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Top Ten Legal Mistakes Made by Entrepreneurs

62 points by nickb 19y ago

redorb 19y ago
# 9: Issuing founder shares without vesting. - this makes perfect sense, What do fellow y.news people think about a (4) year plan for vesting? too long?
- sgoraya 19y ago
  4 years is too long, IMO We setup our vesting schedule at 2 years
- ashu 19y ago
  whatever you do (2 or 4 years), you need a cliff. founder churn is very common in the first (and the hardest) year.
deleted 19y ago
[deleted]
pg 19y ago
"Can entrepreneurs be sued by their funders for fraud? Yes." Are they ever? No. This article is a strangely mixed bag. Some of these points are right and some are wrong. Like worrying about being sued by investors; I've never once heard of that happening to a tech startup doing a series A round. The number one legal problem for early stage startups is unclear title to their IP-- e.g. because they took code from a former employer. That is the only really fatal mistake. Most other things can be fixed later.
sanj 19y ago
I've made 6 of these. Anyone else care to 'fess up?
- cstejerean 19y ago
  more importantly, which 6?
staunch 19y ago
The 1 year US grace period on patents is something a lot of people don't realize. I was glad to see it mentioned. Once you release something ("commercialize") the clock starts ticking. If you don't file then your own work essentially become prior art to be used against you and you're legally obligated to disclose it in your filing.
timr 19y ago
"Many venture capitalists say that they often rate the judgment of entrepreneurs by their choice of legal counsel." Really? Perhaps we should start rating the judgment of venture capitalists by the things they choose to emphasize.
- NSX2 19y ago
  Well, considering that these day's your VC's law firm probably also represents South American drug dealers and Eastern European arms dealers, not to mention many law firms are in a fit of M&A, so it doesn't really who you've been picking because they'll wind up integrated into some other firm, what is the point of judging somebody by their law firm?
  - timr 19y ago
    I can respect the need to question an entrepreneur's judgment if they insist on retaining Uncle Bob for their legal counsel, despite the fact that Bob is a personal injury lawyer in Kansas City. That said, I don't understand why it's so darned important for a zygote entrepreneur to retain counsel at Perkins Coie or Davis Wright Tremaine, especially when most of the early-stage legal work is boilerplate, and thrift should be a top priority. Where I live, (Seattle) investors seem to place disproportionate emphasis on your ability to hire an expensive firm, and I was reading between the lines of the article a bit to assume that's what the author meant when she wrote about the value of your choice of attorney.
    - rp 19y ago
      The probable answer is that there is an existing business/financial relationship between the VCs and the law firms. I bet if you examined the VC's past investments, you would see the paw marks of specific big Northwest "white shoe" law firms like Perkins Coie, DWT or Stoel Rives all over them.
      - NSX2 19y ago
        That just means that those firms are more loyal the the VC funds than to you because that's where they get most accounts from. If I was a VC I'd think any entrepreneur who thinks he has an advantage hiring a firm that I've kept on retainer for a decade is a complete moron. I recall a certain Silicon Valley law firm with the usual "beyond reproach" ... "our reputions are the foundation of our business" stuff ... which at the end of the dot-com boom got into tons of lawsuits when it was discovered that despite "client confidentiality" the partners would pass along information of new startup clients to VCs they knew that invested in competitors.

62 points by nickb 19y ago

# 9: Issuing founder shares without vesting. - this makes perfect sense, What do fellow y.news people think about a (4) year plan for vesting? too long?

sgoraya 19y ago
4 years is too long, IMO We setup our vesting schedule at 2 years
ashu 19y ago
whatever you do (2 or 4 years), you need a cliff. founder churn is very common in the first (and the hardest) year.

deleted 19y ago

[deleted]

pg 19y ago

"Can entrepreneurs be sued by their funders for fraud? Yes." Are they ever? No. This article is a strangely mixed bag. Some of these points are right and some are wrong. Like worrying about being sued by investors; I've never once heard of that happening to a tech startup doing a series A round. The number one legal problem for early stage startups is unclear title to their IP-- e.g. because they took code from a former employer. That is the only really fatal mistake. Most other things can be fixed later.

sanj 19y ago

I've made 6 of these. Anyone else care to 'fess up?

cstejerean 19y ago
more importantly, which 6?

staunch 19y ago

The 1 year US grace period on patents is something a lot of people don't realize. I was glad to see it mentioned. Once you release something ("commercialize") the clock starts ticking. If you don't file then your own work essentially become prior art to be used against you and you're legally obligated to disclose it in your filing.

timr 19y ago

"Many venture capitalists say that they often rate the judgment of entrepreneurs by their choice of legal counsel." Really? Perhaps we should start rating the judgment of venture capitalists by the things they choose to emphasize.

NSX2 19y ago
Well, considering that these day's your VC's law firm probably also represents South American drug dealers and Eastern European arms dealers, not to mention many law firms are in a fit of M&A, so it doesn't really who you've been picking because they'll wind up integrated into some other firm, what is the point of judging somebody by their law firm?
- timr 19y ago
  I can respect the need to question an entrepreneur's judgment if they insist on retaining Uncle Bob for their legal counsel, despite the fact that Bob is a personal injury lawyer in Kansas City. That said, I don't understand why it's so darned important for a zygote entrepreneur to retain counsel at Perkins Coie or Davis Wright Tremaine, especially when most of the early-stage legal work is boilerplate, and thrift should be a top priority. Where I live, (Seattle) investors seem to place disproportionate emphasis on your ability to hire an expensive firm, and I was reading between the lines of the article a bit to assume that's what the author meant when she wrote about the value of your choice of attorney.
  - rp 19y ago
    The probable answer is that there is an existing business/financial relationship between the VCs and the law firms. I bet if you examined the VC's past investments, you would see the paw marks of specific big Northwest "white shoe" law firms like Perkins Coie, DWT or Stoel Rives all over them.
    - NSX2 19y ago
      That just means that those firms are more loyal the the VC funds than to you because that's where they get most accounts from. If I was a VC I'd think any entrepreneur who thinks he has an advantage hiring a firm that I've kept on retainer for a decade is a complete moron. I recall a certain Silicon Valley law firm with the usual "beyond reproach" ... "our reputions are the foundation of our business" stuff ... which at the end of the dot-com boom got into tons of lawsuits when it was discovered that despite "client confidentiality" the partners would pass along information of new startup clients to VCs they knew that invested in competitors.