00:05wait for three more minutes for folks to
00:20yeah and can you let me share the screen
00:25oh yeah let me stop shooting yeah so i
00:28um take it back over
01:02so is your firm gonna consider um
01:05keep doing remote work after the
01:08pandemic or going back to the office
01:31i'm putting on my my air pods
01:36to see if this is any better i've never
01:48okay um can you guys hear me okay
01:58anyone else have any problems
02:03i think it's okay okay we should be good
02:07yeah now i can't hear you
02:17but can you hear me yeah we can't hear
02:23okay so for some reason when i go to
02:26okay you're not getting any feedback
02:30i'm a little bit but not not too serious
02:45okay so i think say something now
02:50yeah can you hear us perfect
02:54now i got it all right we're ready to go
02:57okay is that is that is that
03:00cleaner is that better no a little bit
03:04okay all right i hope it hope it laughs
03:15okay so i'll start um
03:18welcome back um hope you guys had a good
03:23um and this is week nine and today we're
03:27cover um legal things within the
03:32startup ecosystem and
03:35uh before that um i'll go over the
03:39um like usual we will have logistics
03:43and then speaker presentation and then
03:50again um please turn on your camera if
03:54um and then the legal assignment is
03:58and then the final project is to next
04:01monday and then i'll share the quiz code
04:08moving forward so our next class will be
04:12our last class of the semester because
04:15we wanted to end the class before
04:18thanksgiving so you guys can
04:20have a good break and study for finals
04:27we will have a mini demo day next monday
04:30uh we we've already selected 10 out of
04:3417 groups um to present in demo day
04:37and then during the demo day you will
04:41maximum of four minutes to present and
04:45um our judges will give our feedbacks
04:48uh in the next five minutes following
04:53um so if your group is selected
04:58um you need to make sure that at least
05:02uh show up on them on their own time
05:06uh and to present um and then the
05:10second thing would be um sign up for
05:13time slots uh on the sign up sheet and
05:17um the announcement in b courses so so
05:22and then again no berkeley time on demo
05:25day and the attendance will be taken
05:27at 6 00 p.m sharp um
05:30so make sure whoever that's gonna
05:34um show up on time uh and then four
05:38minutes for each group
05:39and then more details uh you guys just
05:42go check it out on b
05:46great so if your group is not selected
05:50um it doesn't mean anything it's just um
05:53maybe your deck is not that developed
05:57and also we have limited time during the
06:00um so so keep working on your project
06:04um there's nothing wrong with it um and
06:08just make sure you gather the entire
06:13group like get everyone in your group
06:16present on zoom or whatever
06:20and then uh upload your recording
06:23on google drive and share it with us
06:26um again more instructions are in b
06:29courses so go check it out if you have
06:32um any questions before you email us
06:38um yeah and i will change the um
06:43access so that you guys can can sign up
06:47um again uh then quiz code will be demo
06:52um that will be the code to access your
06:56quiz um that's gonna do
06:59that that is to this sunday
07:02um so that's my part uh with that being
07:06let's welcome sam angus um the partner
07:09corporate and venture capital group at
07:22i assume we just share my screen here
07:30great thank you uh i assume everyone can
07:33uh okay thumbs up maybe
07:38uh awesome all right thank you summer
07:40i'm gonna be looking to you to keep me
07:44um thanks everyone for your time i'm
07:47unfortunately can't be there in person
07:49this year due to the covet
07:51as as we're all sort of struggling with
07:54um but it is a very interesting
07:58time for our startups in entrepreneurs
08:00and technology i think it's a
08:03it's actually a really great time to be
08:05an entrepreneur believe it or not
08:07these periods of disruption create a lot
08:11of opportunities and that's what we're
08:12going to talk a little bit about
08:14um as tom has said i'm a partner in the
08:18corporate and venture capital group
08:20that means as a lawyer i do things like
08:22helping companies form
08:25advise founders on founder related
08:27issues and stock issues help
08:29companies raise money help companies
08:33and advise on ipos and
08:36other types of transactions spat
08:38transactions and so forth
08:41uh what we're talking about here is
08:43really early stage companies
08:46and i want to focus on some of the top
08:49kind of issues to think about when
08:51you're starting a company
08:53that can create complexity and problems
08:59if you hear screaming with small
09:01children in the background i apologize
09:04but that's just my family here and again
09:07consequence of uh covet and working at
09:11don't mind it they're fine don't worry
09:14uh so let's let's maybe start
09:18uh and let me just say this if if anyone
09:20has any questions please
09:22either you know raise your hand or
09:25um you know send me a chat and we can
09:29answer it sort of going real time a lot
09:32is intuitive but some of it isn't
09:36question is fine so first thing
09:39failure to form your legal entity or the
09:44for your startup um as
09:47i think most of you know startups
09:51generally as a corporation um
09:54that is what most investors like to
09:58why form a legal entity well that
10:00creates one a limitation of liability to
10:04to the founders but it also creates a
10:07for for which to put ip and ownership
10:11and divide ownership among the founders
10:15this sort of spells out at a high level
10:19what the reasons are performing in any
10:21one i mentioned limited liability to
10:23protect the founders
10:24from claims and liability associated
10:30uh protect the company with respect to
10:33and ownership of technology and to deal
10:37you know if a founder was to leave
10:39without a legal entity
10:41all of these things are ambiguous um
10:45the other big reason is to allocate
10:47ownership interest among
10:49the founders um and investors
10:52and employees and so uh
10:55what identity does it's almost like a
10:57pie and you divide up the pie
11:00the more efficient you are with your
11:02company meaning the more capital
11:05and the faster you scale the less you
11:07need to divide up that pot
11:09and the more that's left over for the
11:16there for a second that the next
11:19big issue when it comes to sort of early
11:23is when to form the entity you and your
11:27idea early on you may be working for
11:33you may just be thinking about
11:36developing something or you may actually
11:40i always like to advise founders to form
11:43when you really start to develop some
11:48until that entity is formed oftentimes
11:52ambiguity around who owns what
11:56company who owns the ip there's a lot of
12:00and so what you want to do by forming
12:01the entity you want to
12:04define what all of those terms are and
12:08have them reflected in a set of
12:16my general advice is form the company
12:20when you're starting to get traction on
12:22development when you're starting
12:24to enter into contracts on behalf of the
12:28with respect to other parties when you
12:31dole out equity to other founders or
12:36that's the time to to form the entity
12:39there's also an issue a tax issue that
12:42can arise with founders that if you
12:44don't form the entity early and you go
12:47ahead and you develop a valuable
12:50um business and then you form the entity
12:54taxed disadvantageous because most of
12:58founders will buy the shares that
13:00they're being issued in their startup
13:02low or nominal amount of money
13:06usually it's you know a hundredth or a
13:08thousandth of a penny a share
13:10that's supposed to equal the fair market
