Do you want investors for your company? One of the most basic questions you will need to answer is ‘do you own what you are selling’? Many entrepreneurs don’t even think about this question. ‘Our company has been building this software for the past two years, of course we own it.’ And yet, experienced investors will have seen many times when this isn’t the case. Here are the common mistakes […]
The practice of law has hardly changed over the past decades, from the client’s point of view. Sure, there are all sorts of tools that make it easier to be a lawyer: document sharing and editing, email as opposed to snail mail, and so on. The basic transaction looks the same. You call the lawyer up and talk to them, for hundreds of dollars an hour. They look at your […]
Many business owners are short-sightedly selfish with their shares. Initially, the founder often wants to own as close to 100% of the shares of ‘his’ or ‘her’ company as possible, to stay ‘in control’. Shares are sold only if absolutely necessary to raise money (foolishly, at the highest possible valuation). Options are sometimes forced on the founder, only as a way to attract top management. Public businesses also reserve options […]
Many lawyers recommend that small companies put forced buy-sell, i.e., ‘shotgun’, clauses into their founding agreements as a way to cover a business partner ‘divorce’. In a typical shotgun clause, any partner can approach the other, at any time, with a forced offer to buy or sell their shares within a fixed deadline, at a named price per share. The person at the receiving end of the shotgun has only […]
by Kamal Hassan So you’re going to start a company. You and your partners sit down and issue each other 1,000 shares each. Simple … right? You’ve just committed your first business mistake.
by Kamal Hassan As an entrepreneur, one thing you tend to overlook is the legal side of running a business. Lawyers are expensive to work with and talk to, so the tendency (when you are working in a cash-conversing mode) is to just avoid them. I know, because I do this myself. Of course, avoiding your legal work is risky. Legal paperwork is a little like an insurance policy: if […]
by Kamal Hassan I had a call yesterday from an entrepreneur, who asked me about an anti-dilution clause in a terms sheet they had been offered. My short answer to him was ‘just say no’. The slightly longer answer was ‘this typically reflects disagreement over valuation, so reduce your valuation’. This is a perfect example of my previous advice that terms matter much more than valuation. (For those who don’t […]
by Kamal Hassan Many people, including me, suggest that entrepreneurs always ‘vest’ their shares. What does this mean, and why is vesting needed? Vesting is a way of solving a prediction problem about the future. Shares typically have close to zero value when a company is founded. As the company starts to raise money over time from financial investors, the shares will then start to gain in value. For instance, […]
by Kamal Hassan One thing experienced investors and entrepreneurs take for granted is the company’s ‘cap table’, short for the company’s capitalization table. People often say ‘send me your cap table’: to new entrepreneurs, this question can be intimidating and stressful. It doesn’t need to be. [It can also be hard. With IncMind, it doesn’t need to be.] What is a ‘cap table’?