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Equity Allocation & Agreements

Co-founding a business isn’t very different to marriage.  You can start with all the right intentions, and never imagine separating.  But it does happen.  Plan ahead.  Otherwise, you may jeopardize the viability of your new enterprise.

Equity Allocation (5:00)

Kirsty Nathoo (Y Combinator)

Getting the legal, finance (equity allocation, vesting), accounting, and other overheads right, will save you a lot of pain in the long run. 

NOTE: video starts & stops at pre-assigned times

Stock Options

Currently, the way almost every stock option package works in the startup world is: you get stock that vests over a period of time. When you leave you have (depending on the company), 90 days. If you do not buy your stock in that period, it’s gone! It’s not yours anymore. What many companies don’t necessarily tell you is that if you don’t have money to pay for the options, they are gone (in order for you to get the money, because the preferred is worth X million dollars, your options are going to cost you 1/4 x X dollars when you leave).
 
Ben Horowitz (Andreessen Horowitz), suggests that ‘the best solution is to grant options that are exercisable for 10 years, from the grant date. There are tricky issues to this, but it’s still far better than just losing the assets’. Ben thinks that this is the policy that all startups should adopt.

Options (4:00)

Ben Horowitz (Andreessen Horowitz)

It’s critical to think it through from everyone’s perspective.

NOTE: video starts & stops at pre-assigned times

Pre-Shareholder Agreement

Pre-shareholder Agreement Sample (pdf) and Shareholder Agreement Sample (pdf)
CC4.0 Share Alike  Startup Commons
Disclaimer
As a startup you are free to use and edit this agreement for your own needs as you like, but please note this is meant to be used only as a sample agreement and not a recommendation or legal advise.

ACTIVITY

Agreements

Create a draft of your ‘unique’ pre-shareholder agreement now!

A good Shareholder Agreement will address critical decisions and processes (mdplaw.com):

  1. How the company and the business will be managed.
  2. Which decisions will be made by directors versus shareholders.
  3. How often directors and shareholders will meet.
  4. How dividends will be paid.
  5. How shares can be issued and sold.
  6. Selling the business.
  7. Resolving disputes.
  8. Legal documentation (eg deeds of accession) for incoming shareholders.
  9. Managing low performing shareholders and the conditional issuing of shares.

Draft Pre-Agreement Now!

Common Pitfalls (10:00)

Jason Gordon

The basics of valuation, ownership, best practices for founders, employees and later investors.

NOTE: video starts & stops at pre-assigned times

Course Curator: Dr. Gerard L. Danford

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