13:12value of the company on the date you buy
13:14those shares and if the company is
13:16basically a shell nothing's been
13:18you can take the position that
13:22shares only worth a thousandth of a
13:25but i've had uh clients who have waited
13:30to found the company until they have
13:33actually developed something of
13:35have customers some of them may have
13:39generated revenue and at that point it
13:42gets much more difficult
13:44to argue that the company is only worth
13:47the thousandths of a penny
13:48so that's and what's the con if you are
13:52to buy if you end up buying your shares
13:54that for example for thousands of a
13:56penny but what the shares are actually
13:59are actually worth much more than that
14:02the difference is taxable
14:03to the founders as as compensation
14:07this is a similar issue and let me let
14:09me just move on here
14:12this is a similar issue to what comes up
14:16get a term sheet very early on for
14:19financing of a company
14:22when the company has just been formed
14:25it's the same issue usually the founders
14:27have bought their shares for a very low
14:31and then a investor comes in and puts a
14:33value on the company
14:35but that's another situation where
14:39because of the proximity of the
14:41financing to the formation of the
14:42company that can create some tax issues
14:47as i mentioned there are different types
14:49of legal entities you can use to start
14:52limited liability companies i'm sure
14:56llc's these are tax-like partnerships
14:59meaning that all losses and revenues
15:02flow through to the owners it's as if
15:04for tax purposes doesn't exist
15:08but for liability purposes does exist so
15:11it still protects you from liability but
15:14all profits and losses flow through to
15:19sometimes that can be advantageous to
15:22uh to founders from a tax perspective
15:26technology companies it's it's an it's a
15:30isn't used you see it a lot used for
15:33restaurants and dry cleaning companies
15:35closely held family businesses
15:40most technology companies and venture
15:42capital venture-backed companies are
15:46um they are corporation is considered a
15:50separate taxable entity
15:52uh which won't in the near term at least
15:55really matter because most corporations
15:57most early stage companies will run
15:59losses for a long time
16:03um it has limited liability as we talked
16:06it's relatively simple to form
16:10an llc can be simple to form but there's
16:14an llc is much more flexible in terms of
16:18ownership and economic interests
16:23most venture capitalists however prefer
16:25to invest in corporations and many
16:27are prohibited from investing in
16:30pass-through tax entities like llcs
16:36so i will pause there to see if there
16:40see here am i getting let's see
16:43okay second big issue that that comes up
16:47all the time is to make sure that your
16:49company the early stage company owns all
16:51the ip it has been developed
16:53it's developed or is using key issue
16:56when you go and raise money with an
17:00one of the first things they will
17:03through due diligence is ipownership
17:08and that is something that when you form
17:12you want to make sure that all of your
17:16founders and early employees and
17:20have signed invention assignment
17:27any ip that they're developing on behalf
17:29of the company to the company
17:32if you're an employee under state law
17:37there's a concept called work for hire
17:40it's a it's a concept that says that if
17:42you're an employee and you're working
17:45under the law any copyrights that you
17:50while working for that company are owned
17:52by the company you technically don't
17:54need a written agreement to assign over
17:57although we still advise you get
17:59invention assignment and confidentiality
18:01agreements from all of your employees
18:04if you're a contractor that work for
18:07hire doctrine does not
18:09apply um and i've had clients where
18:14they formed the company uh and but early
18:18on they used a lot of independent
18:19contractors to develop their technology
18:22but they didn't have adequate
18:23assignments of technology and so that
18:25created an issue where you have to now
18:28to those people who may be long gone
18:31and ask them for an assignment of ip and
18:35that is in the context of a financing or
18:38in the context of an acquisition of your
18:41that's going to cost you some money to
18:42get more often than not
18:45that's one big issue the other big issue
18:48that comes up related to ip is
18:52ip that may be owned or disputed as
18:55owned by prior employers
18:58if you're if you're if you started a
19:00company while working for a different
19:03you need to ensure that your old
19:07doesn't have any ip ownerships or claims
19:09over your new company
19:12this is a situation where if you leave
19:15or you continue you develop ip
19:17while you're an employee of your old
19:21and you probably have signed an
19:22agreement that says any work you do for
19:25while you're employed by that old
19:26company is owned by the old company
19:29that creates an issue if you're
19:32developing new company ip
19:35where the old company could claim an
19:44if you're doing that and oftentimes a
19:46lot of companies are started while
19:48entrepreneurs are working for an
19:50employer you need to make sure that
19:52hey you're not using company resource
19:55the old company resources
19:57what does that mean old company computer
20:00old company email don't use their email
20:03system or any equipment
20:05of your current employer um
20:09don't don't do any work on your
20:13and make sure that what you're doing
20:15doesn't relate to your employer's
20:23this uh comes up as a diligence issue
20:27when the you've started your new company
20:31you've left your old employer
20:34you're talking with investors
20:37and the investors as a part of their due
20:40will ask questions about what you were
20:41doing when you started the company
20:43who did you work for before and if
20:46there's overlap they're going to
20:47they're going to want to understand very
20:52that they're that the i that there's no
20:56basis for your old employer to claim
21:00over the you know ip that you develop
21:04so that's going to be you need to turn
21:08when you're thinking about starting the
21:10company and you're working for another
21:12employer and oftentimes i have this
21:14conversation with entrepreneurs where
21:17well i don't really want to quit my old
21:21because the new company isn't quite
21:24prime time and this is always a tricky
21:29you know set of circumstances to
21:31navigate and you need to be very very
21:33careful on how you do that
21:36hold on here i think i've got some
22:00the other sort of basic issue here is
22:04pre-incorporation to make sure when the
22:06founders come on board that they and we
22:08talked a little bit about this before
22:09that they assign over
22:11all company ips to the company and
22:14there's an agreement there's a standard
22:16agreement under which they do that
22:18usually the ip that a founder has
22:21prior to formation of the company is the
22:24consideration they use to buy their
22:28founder a will contribute all code
22:32software related to the company's
22:34product that has been developed by them
22:37in exchange for shares
22:46making sure that these agreements have
22:47confidentiality language in them
22:50this is all part of the formation
22:57an ip at this stage should be defined
23:00very very broadly even if you don't have
23:04and let's say you have a business plan
23:06or you have a concept
23:08you want to capture everything so that
23:12looking at this after the fact is
23:16is is considering an investment
23:19there's no question of whether or not
23:21you forgot to include some ip
23:23so we like to include very very broad
23:31this slide provides an overview
23:34of what the different types of
