How to establish a startup and raise funds in it (part 1)
The hour- long podcast of Startup School Radio focuses on the basics you need to know when setting up a company, as well as how to attract funds to it.
His colleagues, YC Finance Director Kirsty Nathoo and General Counsel YC Carolynn Levy and John Levy, joined his conversation with Aaron Harris, a partner with Y Combinator. They discussed the key financial and legal aspects that need to be considered when creating a startup and attracting first funds.
Below is a transcript of this conversation.
')
Aaron : Kirstie, let's start with you. What are the main requirements for entrepreneurs who decide to start their own business? What is necessary to register from the first days?
Kirstie : Communication is all about. If there are two founders of the company, then you need to make sure that they have common goals, and that in the end they expect to get a similar result. If, for example, one of them says, “I want to make this company public,” and the other says, “Well, I would have been doing this for six months, and then would have sold everything for a million,” we are dealing with very different perspectives. Such situations can lead to problems in the future, as the partners did not initially agree on the development plan and strategy of the company.
I believe that the lion's share of requirements comes down to quality communication and planning. Including, talk about how much time each of the founders can invest in the development of the company. There are people who are ready to do their startup 24/7, and there are people who are not ready for such a regime, because they have a family or other things in life that require attention. That is, if one of the founders of the company is set to work around the clock, and the other says, “I will dedicate office hours to business,” you need to have an idea about this in advance — such moments can also turn into a problem.
And if entrepreneurs do not get along, if they find it difficult to talk to each other, this will necessarily affect the startup as it grows. As a result, employees will not understand which of them to adhere to. And such things are a problem for the company.
Aaron : Kirstie talks about a very important point. Some things are not necessary to register, right? It is important not the availability of the document, and the presence of communication. Especially at the beginning. You are absolutely right that if it is absent from partnerships - and indeed in any relationship - problems will start to accumulate, right? Problems begin at every turn.
Kirstie : It is. Do not forget that a startup is a job under stress. Any little thing can turn into a problem. A mere trifle or a little doubt at the very beginning will definitely grow into a problem over time, since everyone works, feeling a burden of responsibility. That is why it is extremely important initially to make sure that the partners have a common vision of the strategy and the expected result, that they have discussed ownership of shares in the company and other fundamental things.
Aaron : I would like to discuss something you mentioned - we meet with such problems all the time. This is the moment we pay close attention to when dealing with applications: we are trying to understand why the company's shares are divided in a certain way. We are not talking about how it would be better to do the separation. But, as a rule, we are looking for an equal distribution of shares, especially in the early stages of the company's development.
I am turning my question to John and Carolyn: in a situation when you discussed the size of shares in the company's share capital, do you need to fix this in writing? Or, having decided, it is enough to say something like, “You know, Carolyn, here are your 50% of the company, here are my 50%. No, you do not need to write about this email. Let's go work right away. ”
Carolyn : It depends on the mechanism of establishment of the company. I do not think that partners need to prepare a separate document. If the company is ready to start, if both founders are ready to start, then it is better, in my opinion, to start work, create a joint-stock company and immediately redeem the agreed number of shares.
Aaron : I will stop you, because there are a number of things that are important to emphasize. People often overlook them.
First, this is the moment when the company is ready to launch. Let us assume that there is a decision that entrepreneurs are ready to devote their time to a specific business. Suppose that our founders are doing what Kirsty said: they discuss with each other what they expect from the company and where they plan to come as a result. But is there a defining moment, before which it is too early to set up a company around what you are doing?
Carolyn : I thought about that too when Kirsty answered your question. There is an important point that founders need to think about - most people know about it, because in YC we rarely encounter a similar problem. But to speak it stands here. If both founders are already employed, then, before closely dealing with their company, it is better to quit.
Or, if you started working together on the idea of ​​a startup in one company and continue to work for hire, you need to make sure that you do not use the time and resources of the employer company in order to establish your own.
Aaron : It just happened on the Silicon Valley television series, right? The whole plot was built around this.
