This is Part 2 of my effort to share with you 50 Ways to Mess Up Your Startup so you can avoid them! See Part 1 (including video). Because there are so many, I’m posting them in groups of 8-10 and when they are all posted, I’ll publish a neat single summary document for you as well. I described each “way” in the accompanying video and then share examples of the problems that occur if you step in one of these!
8. If you are starting up a university spinout, thinking that you can be the technology inventor AND the CEO.
9. Fail to protect your IP properly from DAY 1, including patents, trademarks, copyrights, proprietary information and trade secrets.
10. Fail to get proper rights to work done by outside contractors (often called “work for hire”) as well as proper agreement with employees.
11. Call people “contractors” who are actually managed/treated as employees, the IRS is very grumpy about this.
12. Use a non-venture attorney to do your paperwork, or even worse, have a non-venture attorney create a “PPM” (private placement memorandum).
13. Fail to get high quality documents creating your corporate entity – these protect you and protect investors.
14. Specify what you think your pre-money valuation will be (especially if it’s in a PPM) – this will be a negotiation with your potential investors. Have a number in mind, but be prepared to negotiate.
15. Verbally promise people, including advisors, employees, and friends, that they will get equity – equity is in writing only!
16. Don’t have a pool of stock options for employees, advisors and outside directors.
17. Try and “go it alone” – entrepreneurship is a team sport and you need advisors and mentors.
18. Have investors for all of your advisors/mentors – instead invite entrepreneurs who are purely entrepreneurs to serve in at least some of those roles – they have a different perspective and will be on your side.