I get a ton of individuals asking me how to keep control of their startup. So I want to give a checklist on how to do it.
First, you must know these underlying principles. Don’t be lazy about it. At a minimum read the articles and understand these underlying points.
A. Understand the framework and know what stock is
B. Know the math
You will be outgunned if you don’t understand the mathematics of share price.
C. Offer vanilla terms and be reasonable with investors
People forget that investors and founders are going to be on the same team.
Vanilla terms are sexy. Don’t get too fancy, especially if your startup is in Texas.
D. Have a startup lawyer watch your back
Have your own startup lawyer for your startup.
Check these off and you’re in good shape to keep control of your startup
Since you have the underlying principles down pat, now for the more nitty-gritty.
___ 1. Make sure IP belongs to the startup
If your company doesn’t own its own IP, what does it own?
___ 2. Vest founders’ shares
___ 3a. Realize that you will never have 100% control of your startup
You have to realize that. The startup will never be yours completely. You have to share.
___ 3b. Use proper anti-dilution provisions
Be prepared to be diluted. But control that process. Here’s how.
___ 4. Raise money at the right time
If you raise money too early you’ll have to give a huge amount of your company in return for investor funds. That will result in you losing control. The flip side of that is this— you will have to give equity in exchange for funds in order to help grow your company. In other words—timing is important. Additionally, run a good business with strong fundamentals. People try to get too fancy. The best companies I’ve seen are those with good fundamentals.
___ 5. Pick investors wisely
Too many founders jump at the first investors that show any interest. It’s like over-eager dating.
___ 6. Get the right valuation for your startup
___ 7. Choose board seats wisely & don’t let shares get passed around
Share and board control is important. Don’t let these things slip from your fingers.
___ 8. Don’t allow a high liquidation preference and don’t allow for participating preferred stock
___ 9. Limit legal troubles and lawsuits. Follow GDPR and other regulations.
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Do those things and you’ll be fine. Don’t overthink it. Keep focused on making your startup a better startup. Remember: you need to share control of your startup if you want to grow it. Just do it intelligently. Contact me and let’s get some coffee if you want to talk about it.