Carolyn : I think that in this series almost all the issues that we are discussing were touched upon. Perhaps the right time to start a company depends largely on whether startups have decided to quit and devote all their time to a new business. If there is such a solution, it is necessary to do so.
I don’t think that there is a reason why you shouldn’t create a company. We can talk about this in more detail, because I am sure that people are wondering “Doesn't this require investments? Why should I spend money on something that has not yet matured? ”
Aaron : How not to inadvertently use the time or money of your current employer is one of the issues that worries many people starting their company. Today, when you go to work for a technology company in Silicon Valley, you sign an agreement on the transfer of an invention. If I’m a Google employee and I’m deciding to “Leave my job at Google, because I have a great idea. Now I want to work on it. ” How to make sure that Google has no rights to what I create in my startup?
Carolyn : You should not use the equipment you received from Google. So, Google could give you a laptop, phone or something else to work for the company. You should use only materials and equipment that you purchased with your own funds.
Aaron : I see. If you have a corporate laptop, remember that this is not your laptop. Do not write code on it. Do not do anything on it.
Carolyn : That's right, it is.
John : And outside working hours. So, while you are at Google’s office, you don’t have to develop ideas for your startup. Different states have different legislation. But in California, inventions created outside working hours fall under serious legislative protection. Let's say you work at Google. And in the middle of the night you dreamed a cure for cancer. This is, of course, an extraordinary example. But Google, hopefully, has no rights to your dreams, so the medicine belongs to you ...
Aaron : However, re-read your employment contract, just in case ...
John : Google is an interesting story in general, because California requires law to provide companies with a clear view of research and development, so if Google is working on a cure for cancer, and Google is developing in many ways, because they are trying to have all the knowledge posted on the Internet, both owned and newly created - this is an all-encompassing activity. The bottom line is that the owners of startups do not mix their own and others.
Aaron : ... so if you are dreaming about a cure for cancer in working hours ... (laughter)
Carolyn : This idea belongs to Google.
Aaron : This is owned by Google.
Carolyn : Google owns everything.
Aaron : The main idea here, in fact, is to separate projects. Even if you continue to work in a foreign company ...
John : ... don't mix office activities and startup development.
Aaron : You will attract funding for what you do, so make sure that you do your own project from home and in your own time. You do not have to do this on your company's campus or during 20% ​​of the work time allocated for third-party projects — don't even think about it.
John : So it is.
Aaron : Well, both founders decided that they would be involved in this project. There is a decision to start work. Is this the right moment to create a company?
Carolyn : I would agree with that.
Aaron : But isn’t that an extra headache? At YC, we often advise entrepreneurs to do only two things - write code and talk to users. Why form a company?
John : At YC, we try to make the establishment of a joint stock company and the creation of a company look the same. We have a sample approach. We are for each company to use our primary documents, standard templates.
Aaron : And these are the documents that we allow the whole world to see, right?
John : Yes, they are publicly available on Clerky.com. To register a company, you must perform a series of simple steps. And by the way, it is very cheap. You can go to the official website of the state of Delaware and register a company for the day. Documentation will be ready in 24 hours, cost - 200-300 dollars. Very small costs.
Aaron : I think this is amazing for many. Those of us who have never registered companies think something like this: “Oh God, I will need to hire a lawyer. It will take weeks and have to go through paperwork, and both. " And we are talking about the fact that the creation of the company will take half a day, will require a couple of clicks on the site and the payment of the commission to the state of Delaware by credit card.
Carolyn : Yes. These myths remained in the view of many due to the fact that earlier to establish a company was quite difficult. But now all sorts of platforms have appeared - for example, Legal Zoom. With the help of them, companies even outside of Silicon Valley are registered online and do it with ease. The process is very different from registering a decade ago. Today, nothing prevents
creating your own company.
Kirstie : I’d use Legal Zoom with caution, because they can leave a client on the site without prompts in limbo and, as a result, you are not completely drawing out the necessary papers. Therefore, if you are registering a company yourself, make sure that you have a complete idea of ​​which documents you need to issue: one registration in the state of Delaware is not enough. And, using Legal Zoom, you can only stay with it.
