tel ($216m exit)

•Healthscribe ($90m exit)

•Ditto.com ($23m exit)

•Cyracom (5 years on Inc 5000)

Other•Managing Partner – Nodal Partners

•Business & Law degrees from Yale

“Startup egal

A Framework For Managing

Year 1 In A Startup



Agenda

• Corporate Records - A Framework For Control

• The First Year – A Greyline Tour

• Standard Documents

• DIY Contracting & Liability Limiting Language

• Financings and Options

• Next Steps

• Q&A



What Do These Have In Common?



What’s A Corporate Record?

CompanySuppliers Customers

EmployeesIndependent

Contractors

Service Providers

Board, Stockholders

Property:

Patents,

etc.

Purchase

OrdersSales Orders;

Terms of Service;

Stock Purchase; Board Resolutions, Options, etc.

Employment ; Independent ContractorsLicense, Lease



Embrace E-records

• Print doc’s to pdf to petrify; file .doc, xls, ppt

• Scan paper to pdf; throw paper away**

•

Print key emails to pdf • Use e-signature service to sign to pdf

• Use fax-to-email service if needed; to pdf

** Paper records have two uses – Litigation – “Scanned – Date” to pdf and keep paper in

central place by date. Use pdf until trial.

– Temporary stuff that will be tossed (e.g., meeting agenda)



Elects Board; Approval

of Big Changes

Manages All Aspects

of Company

Executes Orders

A Corporation Is A Legal “Person”• It’s an independent entity – not you

• Multiple relationships – shareholder, board director, officer or employee

• “A group of contracts flying in close formation”

State Statutes

Articles OfIncorporation

Bylaws

Shareholders

Board

Officers

Defines Entity and

its Constitution”

A corporation is like the OSI model of networking – distinct layers doing different things



Corporate Records In Context

• “Filing Cabinet” metaphor – Corp Records are mostly fixed

and final content; not great for workflow

• “To Do” or Project Management – Workflowy, Basecamp

• “Whiteboard” – Google Docs• “Policy and Procedure” (Personnel, Admin)

• “Documents Under Development”

– Drafts – naming conventions, mark to show changes, doc management

systems, google docs for collaborative drafting/commenting, etc.

– Github (and others) for version control

– Can use Box or Dropbox, but keep separate from “Filing Cabinet” for

permanent records



Corporate Records ≠ Financial Records

• But embrace e-records there, too!

• Use Expensify to track charges, cash and mileage. Invoice the

Company and have them pay you.

• Download e-bank records• E-file taxes

• Use Quickbooks at first; QBO for off-site support

• Boundary conditions – contracts with vendors and customers

– sometimes managed with corporate records, sometimeswith accounting records



Agenda




• DIY Contracting With Liability Limiting Language


• Next Steps

• Q&A



Where/When Does Legal Fit?

1. Satisfice (Don’t Optimize) Legal Requirements

– Too much or too early is a waste of time or money

– Too little or too late is very expensive … and sometimes lethal

2. My recommendation

– Establish a FRAMEWORK for compliance and control - DIY

– Rely on lawyer for standard dox, financings and big deals only

– All other stuff done DIY, preferably in writing, using “liability

limiting language”

Incorporation Seed Funding Service Providers Options Series A Series B

www.NodalPartners.com/fico.ppt

Hypotheses Problem –Solution Fit

Product –Market FitLean canvas

ScalingUp



Agenda






• Next Steps

• Q&A



Standard Documents

• Board – Sample Minutes

– Sample Unanimous

Written Consent

– Common resolutions

• Options approval

• Election of officer(s)

• Approval of deal that is

not “usual/customary” or

“in the ordinary course”

•Shareholder

– Sample Minutes

– (Restricted) Stock

Purchase Agreement

• Options – Plan (and related)

– Standard Grant /

Options Agreements

• Employee – Offer Letter

– I-9, W-4, inventions

assignments, non-

disclosure, non-

solicitation, etc. – Termination letter (or

memo to file)

• Advisory – Advisor Agreement

(NDA, Inventions

Assignment, Advisory

Agreement ) – Standard Grant /

Options Agreements

• Contractors – Consulting

Agreement

• Strategics – Non-disclosure

Agreement



Agenda




• DIY Contracting & Liability Limiting Language


• Next Steps

• Q&A



Liability Limiting Language (1)

• Generic Contract – offer, acceptance, consideration

– Parties

– Deliverables by each, terms

• Who, what, when, where, how good, how fast and how much?

– Conditions, before and after (optional)

– Term and termination; renewal

– “Reps and warranties” (optional from here on)

– Breach, Damages, Indemnification; limits of liability

– Boilerplate

• Agreement formed … and enforced – can be oral

– Partial performance

– Accepted by action



Liability Limiting Language (2)

• Generic Contract – offer, acceptance, consideration –

Discussion Draft ”

; Non-binding term outline

”

; not binding … definitive legal agreements”

– Parties – deal only with honorable people; observed/enforced; dogs and fleas

– Deliverables by each, terms• Be super clear; don t waffle. Better to say no” than get sued.

• Limit your risks – small amounts at first; inspection/rejection; option; negotiate!

– Term and termination; renewal• This is the most overlooked gotcha

”

and best door out. Termination on X days, either way;no auto-renewal for long periods.

– Breach, Damages, Indemnification; limits of liability• Limit liability to the amount paid;

– Boilerplate• Use a Rider Notwithstanding anything in the main agreement to the contrary, the

parties agree that X, Y, Z….

• Agreement formed … and enforced – can be oral – Partial performance – use email to confirm and be sure there s a meeting of the

minds” before proceeding.

– Accepted by action – make clear than only written documentation



Financing

Pitch and

Fundraising

Term Sheets;

CommitmentsClosing

•

Executive Summary

• PowerPoint Deck

• Forecast & Budget

• “Business Plan”

•

Term Sheet (you)

• Term Sheet (them)

• Private Placement

Memorandum

•

Stock Purchase Agmt

• Convertible Note

Purchase Agmt

• $ Investment

•The security issued



Options

“Plan” Created

and Approved

Board

Grants

Option

Expiration

or Exercise

• Board & Shareholder

approval

• Reserves shares to be sold

when options exercised

• Board approves “grant”

• “Grant” is a contract

where option holder hasright but not obligation to

buy shares at X price

during Y period

• Vesting

• Acceleration

• Board resolution

• Agreement

prepared and

signed by holder

and company

• Expiration -- earlier of:

• 10 years

• X days after term-

ination of service

• Exercise

• Sign the form and

submit a check

• X days after term-

ination of service



Agenda






• Next Steps

• Q&A



What Do You Do Next?

• Find a good lawyer; negotiate deferred fee arrangement

• Ask for a simple incorporation and “standard” agreements

– Restricted Stock Agreements (and 83(b) election) for co-founders

– Employee and IC agreements (NDAs, inventions assignments, work-for-hire, etc.)

– NDA

– Maybe customer or channel contracts

• Set Up YOUR Framework – Dropbox* or Box

• Learn to use the standard agreements and drive them to final, signed documents,

filed inside the framework.

• Use Google to research other documents; avoid chit-chat with lawyer

•

CYA with“

liability limiting language”

• Buy your attorney lunch once a quarter (off the meter)

• Engage your attorney for funding and thereafter.

* make sure to back it up!!