Startup Legal

1. www.NodalPartners.com/FI Startup Legal Be A Competent Client – Use A Framework Get A Good Lawyer (Firm) Get Incorporated; Observe Formalities Use “Standard” Contracts Where Possible Use Lawyer for Big Deals (and Financings) Use “Liability Limiting Language” Otherwise.

2. Where Does Legal Fit? • Getting to Product-Market fit is core. Focus there. • Satisfice (Don’t Optimize) Legal. What does that mean? • Cost question is not only “how much” but “when” • Too early is a waste • Too late is very expensive … and sometimes lethal • My recommendation • Establish a FRAMEWORK for compliance and control • Rely on lawyer for standard dox, financings and big deals only • Do DIY things in writing and use liability limiting language Problem – Solution Fit Problem – Market Fit Hypothesis Lean canvas Incorporation  Seed Funding  Service Providers  Options; Series A

3. A Corporation Is A Legal “Person” • You are merely its agent (fiduciary) (So is “your” attorney.) • You have multiple relationships – shareholder, board director, officer or employee • Power and ownership will be SHARED. Officers Executes Orders Board Manages All Aspects of Company Shareholders Elects Board; Approval of Big Changes Bylaws Defines Entity and its “Constitution” Articles Of Incorporation State Statutes A corporation is like the OSI model of networking – distinct layers doing different things

4. What Do These Have In Common?

5. The Control Framework Board, Stockholders, Co-founders Stock Purchase; Board Resolutions, etc. Purchase Orders Sales Orders; Terms of Service; Privacy Policies Suppliers Company Customers Service Providers Patent, Lease Employment ; Independent Contractors Property: Patents, etc. Employees Independent Contractors

6. The Control Framework

7. Sample Framework • What You Need • Filing Cabinet (fixed) • Policy/Procedure (versioned) • Projects (draft; final) • Whiteboard (dynamic) • “Splitting vs. Clumping” • Draft vs. Final, Signed • Primary vs. Derivative • Paper vs. Electronic ❷ ❺ ❹ ❺ ❶ ❸

8. Case Study: Acme Widgets

9. ❺ Corporate Folder ❸ • Delaware corporation, qualified to do busi-ness as a “foreign corporation” in CA; C-corp • Forms Availability - DIY • Goodwin- Proctor • Series Seed • Links at Startup Co. Lawyer • State of Delaware, Secretary of State • MyCorporation.com, Nolo Press, Legal Zoom • Hire a good lawyer and let him/her do corporation and give you the “standard documents” they prefer. ❶ ❷ ❹

10. Capitalization Folder • Each investment in the Company will be a “Closing” or “Funding” event. • You will handle the term sheet • The lawyer will handle the subscription agreement, the closing and the regulatory filings (federal and state)

11. People Folder • This is where most startups have their first contract issues • Potholes: • Misclassifying employees as IC’s • Not securing IP rights (Inventions Assignment; Work For Hire) • Not repeating “at will” enough • Promising stock; not delivering • Discrimination

12. 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,* [Gmail, GSites, GDox, GCal] • Learn to use the standard agreements and drive them to final, signed documents, filed inside the framework. • Use Google to research things; avoid chit-chat with lawyer • CYA with “liability limiting language” (next) • Buy your attorney lunch once a quarter (off the meter) • Engage them for funding and thereafter. * make sure to back it up!!

13. Liability Limiting Language (1) • Generic Contract – offer, acceptance, consideration • Parties • Deliverables by each, terms • Who, what, when, where, how good and how much? • Conditions, before and after • Term and termination; renewal • “Reps and warranties” • Breach, Damages, Indemnification; limits of liability • Boilerplate • Agreement formed … and enforced – can be oral • Partial performance • Accepted by action

14. Liability Limiting Language (1) • 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

15. The Lawyer’s Role … and Yours • The lawyer represents the Company, not you. • You, as CEO, are the boss; they are the “professional” (but, like a doctor). • They advise, recommend and represent. • You decide. • You are wise to defer to them for “legal points” … but you don’t have to. • Don’t be afraid to talk fees and money.