One of the problems that we encounter when working with young companies is that they later have to figure out what papers they have already issued, and what procedures they have yet to go through. Therefore, on the one hand, Legal Zoom is an excellent tool, allowing you not to hire a lawyer to register a company and not pay him a fee, but, on the other hand, a tool that should be used with great care. On Clerky you are not left without instruction, they are more involved in the process.
John : That's right. And there are subtle details. So, for example, the founders will have to buy shares of their company, otherwise they are not considered to be shareholders.
Aaron : But how does it work? You think like this: “Well, here are the stocks. This is my company. I just established it. She is mine". Why should I buy shares of my own company?
Carolyn : It should tell about the intermediate stage. Immediately after you have established a company, you notify the state of Delaware: “Here is my certificate of state registration of a legal entity,” then you submit a corresponding application and now you are an official company in Delaware. The next thing you need is to get the founder's decision. By decision of the founder, a board of directors is appointed, which you also need. The founder - a person whose signature is on the certificate of registration of the company - will appoint the directors of the company. After the board of directors has been formed, it is necessary to issue shares for ourselves. No shareholder owns a company, and she’s
should be owned.
Aaron : But why should I buy these stocks? Why can't they be donated?
Carolyn : Because in the state of Delaware, there is a notion of the nominal value of a share, which can be any. And, as many know, often this cost is ridiculously small. For example, one thousandth of a cent. Compensation must also be awarded for the promotion. But no one wonders about the amount of this compensation. And I would say that in this case it is worth putting a big asterisk over the word “compensation” and making a footnote, but since the company is at the very beginning, you can pay these microscopic amounts ... A couple of cents and you become the first shareholders. These are the requirements established by law.
On the number of shares we are not talking about. Rather, about what you own. You can have 100 shares or 10 million. In the Valley, favoring quantities more impressive and lower prices.
To be continued...
His colleagues, YC Finance Director Kirsty Nathoo and General Counsel YC Carolynn Levy and John Levy, joined his conversation with Aaron Harris, a partner with Y Combinator. They discussed the key financial and legal aspects that need to be considered when creating a startup and attracting first funds.
Below is a transcript of this conversation.
')
Form expectations
Aaron : Kirstie, let's start with you. What are the main requirements for entrepreneurs who decide to start their own business? What is necessary to register from the first days?
Kirstie : Communication is all about. If there are two founders of the company, then you need to make sure that they have common goals, and that in the end they expect to get a similar result. If, for example, one of them says, “I want to make this company public,” and the other says, “Well, I would have been doing this for six months, and then would have sold everything for a million,” we are dealing with very different perspectives. Such situations can lead to problems in the future, as the partners did not initially agree on the development plan and strategy of the company.
I believe that the lion's share of requirements comes down to quality communication and planning. Including, talk about how much time each of the founders can invest in the development of the company. There are people who are ready to do their startup 24/7, and there are people who are not ready for such a regime, because they have a family or other things in life that require attention. That is, if one of the founders of the company is set to work around the clock, and the other says, “I will dedicate office hours to business,” you need to have an idea about this in advance — such moments can also turn into a problem.
And if entrepreneurs do not get along, if they find it difficult to talk to each other, this will necessarily affect the startup as it grows. As a result, employees will not understand which of them to adhere to. And such things are a problem for the company.
Aaron : Kirstie talks about a very important point. Some things are not necessary to register, right? It is important not the availability of the document, and the presence of communication. Especially at the beginning. You are absolutely right that if it is absent from partnerships - and indeed in any relationship - problems will start to accumulate, right? Problems begin at every turn.
Kirstie : It is. Do not forget that a startup is a job under stress. Any little thing can turn into a problem. A mere trifle or a little doubt at the very beginning will definitely grow into a problem over time, since everyone works, feeling a burden of responsibility. That is why it is extremely important initially to make sure that the partners have a common vision of the strategy and the expected result, that they have discussed ownership of shares in the company and other fundamental things.
