Startup Legal How to Move Your Idea From Concept to Reality :

1. Startup Legal How to Move Your Idea From Concept to Reality: The practical steps of incorporating & financing an unfunded startup

2. “Startup Legal” How to Move Your Idea From Concept to Reality Wayne Willis • 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 • Entrepreneur / Co-Founder • Hyatt Legal Services (legal) • Global Currency Advisors (finance) • Vidtel(video conferencing) • ExiTrak (strategic exit preparation) • Chairman or Board Director • 26 companies, mostly tech • Many different roles • Investor • ≈50 companies

3. www.NodalPartners.com/fico Where/When Does Legal Fit? • Satisfice (Don’t Optimize) LegalRequirements • Too much or too early is a waste of time or money • Too little or too late is very expensive … and sometimes lethal • 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” ScalingUp Problem – Solution Fit Product – Market Fit Hypotheses Lean canvas Incorporation  Seed Funding  Service Providers  Options  Series A  Series B

4. Agenda www.NodalPartners.com/fico • Company Law 101 Overview • Keeping Control - A Framework • Standard Documents • DIY Contracts With Liability Limiting Language • Financings and Options • Next Steps • Q&A

5. A Corporation Is A Legal “Person” • It’s an independent entity – not you • Multiple relationships – shareholder, board director, officer or employee Officers A corporation is like the OSI model of networking – distinct layers doing different things Board Executes Orders Shareholders Manages All Aspects of Company Elects Board; Approval of Big Changes Bylaws Articles Of Incorporation Defines Entity and its “Constitution” State Statutes

6. What Do These Have In Common?

7. The Control Framework Board, Stockholders Stock Purchase; Board Resolutions, etc. Purchase Orders Sales Orders; Terms of Service; Suppliers Company Customers Service Providers License, Lease Employment ; Independent Contractors Property: Patents, etc. Employees Independent Contractors

8. The Control Framework

9. Sample Control Framework • What You Need • Filing Cabinet (fixed) • To Do’s; Project Management; • Whiteboard (dynamic) • Policy/Procedure (versioned) • Productivity Tools (email, cal, IM, .doc, .xls, Github, etc.) • Issues To Consider • Paper vs. Electronic • Draft vs. Final, Signed • Primary vs. Derivative • “Splitting vs. Clumping”

10. Case Study: Acme Widgets

11. Corporate Folder • Delaware corporation, qualified to do busi-ness as a “foreign corporation” in CA; C-corp • Forms Availability - DIY • Goodwin-Proctor • 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.

12. Capitalization Folder • Each investment in the Company will be a “Closing” or “Funding” event. • You will handle the term sheet for Convertible Note or Series A • The lawyer will handle • the subscription agreement (aka the “[SecuritesName] Purchase Agreement” • the closing and • the regulatory filings (federal and state)

13. 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 • Wage and hour violations

14. Sample Control Framework • What You Need • Filing Cabinet (fixed) • To Do’s; Project Management; • Whiteboard (dynamic) • Policy/Procedure (versioned) • Productivity Tools (email, cal, IM, .doc, .xls, Github, etc.) • Issues To Consider • Paper vs. Electronic • Draft vs. Final, Signed • Primary vs. Derivative • “Splitting vs. Clumping”

15. Agenda www.NodalPartners.com/fico • Company Law 101 Overview • Keeping Control - A Framework • Standard Documents • DIY Contracting With Liability Limiting Language • Financings and Options • Next Steps • Q&A

16. 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, non-compete, 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

17. Agenda www.NodalPartners.com/fico • Company Law 101 Overview • Keeping Control - A Framework • Standard Documents • DIY Contracting With Liability Limiting Language • Financings and Options • Next Steps • Q&A

18. 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

19. 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

20. Agenda www.NodalPartners.com/fico • Company Law 101 Overview • Keeping Control - A Framework • Standard Documents • DIY Contracting With Liability Limiting Language • Financings and Options • Next Steps • Q&A

21. Financing Pitch and Fundraising Term Sheets; Commitments Closing • 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

22. Options “Plan” Created and Approved Board GrantsOption Expiration or Exercise • Board & Shareholder approval • Reserves shares to be sold when options exercised • Board approves “grant” • “Grant” is a contract where option holder has right 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

23. Agenda www.NodalPartners.com/fico • Company Law 101 Overview • Keeping Control - A Framework • Standard Documents • DIY Contracting With Liability Limiting Language • Financings and Options • Next Steps • Q&A

24. 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* and maybe [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 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!!