23:36intellectual property rights are
23:39now depending on upon the right um
23:43you have to take different actions to
23:45protect those rights
23:46so trademark i'm sure everyone's
23:49familiar with trademark but that
23:51provides the right to use a particular
23:55mark or logo or slogan to promote the
23:58company to consumers or customers
24:02copyright is the literal expression
24:06the little literal words or image
24:10so it prevents people from copying your
24:14you know your your developed copyright
24:17trade secrets are information that has
24:23but you only get to assert trade secret
24:25rides as long as you keep it
24:27private for example the formula to
24:30coca-cola isn't patented
24:33it isn't copyrighted it's a trade secret
24:37it's in a vault somewhere and no one has
24:43other rights are contracts and mdas i'm
24:46sure everyone is familiar with an mba
24:47you can have somebody agree to keep
24:50information confidential and to use
24:52information only in a certain way
24:55and then the last thing here is patent
25:00which protect innovations and patents
25:03negative a negative right
25:10a negative right to prevent others from
25:15invention but they are public
25:18unlike a trade secret
25:21and patents have certain limited lives
25:25and so forth so forth whereas trade
25:29can last indefinite as long as they're
25:38this slide provides an overview of how
25:40you would protect ip
25:43as i mentioned any clouds or any
25:45question around title to who owns the ip
25:48and will have the potential to
25:50negatively affect the value of the
25:54so invention assignment agreements for
25:57non-disclosure agreements and
26:01ip licenses with appropriate protections
26:04are all things that you
26:10this is an issue that surprisingly comes
26:14um quite a bit i had a client
26:18a very very large client that ultimately
26:21ended up being sold for
26:23multiple billions of dollars
26:26and when they did their first financing
26:29um for a couple hundred million dollars
26:32quite they were a fast-growing company
26:34they didn't have anyone
26:37any investors in the company until that
26:42and at the time of their first financing
26:46started doing due diligence and they
26:48noticed that of the hundreds of
26:50employees they had developing software
26:52none of them had signed an invention
26:54assignment agreement
26:56so the financing sort of ground to a
27:01and the company was forced to go back to
27:03all of its employees
27:05in the middle of this very very
27:06monumental financing and request that
27:08they sign a new ip assignment agreement
27:11assigning all ip that they had created
27:16and all future ip to the company
27:19obviously there were a lot of questions
27:20it was quite disruptive you had some
27:22employees say well what are you going to
27:28you know one of the you know basic
27:33you know for every new employee develop
27:35a process to have them in addition to an
27:37offer letter have them sign an invention
27:39assignment agreement
27:43all right that's that's ip
27:47protection early stage ip protection
27:53we talked a little bit about this
27:55reaches of obligations
27:56owed to a employee's former employer
28:00the most basic of these are
28:04sort of ip restrictions i.e we talked
28:06about developing ip while you're working
28:10and making sure that there's no conflict
28:13invention assignment agreement you may
28:15have signed for them
28:16versus the ip you want to use for your
28:20but there's also other things not so
28:24much in california but
28:25some other states have
28:29what are called non-compete agreements
28:32in california non-compete agreements
28:35aren't enforceable as a matter of law
28:37other than this is an exception other
28:40than if you sell your company
28:42and you're an executive the buyer can
28:44make you sign a non-compete
28:46but as a rank and file employee
28:49non-compete agreements in california are
28:54but there are other things that get get
28:56employers pretty close to that
28:58and those include confidentiality
29:00agreements you can't use
29:01any confidential information that the
29:04employer has provided you
29:09non-solicit agreements
29:14non-solicited agreements which means you
29:16cannot after you've left the company
29:18go and solicit the employees of your
29:22sometimes it also extends to consultants
29:27and then their common law duties
29:30common law always refers to sort of case
29:35and one of them is that you owe a duty
29:38to employer in their best interests
29:41you're part of the family
29:42you can't then betray them doesn't mean
29:45you can't start a business
29:47that has been established in california
29:49you can work for an employer and
29:50start another business even a competing
29:53business but you cannot do so wrongly
29:57soliciting customers using confidential
29:59information and so forth
30:01or using company ip okay
30:11okay so this is this is i'm gonna
30:14i'm gonna pause for just one second here
30:16i'm gonna close the door because i'm
30:17i'm getting some background noise
31:55can you guys hear me okay okay
32:02um number four make sure your
32:05capitalization and equity
32:07structure is standard and not
32:10i cannot emphasize this one enough
32:18investor perspective and from a cost
32:20perspective a legal cost perspective
32:24oftentimes early stage companies
32:28uh come to us with either complicated
32:32capitalization structures or
32:36situations that need to be cleaned up
32:40raises issue can raise issues with
32:42investors but it's also very expensive
32:46uh to fix so what is standard
32:52keep it simple and conventional
32:55document make sure that all the equity
32:59that you're that you've given are
33:02documented with written agreements
33:04it is i can there are many many times
33:08that i've been involved with situations
33:10founders have promised equity via email
33:14or orally to different contributors
33:18which can create a lot of issues and
33:22ambiguity around what exactly is the
33:24capitalization of the company
33:26and require kind of going back to these
33:28people to try and clarify and get them
33:32that they own x when they think they own
33:39here's some of the things that you
33:42should think about though
33:43when you're trying to raise
33:46capital one is understand the impact of
33:52future dilution how does a convertible
33:56impact dilution compared to a priced
34:02understand what you actually need the
34:05for and what your next milestone is
34:08because at that next milestone you're
34:10go out to investors and try and raise
34:12capital so what are the milestones that
34:15that will optimize your ability to raise
34:18capital at that time
34:20and that would include you know hiring
34:24that would include things like um
34:27legal costs and so forth so all of that
34:33you know how much money you're going to
34:41one of the key issues and probably
34:45is the allocation of initial equity
34:49um where they're multiple founders and
34:52are how should the how should the equity
34:56allocated this is a key issue logically
35:00although this is more often than not the
35:02case logically all founders are not
35:05you should look at what each founder is
35:09and what they're expected to contribute
35:13one of the things that an investor told
35:17he was looking at a very promising
35:20that had six founders but all of them
35:24the same amount of equity even though
35:28not all of them were going to be
35:29contributing the same amount to the
35:32um this investor ended up passing on the
35:34investment and believe
35:39they really liked the company and its
35:42prospects this technology
35:44they felt that the founder ownership
35:47made the company created created a
35:50big issue for the company going forward
35:55that's really you know a key issue to
36:11we talked before about what should be
