Page 15 - Business Insights Technology Industry

INITIAL LEGAL CHALLENGES FOR
EARLY STAGE TECHNOLOGY COMPANIES INTELLECTUAL

HAVE THE HARD CONVERSATIONS PROPERTY PRIMER
EARLY, AND THEN DOCUMENT
FOUNDER PLANNING THE AGREEMENT

E arly stage technology companies typically The best way for founders to reduce the impact
run into legal trouble when differences of (almost inevitable) changes in founder
arise between founders regarding: relationships is to work with counsel to address
equity and governance issues from the start. This
► Money permits company counsel to hardwire the capital
and governance structure so that expectations
► Control
are clear. When the result of changes in direction
► Time commitments can be predictable, the company can avoid
► Vision costly re-negotiation of structure, and reduce
the likelihood of one of the most frequent and
And founder relationships go from bad to worse demoralizing results of deferred decision making:
because: that a founder opting to leave the company will
have leverage over those who want to stay and
► Founders delayed key formation decisions continue to build.
Founders often don’t initiate tough QUESTIONS TO ADDRESS UPFRONT:
∆
conversations with co-founders because
they hesitate to come off to fellow co- ► What is the equity split?
founders as “the one who thinks that this
won’t work out” ► How much equity should be reserved to
incentivize non-founder employees, advisors
Most founders want to devote their time and consultants?
∆
towards more direct company-building
efforts in areas they are more familiar with ∆ Who will hold the board seats?
► The company has poor corporate hygiene ∆ Who will hold what officer positions? A lmost every business, whether a startup or an established company, has Intellectual
Property (“IP”). IP provides your business with a competitive advantage.
Foundational legal documents are missing ∆ What are the expectations for time Examples include a name, logo, invention, customer list, or website, all of which
∆
or incomplete commitment? are valuable business assets that should be protected. For startups especially, successful
After formation, the company put existing ∆ How will conflicts be resolved? companies must understand how to identify and protect their IP. Here are some pointers
∆
documents onto a (virtual) shelf, and did not ∆ What is the vision for the company? that every startup should consider.
involve counsel in ongoing decisions post-
formation, such as: ∆ What vesting schedule will be used for
founder equity?
Hiring the first non-founder team
⌂
members
JEREMY RAPHAEL
Engaging consultants SENIOR ATTORNEY
⌂
Early stage fundraising MILLER, EGAN, MOLTER & NELSON, LLP
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