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Lecture 18: Legal and Accounting Basics for Startups

startupclass.samaltman.com

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Re: Lecture 18: Legal and Accounting Basics for Startups

#71

Post by brackenbury »

graycat wrote: post #48

Good lecture: Important content, well organized, clear. But, but, but: It looks like there is a kind of a bus or bandwagon , and after this lecture I'm thinking of either not getting on or just jumping off before going too far. Sure, YMMV. More generally, I'm concluding that for information technology start-ups, Silicon Valley equity funding is on a long walk on a short pier, about to go the way of the Dodo bird. E.g…

I agree with you when you say ideas are actually worth something. When investors say ideas are worth nothing, execution is everything that's very self-serving. The idea wasn't theirs, so of course they want you to believe the idea is worth nothing. Also, the suggestion that all co-founders should start with equal shares, regardless of how much work they put in and whose idea it was, this is also very self-serving. This just makes it easier for the investors to boot one of the founders if needed, and does not serve any other purpose. This video should be taken with a grain of salt.

Re: Lecture 18: Legal and Accounting Basics for Startups

#72

Post by brackenbury »

suchthrowaway wrote: post #62
TheBiv wrote: post #55

Earlier quoted context omitted.

Very interesting. Considering your scenario, would you advise others to not have a cliff or have a X month cliff?

At the end of the day, you really have to trust your cofounders. Betrayals happen but you can't found a company with people you don't trust. A cliff still makes sense in cases when a cofounder abandons a start-up and stops working. Maybe the safest way for everyone involved is to only apply cliffs for the first 3 months or in the case of voluntary departure. That still leaves room for abuse but at least the temptatio…

Trust is not a binary value. When large sums of money are involved you don't want to rely solely on trust.

Re: Lecture 18: Legal and Accounting Basics for Startups

#73

Post by petercooper »

simantel wrote: post #26

Does anyone have a good resource for legal and accounting basics for single-founder lifestyle businesses?

You're undoubtedly in a different country to me, but here in the UK I had a lot of initial success with reading the reasonably generic "Tax for Small Businesses" and "Accounting for Small Businesses" type books that always seem to sell well. Then over the year I just drilled down on the areas where I needed more depth. Having a one stop shop book helped me get the foundations down before moving on to reading articles online.

Re: Lecture 18: Legal and Accounting Basics for Startups

#74

Post by dudurocha »

Spooky23 wrote: post #25
lukasm wrote: post #9

Pretty good bang per minute ratio. If company is a Delaware company, does it mean I have to pay myself Delaware min-wage?

No, minimum wage is based in where work is performed. There was an NPR report not long ago about a shopping mall that sits in two towns -- there is a significant wage delta in each side of the mall!

That is the piece: http://www.npr.org/blogs/money/2014/08/28/343430393/a-mall-w...

Re: Lecture 18: Legal and Accounting Basics for Startups

#75

Post by ISL »

graycat wrote: post #48

Good lecture: Important content, well organized, clear. But, but, but: It looks like there is a kind of a bus or bandwagon , and after this lecture I'm thinking of either not getting on or just jumping off before going too far. Sure, YMMV. More generally, I'm concluding that for information technology start-ups, Silicon Valley equity funding is on a long walk on a short pier, about to go the way of the Dodo bird. E.g…

Solo climbers make a number of first ascents in alpinism, but almost everything is done by teams. When you're working by yourself, everything goes well when things are going well, but when things go badly, there's nobody to turn to for support; you're working without a rope.

I'm a soloist by nature, but I've learned that I need to work with others. The mutual support of a qualified partner is almost priceless, for you and for them.

YC, and the startup culture in general, appears to have noted a strong correlation between multiple founders and success. It also sounds like founder breakups are common. These two observations are compatible.

Ideas do have intrinsic potential value, but that value cannot be unlocked without execution. You may have an idea that sequences DNA with absolute fidelity in ten seconds for $1. That idea has an intrinsic potential value of many billions, but if it can't be brought to market (or to proof-of-principle, to sell the idea to others), that value cannot be converted into currency.

Re: Lecture 18: Legal and Accounting Basics for Startups

#76

Post by jalonso510 »

7Figures2Commas wrote: post #61
jalonso510 wrote: post #41

Earlier quoted context omitted.