36:13contributed for your stock
36:15oftentimes it's intellectual property
36:17that the founders are contributing
36:19that value has to equal the value of the
36:23or there's tax risk we talked a little
36:26and also the concept of off cap table
36:30promises of stock option or stock to
36:33so forth in emails or um
36:37or in orally these can create
36:40real issues in a financing when these
36:44people come out of the woodwork and ask
36:46for more equity or there's a
36:47disagreement about what the equity
36:54any issuance of stock it to investors
36:58via the founders via two employees
37:01has to comply with the securities laws
37:04so in the united states
37:06to offer and sell securities i mean
37:09is a security options are a security
37:12you either have to register the security
37:16i.e like a public company or
37:19as most all startups do
37:22have an exemption for registration and
37:26there are different types of
37:31there are exemptions to issue shares to
37:38are usually pretty easy to satisfy
37:42and then there's also exemptions
37:46for issuing shares to employees
37:50and others who provide service to the
37:53the general sort of philosophic
37:56basis of the securities law of the
37:59securities laws when it comes to
38:01is either you're sophisticated
38:06and you understand what's going on with
38:10company and investments or
38:14you're not sophisticated but you're
38:15wealthy and you can afford to lose your
38:18and that's the general sort of basis
38:20under which a lot of the securities
38:22exemptions are organized
38:31okay this is another related to what we
38:33talked about before with
38:35respect to equity um
38:38extremely important early on to
38:42good terms with your co-founders and
38:46are customary it's it's only going to be
38:50you and your co-founders when you first
38:53so you can agree to put in place all
38:58that would be very very founder
39:00favorable what types of things well you
39:04uh if i get terminated i want full
39:07acceleration of all my equity
39:13i want to have 100x voting stock
39:17i want to require that anyone
39:20who we sell shares to agrees to give me
39:29their shares meaning they get the right
39:33and another one one that i came across
39:37i'm contributing my ip to the company in
39:41for stock but i'm only going to do that
39:47and that if the company goes under i
39:48want to take the ip back
39:51that's one that i've i've seen before
39:54that is you know a very fast way to make
39:58make your company not fundable from that
40:01from an investor's perspective
40:03so these two things from
40:07the the founders keeping things standard
40:10one is the concept that you want
40:12investors are looking for
40:15especially with early stage companies
40:17straightforward capital and founder
40:20the second one is it reflects on the
40:22founders why are these are these
40:24founders going to be easy to work with
40:26are they concerned about are they
40:29are they more concerned about downside
40:31protection if things go south than they
40:33are about the opportunity for upside
40:35so i just i mentioned that at a high
40:40what are what are sort of standard
40:42agreements among founders so
40:44how many of you i don't know how we're
40:47going to do this on a
40:48museum but how many of you are familiar
40:50with vesting of stock
40:56i guess i'm not getting that everyone's
41:07anyone familiar with nesting stock all
41:10right thomas thank you
41:15all right well it is extremely standard
41:20when you're issued founder stock that
41:24the shares you get have to be earned
41:26over time meaning you get the shares on
41:31but those shares are subject to
41:34by the company over what is called a
41:38and that vesting period lapses typically
41:43uh sometimes it's monthly
41:46oftentimes in 25 percent of the
41:49shares would vest on the first year and
41:51thereafter it would be monthly
41:57incentivize founders to remain with the
42:00company continue to provide services
42:02it's also in the event that a founder
42:06leaves the company if you didn't have
42:08this vesting they would take their
42:11ownership chair and that would be
42:14expensive for the other founders to make
42:18in terms of hiring somebody else to come
42:21it also could render the company very
42:26so this vesting concept is important if
42:30multiple founders and every vcs
42:34and seed investor is going to require
42:36that the founders are subject to vesting
42:41the thing you want to avoid here as
42:42pointed out on the slide is the free
42:44free rider problem where somebody has
42:47fully vested stock early on so they
42:49don't they could leave the company the
42:50next day and they still own their
42:5325 to 30 to 50 of the company
42:58there is some downside protection that i
43:00think that most founders can ask for
43:03reasonably and not appear to be
43:06so if the company for instance if the
43:09founder were terminated without cause
43:12or if there was an acquisition of the
43:15company and then the founder was
43:16terminating without cause
43:18i think i think it is reasonable to ask
43:20for some acceleration of your equity
43:22and i think it's a practical matter most
43:26founders aren't actually functionally
43:29able to be fired without their consent
43:33usually it's it's when the composition
43:35of the board has changed
43:37when they're when founders are no longer
43:38in control of the board
43:41so you know i think some acceleration of
43:45is okay but i advise founders to be
43:51you can do whatever you want when you
43:52form the company but at some point
43:55investors are going to look at what you
43:56put in place and make it make an
44:00other things that we advise founders to
44:02think about are restrictions on
44:07of the shares to control who
44:10gets on your cap table writes a first
44:14on vested shares meaning that if a
44:16founder wants to sell their shares
44:18to a third party the company has a right
44:21to buy those shares at the same terms
44:25and then we talked a little bit about
44:26proxies before but oftentimes
44:29some founders require voting agreements
44:34the most famous of which is uh mark
44:37and he got voting agreements from a lot
44:44ended up you know as a result of
44:46controlling the company for a long long
44:50the bottom line is boundaries are like
44:53spouses you have to you're going to be
44:56living with them for a long time through
45:01it is often not an easy thing to an easy
45:05relationship so you have i
45:07highly recommend choosing your founders
45:11most investors you know believe that
45:14the founders are one of the if not the
45:18most important factor of whether or not
45:20exciting to invest in a company
45:23so just sort of speaks to that
45:31this is the other thing that i think
45:33especially if you're
45:35in developing a product in the
45:37enterprise software space or even a
45:40space you should think about
45:44um putting in place before you launch at
45:47least at the time you launch and that is
45:49terms of service and privacy policy
45:52um terms of service oftentimes
45:56are click-through agreements that set
45:58forth the terms and condition of
46:00what your company's service or website
46:03looks like if you go to
46:04airbnb.com and you click on the site
46:08you're signing up to their terms of
46:09service and if you were to ever
46:11click through that most people don't
46:14read the company's terms of service
46:16you would see that's the contract under
46:19which they agree to provide you
46:21services and so forth so that's a
46:24it also i would say is one that needs to
46:28evolve with the company
46:29because it defines the business model it
46:32really defines the business model of
46:36and there all sorts of different terms
46:39early you know oftentimes early stage
46:43especially those in beta will
46:47crib off of the terms of service of a