Start from scratch
Aaron : I would like to discuss something you mentioned - we meet with such problems all the time. This is the moment we pay close attention to when dealing with applications: we are trying to understand why the company's shares are divided in a certain way. We are not talking about how it would be better to do the separation. But, as a rule, we are looking for an equal distribution of shares, especially in the early stages of the company's development.
I am turning my question to John and Carolyn: in a situation when you discussed the size of shares in the company's share capital, do you need to fix this in writing? Or, having decided, it is enough to say something like, “You know, Carolyn, here are your 50% of the company, here are my 50%. No, you do not need to write about this email. Let's go work right away. ”
Carolyn : It depends on the mechanism of establishment of the company. I do not think that partners need to prepare a separate document. If the company is ready to start, if both founders are ready to start, then it is better, in my opinion, to start work, create a joint-stock company and immediately redeem the agreed number of shares.
Aaron : I will stop you, because there are a number of things that are important to emphasize. People often overlook them.
First, this is the moment when the company is ready to launch. Let us assume that there is a decision that entrepreneurs are ready to devote their time to a specific business. Suppose that our founders are doing what Kirsty said: they discuss with each other what they expect from the company and where they plan to come as a result. But is there a defining moment, before which it is too early to set up a company around what you are doing?
Carolyn : I thought about that too when Kirsty answered your question. There is an important point that founders need to think about - most people know about it, because in YC we rarely encounter a similar problem. But to speak it stands here. If both founders are already employed, then, before closely dealing with their company, it is better to quit.
Or, if you started working together on the idea of ​​a startup in one company and continue to work for hire, you need to make sure that you do not use the time and resources of the employer company in order to establish your own.
Aaron : It just happened on the Silicon Valley television series, right? The whole plot was built around this.
Carolyn : I think that in this series almost all the issues that we are discussing were touched upon. Perhaps the right time to start a company depends largely on whether startups have decided to quit and devote all their time to a new business. If there is such a solution, it is necessary to do so.
I don’t think that there is a reason why you shouldn’t create a company. We can talk about this in more detail, because I am sure that people are wondering “Doesn't this require investments? Why should I spend money on something that has not yet matured? ”
Aaron : How not to inadvertently use the time or money of your current employer is one of the issues that worries many people starting their company. Today, when you go to work for a technology company in Silicon Valley, you sign an agreement on the transfer of an invention. If I’m a Google employee and I’m deciding to “Leave my job at Google, because I have a great idea. Now I want to work on it. ” How to make sure that Google has no rights to what I create in my startup?
Carolyn : You should not use the equipment you received from Google. So, Google could give you a laptop, phone or something else to work for the company. You should use only materials and equipment that you purchased with your own funds.
Aaron : I see. If you have a corporate laptop, remember that this is not your laptop. Do not write code on it. Do not do anything on it.
Carolyn : That's right, it is.
John : And outside working hours. So, while you are at Google’s office, you don’t have to develop ideas for your startup. Different states have different legislation. But in California, inventions created outside working hours fall under serious legislative protection. Let's say you work at Google. And in the middle of the night you dreamed a cure for cancer. This is, of course, an extraordinary example. But Google, hopefully, has no rights to your dreams, so the medicine belongs to you ...
Aaron : However, re-read your employment contract, just in case ...
John : Google is an interesting story in general, because California requires law to provide companies with a clear view of research and development, so if Google is working on a cure for cancer, and Google is developing in many ways, because they are trying to have all the knowledge posted on the Internet, both owned and newly created - this is an all-encompassing activity. The bottom line is that the owners of startups do not mix their own and others.
Aaron : ... so if you are dreaming about a cure for cancer in working hours ... (laughter)
Carolyn : This idea belongs to Google.
Aaron : This is owned by Google.
Carolyn : Google owns everything.
Aaron : The main idea here, in fact, is to separate projects. Even if you continue to work in a foreign company ...
