59 Quotes from Kirsty Nathoo & Carolynn Levy on Legal & Accounting Basics for Startups
From How to Start a Startup — Lecture 18
Published in
5 min readNov 21, 2014
From Stanford’s CS183B Course How to Start a Startup — Lecture 18
The quotes below are all 140 characters or less, so please feel free to share as you see fit. In case I’ve missed any quotes or you find any errors, please leave me a comment and I will be sure to update the post.
- “The primary reason for forming a separate legal entity is to protect yourselves from personal liability.”
- 1/“Investors are very comfortable with Delaware. They already invest in companies that are Delaware corporations. Most of their…”
- 2/”investments are probably Delaware corporations, so if you are also a Delaware corporation then everything just becomes much more simple.”
- 1/“You as founders have to think about things in 2 different ways: you always have to be thinking, am I doing this as an individual, as me…”
- 2/”or am I doing this on behalf of the company, which is a separate entity.”
- “Execution has greater value than the idea.”
- “You need to resist the urge to give a disproportionate amount of stock to the founder who is credited with coming up with the idea.”
- “Should the stock be allocated equally among the founders? And from our perspective, the simple answer is probably yes.”
- “Our mantra at YC is stock allocation doesn’t have to be exactly equal, but if it’s very disproportionate then that’s a huge red flag.”
- “We wonder what conversation is not happening among the founder team when the ownership isn’t equal.”
- “When ownership is disproportionate, what we worry about is that the founders are not in sync with one another.”
- “It’s really important to look forward in a startup, not backwards.”
- 1/“If the expectation at the startup is that each founder is in it 100%, and you’re all in it for the long haul…”
- 2/”then everything that happened before the formation of the company shouldn’t matter.”
- “It will feel better to the whole team if the allocation is equal, because the whole team is necessary for execution.”
- “Sign the paperwork.Sign the stock purchase agreement.Sign the 83-B election, & make sure you actually have proof that you’ve sent that in.”
- “Vesting means you get full ownership of your stock over a specific period of time.”
- 1/“In Silicon Valley, the so-called standard vesting period is 4 years with a 1 year cliff.”
- 2/”This means after 1 year, the founder vests in or fully owns 25% of the shares. The remaining shares vest monthly over the next 3 years.”
- “What happens to the shares when a founder stops working at the company? The company can repurchase those shares.”
- “The #1 reason why vesting is important has to do with founders leaving the company.”
- “Do single founders need vesting. They do, and the reason is because the skin in the game concept applies to solo founders as well.”
- “Investors really want to see all founders, even solo founders incentivized to stay at the company for a long time.”
- 1/“There are 2 ways to raise money. Either the price is set for the money that comes in or the price isn’t set.”
- 2/”And by price, we mean the valuation of the company, it’s the same thing.”
- 1/“People can name them whatever they want, but generally if you hear the term Seed Round, it would mean that the price has not been set…”
- 2/”And anything that’s a Series A or a Series B, would be something where the price has been set.”
- 1/“So not setting the price is the most straightforward, fast route, to getting money…”
- 2/”And usually the way this is done is through convertible notes or safes.”
- “Some money on a low valuation cap is better than no money at all.”
- 1/“An investor usually wants to be a Director because he or she wants to keep tabs on their money…”
- 2/”or because he or she really thinks they can help you run your business.”
- 1/“You have to be really careful about adding an investor to your board. In most cases, you want to say no.”
- 2/”Otherwise make sure it’s a person who’s really going to add value.”
- “Having money is very valuable, but someone who helps with strategy and direction is priceless, so choose wisely.”
- “There are so many people who want to give advice to startups, and so few people who actually give good advice.”
- “Once an investor has given your company money, that person should be a defacto advisor.”
- “All investors who can help, should do so. Asking for additional shares is just an investor looking for a freebie.”
- Pro rata Rights — “It’s the right to maintain your percentage ownership in a company, by buying more shares in the company in the future.”
- 1/“Pro rata rights are a way to avoid dilution, and dilution in this context means…”
- 2/”owning less and less of the company each time the company sells more stock.”
- “The corollary to an investor having pro rata rights to avoid dilution is that the founders typically suffer greater dilution.”
- “Investors almost always want contractual information rights to get certain information about your company.”
- “At YC we encourage companies to give monthly updates to their investors because it’s a great opportunity to ask for help.”
- “You have to be careful about overreach. Any investor that’s saying they want a monthly budget or weekly update, that’s not okay.”
- “No matter how prestigious we in the valley think the title Founder is, really you’re just a company employee.”
- “Working for free is against the law and founders should not let their company take on this liability.”
- 1/“Unpaid wages become leverage for the fired founder to get something he or she wants from the company…”
- 2/”and typically that is vesting acceleration.”
- “Avoid problems by paying yourself, paying your payroll taxes and thinking of your co-founder’s wages like a marital prenup.”
- “Firing an employee makes a founder a real professional because he or she has to do what is right for the company instead of what is easy.”
- 1/“Fire quickly. Don’t let a bad employee linger.”
- 2/”It’s so easy to put of a difficult conversation, but there is only downside to procrastination.”
- 3/“Communicate effectively. Don’t rationalize, don’t make excuses, don’t equivocate about why you’re firing the employee.”
- 4/”Make clear direct statements, don’t apologize. Example: we’re letting you go.”
- 5/“Fire the employee face to face and ideally with a 3rd party present.”
- 6/“Pay all wages and accrued vacation immediately. This is a legal requirement, we don’t debate or negotiate any of this.”
- “If the terminated employee has any unvested shares, the company should repurchase them right away.”
- “You should know the cash position, you should know your burn rate, you should know when that cash is going to run out.”
As well, you can watch the entire lecture for yourself here: http://startupclass.samaltman.com/courses/lec18/
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Image Credit: Screenshot taken from Stanford CS183B Lecture 18 Video