46:49company that's analogous to theirs
46:52and that you know we don't advise that
46:54but that's fine early on
46:56but when you launch beyond beta and
47:00we highly recommend that you get a
47:03terms of service done by a competent law
47:07lawyer who has a lot of experience
47:09looking at thousands of these
47:12the other document that's critical
47:14especially now and especially in
47:16california is the privacy policy
47:20has enacted some of the world's
47:23requirements this is
47:26a priority both it's among states
47:29and at the federal level and
47:34can have big consequences to the company
47:36so privacy policies and terms of service
47:41so that's those are the two things that
47:44at not maybe when you're in development
47:47but when you start offering your goods
47:51to the public that's the time to
47:54have this set up in place
48:01big big issue and certainly over the
48:06um as the founders and ceo
48:10your main job is going to be hiring
48:13a talented team this is the thing that's
48:16going to take the company to the top
48:18hiring and retaining employees and i
48:21probably don't need to tell
48:22you all um you are living in one of the
48:27um environments for recruiting employees
48:31in in san francisco silicon valley
48:35it is one of the most important things
48:37and the companies that are good at this
48:39and hiring top talent are the ones who
48:44john doerr once said that his his number
48:48as a venture capitalist is in helping
48:50his portfolio companies
48:52recruit talented employees
48:58and unlike anywhere else in the in the
49:02or in the world for that matter one of
49:05one of the keys to report recruiting
49:08i would call it table stakes almost is
49:11granting equity to employees almost
49:13every employee in the silicon valley
49:20this usually takes the form of stock
49:24and stock options are rights granted to
49:26employees to purchase
49:27common stock at the fair market value on
49:30the date you grant the auction
49:35tricky legal and tax requirements around
49:38granting stock options that
49:40clients have to be careful of
49:43i've had more than a few that have
49:46requirements some of which can be pretty
49:50significant and difficult to fix
49:54um but the basic features of these
49:58types of instruments are like the
50:00founders there is vesting
50:02based on continued service the options
50:05have to have an exercise price equal to
50:07the fair market value on the date of
50:10and there's a whole process for going
50:14determining fair market value that
50:16boards need to adhere to
50:21one of the key benefits of a stock
50:22option of course is that you give this
50:24employee this option
50:26and they don't need to make an
50:27investment decision in the in the
50:28security they can wait
50:30to exercise and see if
50:33the company is going to be worth
50:37taking the investment risk
50:40the other benefit for the company is
50:43that if the employee doesn't work out of
50:46and is let go the employee doesn't get
50:49significant equity so there's
50:51there's this is sort of this sort of
50:54instrument that um is granted to
50:58uh in technology companies i could talk
51:01for hours about this and the technical
51:03details and go down a level
51:05um but perhaps for another time unless
51:08somebody has a specific question about
51:16the other key issue we see quite a bit
51:20with startups and it is
51:23usually flies under the radar for early
51:25stage companies and so it's not a
51:28is employee classification um
51:32this is whether you classify somebody
51:34who's providing a company services
51:37as an employee or as a contractor this
51:42that uber and lyft uh
51:45um were in litigation over that was
51:50by the by the proposition that passed
51:55but as a effectively whether or not an
52:00whether or not a service provider is an
52:02employee and thus has to comply with
52:04minimum wage and worker compensation
52:06and entitled benefits or is an
52:10independent contractor it can be paid
52:13without any benefits is not a question
52:16of what the parties agreed to
52:18it is a question of facts and
52:20circumstances and quite often
52:24um individuals who are classified as
52:28independent contractors are in fact
52:34here are some of the factors that are on
52:38as to whether or not somebody validly
52:40qualifies as an independent contractor
52:43if it focuses on the degree of control
52:46exercised by the employer
52:49the extent to which the contractors duty
52:51are core to the company's business
52:55if you fail to properly classify so
52:58let's say you've classified
53:00several employees as independent
53:02contractors because you don't want to
53:04or social security but it turns out
53:10the consequence is this is that the
53:11company then has tax liability
53:14to the state and can be subject to
53:17penalties and fines how does this come
53:21usually comes up through a employee
53:26development department audit of your
53:30as a result of a disgruntled
53:35quote independent contractor being
53:38seeking unemployment benefits and
53:42so that they go to the unemployment
53:45department and file for unemployment
53:49and you get notified and the company
53:52says they're not an employee they were
53:53an independent contractor
53:55and that sort of kicks off um
53:58can kick off an audit i've been involved
54:02several of these for clients and
54:05usually the practice goes on for a while
54:09where companies end up having you know
54:13um individuals who they've classified as
54:16independent contractors
54:17at the time it really you know it
54:19becomes a problem and they get audited
54:21and so this is one just to as i said
54:25probably not a practical issue even
54:28though it might be a legal issue
54:30but i would i would not let this you
54:33i would not have um a ton of
54:37uh people you've classified as
54:39independent contractors unless you're
54:43that you're on the right side of that
54:52okay we talked a little bit about this
54:55before about keeping your capitalization
54:58simple and not creating a lot of
55:02that's a reoccurring theme throughout
55:06early on keep it simple so investors can
55:09easily understand and say okay this
55:12a standard company these founders know
55:17but i put this slide in here around
55:18founder control because
55:20over the last 10 years founder control
55:24have become a very very hot topic
55:27and it's it's quite often when i meet
55:31new founders one of the first things
55:34well i don't want to lose control of my
55:36company and i want you to put in place
55:39devices that will ensure that i can't
55:44and what i tell them is we can do that
55:47it will raise issues with investors um
55:51but the best thing you can do to
55:54as i said before be capital efficient if
55:57your company doesn't need to raise a lot
55:59and is successful on less capital you'll
56:02be able to call the shots as the founder
56:05that's what happened with facebook
56:07that's what happened with airbnb
56:10that is that's the the main the main
56:14to founders about this issue but what
56:17are some of those control devices so we
56:19we talked about dual and superclass
56:23and that is shares that have more than
56:27where you issue the founders class b
56:30stock which has 10 to 1 or 20 to 1 or
56:35and you issue everyone else class a
56:37common stock which has one belt per
56:39economically one share of class a and
56:43pair of share of class b stock are the
56:45same they're economically the same they
56:47represent the same amount of
56:48ownership in the company but from a
56:52they're not the same that's one device
56:55investors who come into a company that
56:56has a dual class structure
56:59oftentimes you'll say that's fine you
57:02but we want the dual class too
57:05so it's very unusual that
57:09founders are able to keep dual class
