Accelerator Law 101 – Part 2

In our previous post, we discussed the issues that come up when structuring an accelerator investment. Keeping that in mind, we have prepared a comparison of some of the investment terms used by leading accelerators in the U.S. and Europe.

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Accelerator Law 101 – part 1

Getting into an accelerator program is a great opportunity to jumpstart a startup by allowing it to gain access to excellent mentorship and exposure. However, apart from the accelerator services themselves, it is crucial to pay close attention to the terms contained within the accelerator investment documents, as there are various issues to be on the lookout for from a legal standpoint. In this post, we will discuss some of the main terms for startups and accelerators to consider when contracting with one another, as well as issues that come up prior to and after the investment itself. Pre-investment issues Structuring the investment One, if not the main issue surrounding accelerator investments is determining how the investment itself should be…

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The Anatomy of a Unicorn – part 2

Previously, we discussed the main ways of handling founder and investor preferences when structuring a company, as seen in some of the world’s leading unicorns. For your convenience, we have put together a table comparing the key similarities and differences in various provisions of the COIs of Uber, Facebook prior to its IPO, Snapchat, AirBnB and Palantir.   Uber Facebook Snapchat AirBnB Palantir Two Classes of Common Stock for Founders Yes Yes Yes Yes Yes Liquidation preference Non-participating preferred Non-participating preferred Non-participating preferred (for Series A, A-1, B, C) Non-participating preferred Non-participating preferred Multiple in liquidation preference 1.25x for Series C-2 and C-3 Preferred 1x 1x 1x 1x Investor relations in liquidation preference Pro rata Pro rata Pro rata Pro…

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The Anatomy of a Unicorn – part 1

Everyone is aware of the dramatic growth and success attributed to companies such as Uber and Snapchat. However, not everyone may be aware of the structures used by those companies that allow for such development and progress. We did the heavy lifting for you and compared certificates of incorporation of five leading unicorns: Facebook, prior to its IPO, Palantir, Snapchat, Uber, and AirBnB. Our findings have revealed that key to the anatomy of the unicorns lay in similar founder preferences and down road economic protections for the companies’ investors. We will briefly discuss these founder and investor preferences, as found in the certificates of incorporation. Founder Preferences A unicorn tends to have a founder-friendly anatomy. This is accomplished by giving founders…

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Vesting – why you need it?

In the last post I wrote about the basic mechanics of vesting. Now I would like to explain why it is indispensable for every healthy startup to have founders’ shares subject to vesting. The reasons for vesting. Getting shares later rather than sooner is sometimes, counter-intuitively, actually better and this is definitely the case here. Founders themselves benefit from vesting as it locks their partners in the enterprise and guarantees that they will work hard to push the business forward. Founders usually perform dual roles in startups, as they are both their shareholders and employees. This may theoretically result in a situation where a founder quits working and moves to Bahamas but, as a shareholder, continues to reap off profits…

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Vesting – how it works

Vesting is one of the most important elements of every startup’s legal framework as it not only shapes the dynamics between its founders, but may also influence prospects of securing financing. Yet, despite its crucial importance and abundance of articles available online, we often see founders confused with the seemingly innocuous and apparently dreaded question: “are you on vesting”? In this post I will explain the mechanics of vesting and clarify the related terminology. Caveat: vesting is a construction used in multiple contexts and I will only touch upon its use and consequences in the context of startup founders’ stock. What is it? Forward vs Reversed vesting. Vesting provision is usually located in founder’s stock purchase agreements. Its main purpose…

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Founder Departure – Legalities of Painful Goodbyes

Farewells are always unpleasant and one of the hardest thing for an early stage company is the founder departure. Some examples that come to mind in recent years include Twitter and Snapchat. There are many reasons for a founder departure and things can get very messy, very quickly. Some founders might have only preliminary or oral arrangements regarding the startup or prefer to apply the lean methodology to postpone legal formation. Can it get ugly? Do you need a lawyer to remove a founder? The answer is it depends, but in general to reduce future liability (litigation) of the startup and give the remaining founders peace of mind it is advisable to have your lawyer prepare a separation agreement.  The…

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