John : ... don't mix office activities and startup development.
Aaron : You will attract funding for what you do, so make sure that you do your own project from home and in your own time. You do not have to do this on your company's campus or during 20% ​​of the work time allocated for third-party projects — don't even think about it.
John : So it is.
Register (and do not complicate)
Aaron : Well, both founders decided that they would be involved in this project. There is a decision to start work. Is this the right moment to create a company?
Carolyn : I would agree with that.
Aaron : But isn’t that an extra headache? At YC, we often advise entrepreneurs to do only two things - write code and talk to users. Why form a company?
John : At YC, we try to make the establishment of a joint stock company and the creation of a company look the same. We have a sample approach. We are for each company to use our primary documents, standard templates.
Aaron : And these are the documents that we allow the whole world to see, right?
John : Yes, they are publicly available on Clerky.com. To register a company, you must perform a series of simple steps. And by the way, it is very cheap. You can go to the official website of the state of Delaware and register a company for the day. Documentation will be ready in 24 hours, cost - 200-300 dollars. Very small costs.
Aaron : I think this is amazing for many. Those of us who have never registered companies think something like this: “Oh God, I will need to hire a lawyer. It will take weeks and have to go through paperwork, and both. " And we are talking about the fact that the creation of the company will take half a day, will require a couple of clicks on the site and the payment of the commission to the state of Delaware by credit card.
Carolyn : Yes. These myths remained in the view of many due to the fact that earlier to establish a company was quite difficult. But now all sorts of platforms have appeared - for example, Legal Zoom. With the help of them, companies even outside of Silicon Valley are registered online and do it with ease. The process is very different from registering a decade ago. Today, nothing prevents
creating your own company.
Kirstie : I’d use Legal Zoom with caution, because they can leave a client on the site without prompts in limbo and, as a result, you are not completely drawing out the necessary papers. Therefore, if you are registering a company yourself, make sure that you have a complete idea of ​​which documents you need to issue: one registration in the state of Delaware is not enough. And, using Legal Zoom, you can only stay with it.
One of the problems that we encounter when working with young companies is that they later have to figure out what papers they have already issued, and what procedures they have yet to go through. Therefore, on the one hand, Legal Zoom is an excellent tool, allowing you not to hire a lawyer to register a company and not pay him a fee, but, on the other hand, a tool that should be used with great care. On Clerky you are not left without instruction, they are more involved in the process.
John : That's right. And there are subtle details. So, for example, the founders will have to buy shares of their company, otherwise they are not considered to be shareholders.
Aaron : But how does it work? You think like this: “Well, here are the stocks. This is my company. I just established it. She is mine". Why should I buy shares of my own company?
Carolyn : It should tell about the intermediate stage. Immediately after you have established a company, you notify the state of Delaware: “Here is my certificate of state registration of a legal entity,” then you submit a corresponding application and now you are an official company in Delaware. The next thing you need is to get the founder's decision. By decision of the founder, a board of directors is appointed, which you also need. The founder - a person whose signature is on the certificate of registration of the company - will appoint the directors of the company. After the board of directors has been formed, it is necessary to issue shares for ourselves. No shareholder owns a company, and she’s
should be owned.
Aaron : But why should I buy these stocks? Why can't they be donated?
Carolyn : Because in the state of Delaware, there is a notion of the nominal value of a share, which can be any. And, as many know, often this cost is ridiculously small. For example, one thousandth of a cent. Compensation must also be awarded for the promotion. But no one wonders about the amount of this compensation. And I would say that in this case it is worth putting a big asterisk over the word “compensation” and making a footnote, but since the company is at the very beginning, you can pay these microscopic amounts ... A couple of cents and you become the first shareholders. These are the requirements established by law.
On the number of shares we are not talking about. Rather, about what you own. You can have 100 shares or 10 million. In the Valley, favoring quantities more impressive and lower prices.
To be continued...
Source: https://habr.com/ru/post/298334/
All Articles