
Best Practices for Startup Founder Equity - jana1975
http://vc-list.com/best-practices-startup-founder-equity/
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siegel
Regarding this: "Founders typically receive common stock, i.e. a class of
stock with no special rights or preferences. Although there have been efforts
by various organizations to promote the issuance of special classes of stock
for founders that contain “super voting” rights or similar protective
provisions, in practice, those provisions hardly ever survive the first round
of outside investment. In the vast majority of cases, we recommend sticking to
the K.I.S.S. principal and issuing common stock to the founders."

I completely disagree:

1) There are other functions of special classes of stock for founders, other
than "super voting" or protective provisions. Founder stock can be structured
to facilitate early liquidity without adversely impacting the company's 409A
valuation and with potentially better tax treatment than common stock
repurchases by the company (the typical alternative). This latter function can
serve its purpose regardless of whether it survives the first funding round
because it's in a funding round that such stock gets purchased (and, thus,
provides early liquidity).

2) If you don't build in special rights at the beginning, you are unlikely to
ever get them. You may have more leverage in a funding round than you may
think. So, what's the downside of trying?

3) What if you never get VC funding, but end up growing based on revenues?
Won't you then regret not having built-in special protections for yourself at
the outset? Without a VC forcing you to ditch those protections, they could
survive indefinitely.

4) Assuming your lawyer knows what he or she is doing at the outset, marginal
cost of eliminating these rights in a VC round is basically $0. Everyone knows
this. So, having a special class of stock at incorporation is not a deterrent
to financing. If the VC insists and you don't have the leverage, you just get
rid of it.

I'm actually writing something about this that I'll post eventually. But I do
not understand this point of view in the startup community at all. It's the
one area of the world I interact with where a party (the startup founders)
pre-negotiates against itself before a negotiation.

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jana1975
When you publish it I would love to read it. send it.

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siegel
I definitely will!

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jana1975
Sent you an email - so you have a place to send a link to when it is done.