57:13just to themselves the other
57:16uh another device is multiple director
57:18votes under delaware law
57:20which is one of the so you typically
57:25companies to incorporate in delaware
57:28venture-backed companies are delaware
57:32but under delaware law it is permissible
57:35a board member to have more than one
57:37vote on the board of directors
57:41so let me let me step back here
57:45corporations are owned by stockholders
57:48who elect the board the board
57:51manages the company the board approves
57:55all the major decisions that need to be
57:57made of the corporation
57:58the stockholders only have say over a
58:01couple major things such as
58:03sale of the company such as amending the
58:07to authorize more shares and as i
58:11electing directors and removing
58:15directors on the other hand approve
58:18including hiring executives the ceo
58:22and so forth so the board
58:25is key when it comes to
58:29who runs the company the day to day
58:31operations of the company
58:34and one of the things that's permitted
58:38is that a given director or directors
58:40can have multiple votes on the board
58:43so you can have founders can have you
58:45know two or three votes for their one
58:49that's unusual it's going to raise
58:51eyebrows you're going to get a question
58:53you know investors about it but it is a
58:57we've seen restrictions on transfers of
59:01shares we talked about this we now
59:04recommend to most of our startup
59:06companies that they adopt some form of
59:09transfer restrictions
59:10so that a shareholder if they want to
59:15stock to another party who's not an
59:18existing shareholder or who's not a
59:20family member there's certain exceptions
59:21to these descriptions mainly for family
59:24they have to get the approval of the
59:26board to do that while the company is
59:29and the reason for that is to control
59:32the composition of the
59:34of the cap table and also to limit the
59:37number of shareholders
59:46that is more common is stockholder
59:48voting agreements and these are
59:49basically voting agreements among the
59:52to vote their shares in a certain way
59:58so i'll just pause there for a second
01:00:01i know i'm just i'm moving kind of fast
01:00:08so there's a fair amount to cover
01:00:13the um board composition when you when
01:00:16the company it's very typical that the
01:00:18board would only consist of founders
01:00:21as you raise money investors will ask
01:00:26as i mentioned as a control matter
01:00:30the board is critical it is something
01:00:34you should pay attention to but it
01:00:37should also be viewed as a resource to
01:00:39the founders so you want people on the
01:00:40board who are going to add
01:00:42value if they're not founders
01:00:45um and so making sure who's on your
01:00:49is a is an important question and that
01:00:52that also relates to
01:00:53who you have as an investor as well
01:00:57at a high you know again the same issue
01:01:00keep the governance simple
01:01:03special rights or voting arrangements
01:01:07you know can create issues down the road
01:01:10and and so you want to be
01:01:14want to be mindful about that
01:01:24this rel all the things we've talked
01:01:28um roll up to this one thing
01:01:31this one concept which is properly
01:01:33structuring your first round of finding
01:01:36um so you're gonna go out and raise
01:01:39a first round of funding more often than
01:01:41not these days that's either gonna be
01:01:43a safe or a convertible note
01:01:47um i assume you know most of you are
01:01:50familiar with what those are
01:01:52those aren't actually priced financing
01:01:56instruments like that like a
01:01:57share of stock you actually have to
01:01:59ascribe a value to
01:02:01with a safe or a convertible note there
01:02:04is no value those
01:02:06those instruments convert when you do
01:02:09your first price ground at the at the at
01:02:12the value established by
01:02:15the value established by uh investors in
01:02:18that first price round
01:02:20so most startups will raise
01:02:24a convertible note for a safe round
01:02:27between 500 000 to a million
01:02:31million and a half or so to get going
01:02:34they'll use that money to position
01:02:37for their first price round six months
01:02:40to a year down the road after they've
01:02:42key metric and determining as i talked
01:02:45what that metric is is going to be key
01:02:48so it should be informed of what
01:02:50investors are looking for
01:02:51and actually executing on that will be
01:02:56we talked about convertible notes
01:03:00which are not price there's no valuation
01:03:04convertible node is debt basically
01:03:07investors loan you the money but that
01:03:09will convert into stock
01:03:10when you use your first preferred stock
01:03:14the safe is very similar to a
01:03:16convertible note it's not a
01:03:17value there's no valuation attached to
01:03:20although most of most convertible notes
01:03:24and saves tablets called evaluation cap
01:03:28that if whatever you raise your next
01:03:32the highest valuation that the note or
01:03:35the sake will convert at
01:03:36will be x now for
01:03:40c round financings for early stage
01:03:43first first financings of companies the
01:03:46caps are usually between five and ten
01:03:49so that means that if you're raising
01:03:51around at twenty million dollars for
01:03:53your first price round
01:03:54these notes will convert as if the
01:03:58five or ten million dollars and the
01:04:01reason for that is they they're taking
01:04:02the risk early on
01:04:04for investing in your company when
01:04:07others were not willing to do a price
01:04:11there's a lot of terms around this and i
01:04:12have a separate presentation just on
01:04:14convertible notes and safes and seed
01:04:17the other early type of financing is
01:04:20what's called a series seed round which
01:04:22is an actual price ground
01:04:24the series seed round usually is for
01:04:27more money than these
01:04:28than these note or safe rounds although
01:04:30it doesn't have to be
01:04:32but they do require you issue preferred
01:04:36and that you price you value the company
01:04:38you actually have to come up with a
01:04:41the beauty of a convertible node or safe
01:04:43is you don't need to value the company
01:04:45that's for the future when you do a
01:04:47price ground and oftentimes
01:04:48with very early stage companies that are
01:04:51still in development
01:04:52it's very hard to value
01:04:57the one thing i would say is when you're
01:05:02a few cl few early stage clients who
01:05:04have made the mistake of
01:05:06raising capital by issuing common stock
01:05:08which is what is what the founders are
01:05:10issued and what employees are issued you
01:05:11don't want to do that
01:05:13because believe it or not you want to
01:05:15keep your common stock for employees
01:05:18and founders and and leave your
01:05:20preferred stock for investors
01:05:22you want to set a differentiation
01:05:24between the two values you want to keep
01:05:26your common stock actually valued
01:05:27low so employees get cheap stock that
01:05:31has a lot of upside
01:05:33but you want to sell your preferred
01:05:34stock at what is the true
01:05:36value of the shares to investors
01:05:43all right this is sort of the recap of
01:05:47what we just talked about
01:05:50one failure to form your legal entity or
01:05:52the right legal entity for your startup
01:05:55making sure that the company owns all
01:05:59be careful about reaching obligations to
01:06:03former employer or making sure that you
01:06:06have a clean break from your
01:06:07former employer making sure that your
01:06:10equity structure is standard and simple
01:06:14make sure you establish clear terms
01:06:18in writing with your co-founders
01:06:22you put in place of appropriate terms of
01:06:25service and privacy policies
