Startup Company Lawyer

It's never legally required to pay the founders. The founders' equity, which should be vesting over time, can be considered their only compensation. Be forewarned that this can still lead to massive tax pains later on if an 83(b) election isn't filed[1].

No matter how broke you are, you should be able to find a lawyer who can help you get set up. You can use the same founding documents, amendments, and appendices for your future bootstrapped ventures, so it's worth doing it right.

Some firms will take equity in exchange for legal work, so that's also something to consider. I've never used a firm like that, so I don't know how that all works.

A dangerous and extremely common side effect of doing your own legal work is in-fighting with co-founders. When you have rock-solid, thorough founding documents, you've already agreed on what to do for an exhaustive list of contingenies: what happens if someone wants to leave, if someone isn't pulling their weight, if someone dies, etc. etc. My founding docs are about 50 pages.

It's extremely important that you set everything up right, and it shouldn't cost you more than $1,500. I've known firms that will give you a boilerplate package for your particular state for about $500, so shop around.

1. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election/

When 'pg' tweeted other day about all deals being convertible notes, I researched a bit about them. Following is my notes on em.

Convertible notes make a lot of sense for both Angels and Founders as both are taking risks. If a startup ever makes it big, founders have benefit as angels are being discounted. If a startup doesn't make it, at least angels get the power and they can act according to the prior agreed conditions. For angels, tax advantages are also worth considering. Again, all the benefits depend on the fine details.

Venturehacks has nice article. http://venturehacks.com/articles/debt-or-equity
Summary is that, it is better to raise convertible debt for small amounts and it is better to go for the equity if bigger amounts are needed.

There is an awesome write up by Yokum here http://www.startupcompanylawyer.com/category/convertible-note-bridge-financing/

There are many types http://en.wikipedia.org/wiki/Convertible_bond#Types

I think it is safe to assume that a seasoned angel/vc won't screw founders - it only gets them bad reputation. That said, it is everyone's responsibility to know/read what they are getting into before signing.

That is misleading. I've worked in California.

Firstly, obligatory invention disclosures are often enforceable if they're related to your employer's business, as they often exist to protect your mutual interests.

http://www.startupcompanylawyer.com/2009/01/08/what-do-you-need-to-do-before-you-quit-your-job-to-form-a-startup-company/

Secondly, IP assignment is related to this entry in the CA labour code:

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=02001-03000&file=2870-2872

Which clearly states that if you're working on the same area your employer is paying you for, it's not going to be trivial to claim it as your own even if you did it on your own time.

In short, California has the benefit of making IP assignment unenforceable if it's on your own time, in an unrelated area to your employer. But it's not carte blanche.

The idea is that by letting founders sell some of their stock early, investors and founders will be aligned and founders will be less likely to want or demand an earlier, safer exit that doesn't meet their investors' expectations. Basically, it lets founders get a few hundred K now so that they're more willing to try to go for broke later.

Founders Fund have even branded a share structure which allows easier conversion of co-founder (sometimes actually called Series FF) shares to shares of a later series sellable to investors in future rounds. I think that trying to grant early liquidity to founders has been common for at least two years and was a cause of major controversy during the Groupon IPO.

See also:
http://www.startupcompanylawyer.com/2007/12/22/what-is-series-ff-stock/
http://www.quora.com/What-is-Series-FF-stock-and-how-does-it-work

There actually are other non-nefarious reasons. When employees exercise they become shareholders, and certain securities law regulations come into effect. A young startup might want to defer those until they are big enough to handle the administrative overhead.

Also, while it's a tremendous tax benefit and pretty much a no-brainer to early employees, once the strike price constitutes an investment of tens of thousands of dollars, all of which could be lost, it's not necessarily a popular or prudent choice for later employees. So then it becomes this thing that only the early employees get, which perhaps might lead to some resentment and morale issues. Just some issues for companies to consider.

Good overview of the pros and cons here: http://www.startupcompanylawyer.com/2009/01/11/should-a-company-allow-early-exercise-of-stock-options/

Not sure where you can find a standard one, but my bet is 90% is boilerplate stuff. If you don't mind, what doesn't feel right? Did you make him explain each paragraph and reasons for it, and answer questions for you? I use attorney's quite a bit and really push them onto the hot seat, I learned early on they were quick to try and control my meetings with them which is just unacceptable to me.

I did find this with some examples:

http://www.startupcompanylawyer.com/category/convertible-note-bridge-financing/

and this:

http://www.docracy.com/2740/convertible-note-term-sheet-template-

Obviously I am not an attorney and I don't have any convertible notes so I can't answer from first hand knowledge but hopefully those help some.