Startup  Legal  and  IP  

Joel  Espelien   The  Founder  Ins8tute  

What  is  the  “law”  ???  
1.  Explicit  (Federal,  State,  foreign  statutes  and  regs)  
–  U.S.  tax  law  &  patent  law,  Delaware  corporate  law  etc.   –  High  degree  of  certainty  for  obvious  things  

2.  Common  law  (court  decisions)  
–  Medium  degree  of  certainty.  Never  as  much  as  you  want.   –  Ex.  Is  a  non-­‐compete  enforceable  in  state  X?    

3.  Private  law  (contracts)  
–  Whatever  you  and  the  other  party  agree  to,  as  long  as   not  contrary  to  #1  and  #2   –  Term  sheet  for  a  VC  investment  

Daily  life  is  lived  in  3,  with  occasional  reference  to  1  &  2  

3  roles  “law”  plays  in  startups  
1.  Constraint  (Thou  shalt  not)  
–  OXen  obvious,  but  even  where  not,  result  is  obvious  

2.  Guide  (Thou  should)  
–  Well  worn  paths  reduce  risk   –  Avoid  “hair”  on  your  deal  that  kills  opportuni8es  later  on  

3.  Value-­‐add  (Thou  could)  
–  –  –  –  Clever  contract  term  that  gives  you  an  advantage   Tax  elec8on  that  saves  you  money  when  company  is  sold   Patent  that  issues  just  as  your  compe8tor  overtakes  you   OXen  involves  planning  ahead  (oops)  

Law  is  a  necessary  but  not  sufficient  condi<on  of  success  

The  elephant  in  the  room  
1.  You  are  not  your  company   2.  Your  company  is  a  creature  of  the  law   3.  Your  company  has  a  life  of  it’s  own.  It  wants  to   survive  and  it  wants  to  protect  itself  (even  from  you)   4.  Legal  advice  =  what  is  best  for  the  company  (not  for   you)  

Coming  to  terms  with  this  is  hard  for  many  entrepreneurs  

Know  Thyself  
1.  How  trus8ng  are  you?   2.  What  is  your  appe8te  for  risk?   3.  How  transparent  are  you?   4.  Can  you  take  advice?   5.  Are  you  a  DIY?   6.  Can  you  put  the  company  first?  

Most  mistakes  are  both  predictable  &  avoidable  

Know  Thy  Company  
1.  How  important  is  IP  (really)?   2.  What  is  the  funding  strategy  (really)?   3.  What  is  the  exit  strategy  (really)?  

Due  diligence  is  like  volunteering  for  a  tax  audit  (really)  

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