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The Startup's Guide to Hiring a Lawyer

Startups tend to have “DIY” in their DNA. Founders are likely to find themselves changing the copier toner or fixing a leaky faucet in the moments between updating the business plan and meeting with a prospective investor. Most entrepreneurs are clever and dedicated, but when it comes to legal matters, DIY doesn't cut it.

Smart startups hire themselves a lawyer.

There's nothing simple about business law. Even the seemingly basic stuff can be deceptively complex. Should you form an LLC or a C-Corp? What liabilities do you have? What in the world is “indemnity”? Hiring a lawyer might seem expensive, but it's a bargain compared to the costs of being on the wrong side of a lawsuit.
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Legal Guide to Revenue Loans

Revenue loans are an increasingly common way for businesses to fund their growth.

You might be wondering, from a legal perspective, how is a revenue loan different from a regular loan? How is it similar?

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4 things you should know about VCs and non-disclosure agreements

You’re a tech entrepreneur at an emerging startup. To date, you’ve bootstrapped your company, but now you’re at the stage where you’re preparing to take on outside capital. You’ve just had your first meeting with a VC and it went well enough that the potential investor asks you for background documents, including financial projections, product information and an investor deck. Before you hand over the information, your co-founder demands that the VC sign an NDA. What should you do?

Here are four things you need to know about VCs and NDAs.
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Why are you giving convertible debt investors full ratchet anti-dilution rights?

Last week, we covered one little-known problem with convertible debt—unpriced multiple liquidation preferences. Here we’ll look at another hidden pitfall of convertible debt—the fact you’re giving investors full ratchet anti-dilution rights, which burns founders in a down round.

Here are some key things to understand a full ratchet and inadvertently giving away too much of your company to early investors.

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Participating or non-participating preferred stock: what’s the difference?

I often get questions from founders about different types of stock or equity they can offer investors. In preferred stock offerings (e.g., a Series Seed Preferred Stock financing), one of the key things founders should pay attention to when evaluating a term sheet is whether the preferred stock is “participating” or “non-participating.”

Here’s a quick explanation.

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Why VCs only invest in C corporations

In the very early stages of your company, you need to make a key decision: What type of business entity to form. Will you be an LLC (a limited liability company), an S Corporation, or a C Corporation? Your choice will have an immediate impact on your company, as well as lasting implications for your ability to raise funds, especially if you decide to pursue venture capital.

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Why you need to have a founders’ agreement in place

One business risk many startups overlook is the relationship between cofounder(s). They assume formal agreements are unnecessary. Big mistake. I wrote a post last year on what to do after a cofounder exits. This time I’d like to focus on how to set things up correctly at the beginning of your relationship so that you are protected when unexpected things, whether good or bad, happen. Remember, many things can happen in the highs and lows of the exciting startup life.

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Four reasons your startup shouldn’t be an LLC

In the frantic life of a startup, founders often find themselves making countless decisions, day in, day out. The rapid-fire nature of this process often leaves founders wondering: “Will this decision significantly affect the future of my company?

Fortunately, for most decisions, the answer is “no.” But there is one major choice that can significantly affect the future of your company—the type of business entity you form.

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Warrants and stock options: legalities and tax implications

Stock options and warrants are similar in many ways. Both provide the right to buy a company’s stock for a certain period and at a fixed price, as specified in a contractual agreement. But these instruments are used in different circumstances. Stock options are usually part of an overall compensation package offered to employees or consultants, whereas warrants are an instrument to entice and reward investors.

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5 key areas to address in your SaaS customer agreements

As a transactional lawyer working with startups, a large part of my practice is helping software-as-a-service (SaaS) companies draft and negotiate customer agreements. We work together to create a standard Subscription Agreement for the company and then develop a playbook to implement it and react to customer-proposed changes. The key is to start with a strong subscription agreement template and build from there. The following are some of the more important issues to address in a SaaS Subscription Agreement.

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