Presentation held by Igor Bogicevic on topic "All things you didn’t want to know" at Startup Academy course in Belgrade. More details at startapakademija.com.
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Igor Bogicevic - All things you didn’t want to know
1. All Things You Didn’t
Want to Know
Igor Bogicevic, Seven Bridges Genomics, CTO/Founder
igor.bogicevic@sbgenomics.com
2. Opening a Company
• You're not building a company, you're building product and business...
• ... however you still need a legal framework to operate on market
• I'll be covering US entities, or to be exact 2 entities - LLC and C Corp
• LLC is much simpler and cheaper to setup, simple from tax standpoint, great for a small business
• ... however it doesn't really allow for shareholders and classes of stock
• If you're looking for "smart" (sophisticated angels and VCs) investment you will have to switch to C Corp
(Delaware)
• This also means you will need to have a board of directors and keep your finances in order
3. Structuring a company
• I can't stress this enough...
• DO IT BY THE BOOK
• DO IT BY THE BOOK
• Use template charter and bylaws
• Hire a good lawyer, there are founder friendly firms
4. Stock Options and Classes
• Several classes of stock options
• Investors - Preferred stock options
• Founders, Employees - Common stock options
• Liquidation preference
• Dividends - interest on investment
• Minority shareholder rights
• Again, hire a good lawyer
5. Mechanic of an Investment
• Negotiations starts with the term sheet
• Learn how to make a cap table - it's simple at the beginning
• Common way to structure investment is through trading stock options or convertible debt (or both)
• Convertible debt became very popular recently (much simpler and cheaper)
• Convertible debt can be with, or without cap
• Investment is a long term partnership, both sides should happy and have the same incentive
• Either do stock (+ part in convertible debt without or with cap), or convertible debt with cap
• It's super important to align the interests, try to amortize dilution for minor shareholders (employees)
• Investors don't invest in your idea, they invest in product and team
• Yet again, hire a good lawyer
6. Vesting
• Share options are good incentive for hiring talent
• ... actually the only one if you don't have much money in the bank
• Create employee share option pool that will last for 2 years
• Vesting is a good mechanism to give employees incentive to stay with the company
• Industry standard terms are 4 years vesting period, 1 year cliff and then 1/48 of vested stock each month
• Do a founder vesting, smart investors will ask it anyways
• Don't be defensive, but be smart - do accelerated vesting upon job termination
• Again, align interests - you want stable team delivering a great product, structure option pool around that
• Use template documents for stock options
7. Mechanics of Exit
• Happy, happy, joy, joy
• You can either IPO, or you can get acquired by other company
• This is so-called "liquidity event"
• That's when you pay taxes
• First step of acquisition is LOI (letter of intent)
• It's still doesn't mean you're acquired, it only means the start of negotiations
• Acquihires have become popular recently - not really success, especially for investors, minor-medium
success for founders
• Just in case you thought I'll forget to say, hire a good lawyer