01:06:28at the right time i'm not saying you
01:06:29need to do that right off the bat
01:06:32focus on recruiting quality employees
01:06:34that's going to be
01:06:35key and creating a culture where people
01:06:40um again i know this may sound redundant
01:06:44avoid creating too much complexity or
01:06:47issues around control and
01:06:51properly structure your first round of
01:06:53funding we can do another
01:06:55series on on that last one um
01:06:59but but that's that's what i've got
01:07:02um i'm i'm happy to answer any questions
01:07:06that people might have um
01:07:12or you can email me yeah i got a
01:07:16from a student here um and he's asking
01:07:19um when is a good time for
01:07:22early stage startups to come
01:07:26to get an attorney or advisor on board
01:07:29regarding the legal issues yeah i think
01:07:36i think it's when you're ready to form
01:07:37the company that's
01:07:39that's what i think now there are a lot
01:07:41of different services out there where
01:07:43you can form your own company
01:07:44you can incorporate the company in
01:07:46delaware and they have sort of standard
01:07:48certificates and bylaws and that's fine
01:07:51for that i think it gets a little bit
01:07:55when you start to issue shares to the
01:07:59because you're going to want to impose
01:08:00investing on those shares especially if
01:08:02they're multiple founders if you're a
01:08:04it's easy no vesting all fully invested
01:08:07but if you're going to if you have
01:08:08multiple founders or you have
01:08:10employees that's the time i think you
01:08:13start to talk with an attorney and make
01:08:16sure that you're getting
01:08:18you know the right advice um
01:08:21and a lot of you know fenwick included
01:08:25early on we have special programs for
01:08:29um there's also incubators and
01:08:31accelerators i'm sure you guys are
01:08:34at berkeley with that they oftentimes
01:08:38resources for starting and forming
01:08:40companies that can be extremely helpful
01:08:42but i would say you know my view of this
01:08:45early on i've had i've had companies
01:08:47that haven't used
01:08:49lawyers and have come very late in the
01:08:52game to us where they've
01:08:53actually been conducting business for a
01:08:55long time and it's
01:08:56it's it can be quite expensive to try
01:08:59and clean things up and usually
01:09:02so if you want to avoid that situation
01:09:06and then a second question is that um
01:09:09does anything changes from your
01:09:14uh when companies go from private to
01:09:21yes immense changes um
01:09:25so it's almost like you're in a
01:09:26different reality and i think what
01:09:28happens over time is as the company
01:09:32um the profile of what your job is as a
01:09:36founder of world change
01:09:38um and uh you know not everyone likes
01:09:43a ceo of a large even a large private
01:09:48can be a very different thing than being
01:09:49a ceo of a 10 person startup
01:09:52um companies but you're dealing with a
01:09:55lot of different things so if you're a
01:09:57an entrepreneur who likes focusing on
01:10:01and you know if you know if you
01:10:04remain as a ceo of a large company
01:10:06you're not going to be doing a lot of
01:10:08development i can tell you that because
01:10:09the ceo's job is there
01:10:10a large company is very very different
01:10:12than the ceo's job of an early stage
01:10:15so there are a thousand things that
01:10:22legal administrative uh managerial
01:10:27requirements all are amplified as you
01:10:31get larger right because you have now
01:10:34many more employees to manage you have
01:10:36many more customers to deal with you
01:10:38have more complicated legal issues to
01:10:40deal with and so forth all right
01:10:44and another question is that um
01:10:48how do vcs come up with the evaluation
01:10:55yeah it's a good it's a really really
01:10:59most of the time there's sort of a
01:11:03sort of expectation on valuations for
01:11:05certain types of companies at certain
01:11:07stages uh the earlier stage the company
01:11:11is at um the more the less objective
01:11:16valuation is right they're less market
01:11:19the most objective i would say would be
01:11:21ipo right you can look at public company
01:11:23comparables and compare them to what
01:11:27you know is doing at that you know in
01:11:31and use those multiples but with as you
01:11:34earlier down down the stack in terms of
01:11:37private companies the more variable
01:11:41and subjective valuation gets i would
01:11:43say as i mentioned early on early stage
01:11:46companies that are raising their first
01:11:48it's it's all by sort of well you're
01:11:52just raising your first round of funding
01:11:54either we're going to do a convertible
01:11:56with a sort of typical cap on valuation
01:11:59which doesn't set a valuation or if you
01:12:02want to do a price ground
01:12:04we're going to do what we do for all
01:12:07in that you know at that stage
01:12:10you know five million dollar pre-money
01:12:1210 million dollar pre-money evaluation
01:12:14so it's it's very
01:12:16i would say formulaic but divorce from
01:12:18the actual company now
01:12:20there are exceptions to this if your
01:12:22company actually is as an operating
01:12:24business is generating revenue and has
01:12:26real customers and then
01:12:28you're sort of out of you're sort of in
01:12:31um rarified atmosphere and then you can
01:12:37cops for more mature companies to try
01:12:39and set valuation
01:12:43so that that's what i would say there i
01:12:45would also say that if you're a company
01:12:47that is getting a lot of traction
01:12:49and you get a lot of interest from
01:12:52multiple investors so you have a lot of
01:12:54demand on the investor side
01:12:56that can for lack of a better term
01:12:58distort the valuation question
01:13:01and can result in very very favorable
01:13:03valuations for the startup because
01:13:05you're you're a hot you're a hot um
01:13:10uh among investors who want to want to
01:13:12get in on the investment
01:13:18yeah i actually have a question about
01:13:22so i've always heard that it's a very
01:13:25um i guess time consuming process is
01:13:28that true and also like um
01:13:30what happens if there's like two very
01:13:32similar products or like softwares how
01:13:34do you like differentiate the
01:13:35patterns with you know for both of them
01:13:39yeah i think the i think um summer the
01:13:43question is what type of ip
01:13:47protection patent copyright
01:13:50trade secret trademark
01:13:53um confidentiality agreement
01:13:58uh is best suited for the type of
01:14:01technology or innovation
01:14:03that's at issue and and
01:14:06is it worth the cost that it will entail
01:14:10to get that protection
01:14:12versus the value you know of that
01:14:15particular ip so for instance
01:14:18i had a client today that operates a
01:14:22consumer platform company that's
01:14:23offering services
01:14:26marketplace company early stage to to
01:14:31and she asked the question and it's you
01:14:34that company their ip is principally
01:14:37their website and their their
01:14:39marketplace software
01:14:42you know should we patent our software
01:14:45and my view of that
01:14:46with software in particular and patent
01:14:49there's really not a great cost benefit
01:14:52to patenting software
01:14:55depending on the space now i would
01:14:58exclude ip ai there's certain types of
01:15:02applications that can be very valuable
01:15:04but generally speaking software
01:15:07is not you're not going to get a whole
01:15:08bang for your buck in terms of
01:15:11patenting most investors aren't going to
01:15:14whether or not you have software
01:15:18and patents in particular
01:15:22over time because you i mean filing the
01:15:24initial provisional patent
01:15:26is relatively cheap but over time
