Starting a company is not easy. Sometimes it can feel like there is an endless amount of work to be done, but not enough time or resources to do it. During this early startup stage, the slightest mistake can be fatal.
Venture Beat has shared three tips that may help you avoid those business-killing startup mistakes.
Try to keep the payout simple.
In most cases where there is more than one founder (probably on the order of over 80 percent of startups), the stock should be split equally. If it isn’t an even split, then you should re-evaluate whether your co-participants really deserve to be in the “founder” category. Establish uniform stock vesting provisions that apply equally to both founders (although maybe with some “credit” for pre-formation activities) and early stage employees.
Choose the business entity that works best for you.
If you are planning on raising professional capital, whether from an angel group or from a venture capital firm, use a Subchapter C corporation incorporated in the state of Delaware.
It doesn’t take much time to form and organize a company—with three general exceptions:
You have promised your co-founders and/or anticipated early stage employees specific allocations of stock, and they are tired of waiting to get their hands on the stock certificates. You are about to enter into a contract with a strategic partner or a significant vendor or a major customer, and either they want to see a corporate entity on the signature line, or you are worried about potential personal liability if you sign as an individual. You are highly confident you are going to get funded.
Absent these circumstances, focus on the business.
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