The decision about where to incorporate shouldn't just be about taxes - you're signing up for a body of corporate law and procedure and the differences can have a big impact. And CA vs DE is just night and day in terms of user-friendliness. Sure you could save a few hundred dollars in taxes by incorporating in CA, but you'll burn through those savings on the first day your corporate lawyer has to address one of the m…

> The decision about where to incorporate shouldn't just be about taxes - you're signing up for a body of corporate law and procedure and the differences can have a big impact. And CA vs DE is just night and day in terms of user-friendliness. I never suggested the entity selection issue boiled down to taxes and taxes alone. You seem to be under the impression that matters of corporate law are a lot simpler than they…

In practice, Section 2115 doesn't change much of how a DE company in CA operates. Every experienced startup lawyer routinely represents DE companies in CA and knows the few places where you need to think about Section 2115, so this has basically zero effect on fees.

Representing a DE company based in CA is the default for corporate lawyers in SV - being incorporated in CA is a complication that forces your lawyer and opposite counsel outside the normal groove.

Re: Lecture 18: Legal and Accounting Basics for Startups

#77

Post by lisper »

7Figures2Commas wrote: post #4

The first slide is ironic. "Keep it simple" by forming a Delaware corporation is advice constantly repeated in some circles and it's simply asinine. The simplest option for founders is to incorporate in the state in which they reside/plan to conduct business as they are going to have to file as a foreign entity in that state anyway. The retort is "But investors won't invest in my California LLC!" The first fact this…

Google started out as a California corporation, and remained one through its A round. It only became a Delaware corporation when it started to lay the groundwork for the IPO.

Re: Lecture 18: Legal and Accounting Basics for Startups

#78

Post by snapplehat »

Udo wrote: post #66
graycat wrote: post #48

Good lecture: Important content, well organized, clear. But, but, but: It looks like there is a kind of a bus or bandwagon , and after this lecture I'm thinking of either not getting on or just jumping off before going too far. Sure, YMMV. More generally, I'm concluding that for information technology start-ups, Silicon Valley equity funding is on a long walk on a short pier, about to go the way of the Dodo bird. E.g…

> it's got to be a pretty good business before it qualifies for VC equity funding [...] has the business take an equity check and suddenly owns 0% of the business, to start to get back some ownership The core value proposition of VC equity funding seems to me is enabling the business in the first place, or at least taking the business to places it could otherwise never reach. Obviously, there are lots of cases where…

I'm just gonna comment here...

Re: Lecture 18: Legal and Accounting Basics for Startups

#79

Post by swampthing »

7Figures2Commas wrote: post #59
swampthing wrote: post #14

Earlier quoted context omitted.

Entity conversion isn't going to be the most complicated or costly part, but it could actually be the most time-consuming depending on the state you're converting from and a bunch of other factors. I've seen it take months - you can imagine the founders weren't happy (wasn't CA though). I think you need to consider the target audience of the presentation - it's for people who want to start high-growth tech companies…

> I think you need to consider the target audience of the presentation - it's for people who want to start high-growth tech companies that will raise venture capital. Correction: it's for people who have been convinced (or are in the process of being convinced) that they're starting high-growth tech companies that will raise venture capital. Just because you immerse yourself in Silicon Valley culture and create a "st…

1. No VC will not give you a term sheet - probably true (so long as you don't tell them about all the time / money you spent trying to optimize your legal structure for what they would consider to be the failure case). But there's this concept called "deal risk" - the longer it takes to get a deal done, the greater likelihood something will come up that blows it up.

2. Incorporating a Delaware C-corporation is by far the simplest option for high-growth tech startups. As an attorney in Silicon Valley, I cringed every time I had to deal with some other type of entity because it just wasted a lot of time (and thus the client's money) figuring out stuff that is muscle memory for Delaware C-corporations. And it always is painful to see the horror stories, like the one mentioned in the lecture. It's experiences like that that lead startup lawyers to advocate just going with the beaten path. All the extra headache is just not worth the few hundred dollars you save in franchise taxes. Penny wise, pound foolish.

Re: Lecture 18: Legal and Accounting Basics for Startups

#80

Post by swampthing »

7Figures2Commas wrote: post #61
jalonso510 wrote: post #41

Earlier quoted context omitted.

The decision about where to incorporate shouldn't just be about taxes - you're signing up for a body of corporate law and procedure and the differences can have a big impact. And CA vs DE is just night and day in terms of user-friendliness. Sure you could save a few hundred dollars in taxes by incorporating in CA, but you'll burn through those savings on the first day your corporate lawyer has to address one of the m…

> The decision about where to incorporate shouldn't just be about taxes - you're signing up for a body of corporate law and procedure and the differences can have a big impact. And CA vs DE is just night and day in terms of user-friendliness. I never suggested the entity selection issue boiled down to taxes and taxes alone. You seem to be under the impression that matters of corporate law are a lot simpler than they…

I'm sorry, but you are just plain wrong about legal costs. Ask any reputable startup attorney in Silicon Valley whether it is net-efficient to start off as a Delaware C-corporation or a California entity.
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