01:15:29can be very very expensive because you
01:15:32have to prosecute the patent
01:15:34and so i would say that
01:15:38the first question is what is the
01:15:41um ip innovation you're speaking about
01:15:46how is it strategically important to
01:15:49how integral is it going to be and
01:15:52it is it cost effective to protect it
01:15:55one way versus another
01:16:08um there is another question asking like
01:16:11where do founders usually end up
01:16:14um when they step down for the position
01:16:17or if they leave the company do they be
01:16:21do they become a advisor or on the board
01:16:24or anything like that
01:16:27yeah it's a it's a good question often
01:16:30being able to transition
01:16:33as a founder i would say can be a very
01:16:37and oftentimes it it comes about as a
01:16:40result of the first question you asked
01:16:42is like how is the company very
01:16:44went up from a startup in an ipo is that
01:16:46the company becomes a very very
01:16:48enterprise and skill set of a founder
01:16:51who might be a tremendous
01:16:53ceo for a series a or series b company
01:16:57but for a you know multi-billion dollar
01:17:00enterprise software company just doesn't
01:17:02doesn't have the skill set that can be a
01:17:06hard transition emotionally for founders
01:17:11and so i i admire founders who are
01:17:14mature enough to make that
01:17:16and transition pretty good at the
01:17:19um where they end up
01:17:22is there's a lot of variability in that
01:17:26i mean sometimes they end up still at
01:17:30certainly on the board and in some other
01:17:37some other development that's chief of
01:17:39product and so forth
01:17:41you know so that that is a common
01:17:44it they can also as as i think that the
01:17:47questioner asks they can also end up as
01:17:48an advisor to the company
01:17:50and go on to do other things um
01:17:53it's not uncommon for them to go off and
01:17:55start a new business i
01:17:56represent a couple former founders of
01:17:59very large successful businesses
01:18:01um so all those things are possible
01:18:04oftentimes the founder will remain on
01:18:08but end up doing other things
01:18:13all right and uh i guess the follow-up
01:18:15question would be
01:18:17um what are some common traits that
01:18:21um among the founders that you've worked
01:18:26yeah so that's a that's a great question
01:18:31so i think i think the the
01:18:34the one and i did a i did a panel
01:18:38years ago at at berkeley in the left at
01:18:41the leicester center where we had
01:18:43um a panel of vcs answer questions about
01:18:48you know entrepreneurship and startups
01:18:51one of the one of the um
01:18:54one of the investors there was a guy
01:18:58who is the founder of excite
01:19:02among other things he's now at google he
01:19:05gave a great story
01:19:07in this belief believe it or not this
01:19:09gets to your question at some point
01:19:11um uh he he he gave a great story about
01:19:14vinod khosla when the node coastline was
01:19:17and i think it's actually part of a
01:19:21business school study but the the gist
01:19:24of it was is that
01:19:26one of the most important traits of a
01:19:34it's you know of all the different
01:19:37the ability to continue to move forward
01:19:40even though they're ups and downs and
01:19:42there will be downs
01:19:45um and so being able to
01:19:49um i think in the face of
01:19:56figure out think and how how to move
01:19:59and continue to push ahead
01:20:02it is inevitable uh almost inevitable
01:20:07that whatever you come up with
01:20:10early on as your idea uh or your startup
01:20:13it is inevitable that you're gonna have
01:20:16that you will hit some roadblock that
01:20:19the product you thought
01:20:21um consumers wanted is not quite this
01:20:25is not quite what consumers want or the
01:20:27market is different
01:20:28or the features need to be changed um
01:20:32i represent a company um
01:20:35a yc company back in the day that was
01:20:38this is my favorite story about this
01:20:41that was a social dining company so it
01:20:45called grub with us and they
01:20:48what they did they had an app where you
01:20:53i could have a dinner at
01:20:56a restaurant and it would say
01:21:00you know um you know sam angus is is
01:21:04dinner you know please you know come and
01:21:07so people would sign up who i didn't
01:21:09total strangers and would have your bio
01:21:11and you would get there and it would be
01:21:12a way to socialize well
01:21:14great idea didn't get any traction uh
01:21:18they did it they raised
01:21:19a reasonable amount of money um they ran
01:21:22it for about five years
01:21:24and then you know things quieted down i
01:21:26i was their lawyer i didn't hear
01:21:28from them for about a year and a half
01:21:30then i got a call
01:21:31from one of the founders saying hey
01:21:33we've started something
01:21:35new and we've pivoted and this thing
01:21:38looks like it's taking off well that
01:21:40that company is a company now called
01:21:42goat which sells tennis shoes
01:21:45and there's a they're a platform for
01:21:47sneakers and they've exploded you know
01:21:50that's that just sort of tells you about
01:21:54persistence um about embracing change
01:21:58and about being flexible
01:22:00so i i would say that being flexible and
01:22:03being persistent are the
01:22:05are the traits that i see in the most in
01:22:08successful entrepreneurs
01:22:14yeah great and um
01:22:19i have a follow-up question it's um
01:22:23what happens when a company i guess when
01:22:26when founders decide to um
01:22:30to shut down a company do they just turn
01:22:33in all the paperwork and stuff
01:22:36well there's so as a legal matter
01:22:40if the company sort of runs out of you
01:22:43know runs out of runway depends on the
01:22:45on the sort of financial condition of
01:22:47the company as a legal matter
01:22:50creditors get the assets of the company
01:22:54that would include cash ip
01:22:57you know equipment whatever you have
01:23:00sometimes there's a bank
01:23:02that might have priority among creditors
01:23:04to get the assets
01:23:06after the creditors are satisfied or if
01:23:08they can't be satisfied
01:23:10you know to the extent of the assets
01:23:14then the company is wound up and
01:23:17dissolved the equity holders the
01:23:20are last in line it is unusual in the
01:23:24silicon valley for
01:23:25private companies to go through a
01:23:26bankruptcy and try and reorganize their
01:23:29and emerge from bankruptcy with new
01:23:33it's happened it's highly unusual
01:23:36most of the time if a company's going
01:23:39they will pay their creditors return any
01:23:42remaining capital
01:23:43to their investors who have sort of
01:23:46and then dissolve the company and
01:23:48there's a process under delaware law for
01:23:50dissolving your company and are under
01:23:51the law of any state
01:23:53for dissolving the company and that's
01:23:54the end of it we'll move on
01:23:59great um that's all the questions
01:24:02i got from my end um
01:24:06great yeah with that uh i guess that
01:24:09the end of the class today um thank you
01:24:12again for coming in
01:24:14it was really informative um
01:24:17great yeah thanks for being here
01:24:21my my pleasure thanks for having me did
01:24:24you say we could email you like do you
01:24:26have any contact info
01:24:28yeah it um there's my contact info
01:24:32i should have put that up
01:24:36and i think you thomas do you have the
01:24:40uh your slides yeah i can send them to
01:24:44and i don't know maybe sure yeah i don't
01:24:48i don't have it yet but i can upload it
01:24:50if if you can send it
01:24:52to me can you send me your email and
01:24:56and then i'll just email it to you and
01:24:58then you can for people who want it
01:25:00you can send it around to the class yeah
01:25:12great thanks again yeah thank you so
