New Blog on Change of Control Terms - New Videos - Summer 2018 Newsletter - Stock Option Counsel, P.C
New video for individuals negotiating startup equity offers explaining the difference between startup valuation and 409A valuation.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.Hello Startup Community!
Here's the latest on startup equity for individual founders, executives and employees.
Negotiating Change of Control Protections for Unvested Shares. See my newest post on the four categories of change of control terms, from the worst of the worst - cancellation plans - to the best of the best - single trigger acceleration. It also provides current market info on which terms executives, employees and founders can reasonably expect to negotiate in their offers.
Liquidation Preferences Make the News. FanDuel's $465 million acquisition deal reported by Legal Sports Report shows the power of liquidation preferences. Ordinary shares will receive $0 in the deal because of preferred shares' $543 million liquidation preference. See this post for more info on liquidation preferences and this post on how startup executives consider these in negotiating their offers.
New Videos! Check out new videos on:
Stock Option Counsel, P.C. - Legal Services for Individuals. Thank you for your enthusiasm for my practice and for the Stock Option Counsel Blog! I will continue to send quarterly updates on important topics in the market for startup equity for individual founders, executives and employees. Please keep in touch.
Best,
Mary
Mary Russell | Attorney and Founder
Stock Option Counsel, P.C. | Legal Services for Individuals
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Founders' Stock Red Flags - Keep Your Law Firm on Your Side
Lately, I’ve seen startup law firms yielding founder rights to future investors by proposing incorporation documents that are detrimental to founder interests. Photo © Aleksvf | Dreamstime.com
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
I help founders protect their personal equity interests, from incorporation through financing and exit events. Lately, I’ve seen startup law firms yielding founder rights to future investors by proposing incorporation documents that are detrimental to founder interests. These choices are being made by company counsel and signed by founders before a company has investors.
Here are some of the red flag terms I call out for my clients:
Requiring board approval for transfer of shares;
Adding Company repurchase rights for vested founder shares upon termination of employment;
Using stock option structure rather than restricted stock at founding;
Setting the purchase price of shares higher than necessary;
Adopting a stock plan for future employee grants that has off-market, anti-employee terms;
Failing to provide for any vesting acceleration related to a change of control, or limiting double trigger acceleration of change of control to apply only if the termination event is within 6 or 12 months of the change of control rather than at any time after it; or
Adding Company rights to terminate unvested shares or options at the time of a change of control.
I’ve seen some of these terms even from classic Big Law startup-focused firms in recent months. Limits on founder shares are often negotiated between founders and investors at the time of financing – not before. This is usually done through a stockholders agreement, such as a ROFR Agreement or Voting Agreement. It is premature for founders to restrict themselves – or for a company’s law firm to restrict founders – by adding pro-investor terms to the incorporation documents.
The founder’s task is to communicate to company counsel that they want standard, pro-founder terms in the incorporation documents and provide feedback if they see that company counsel has added pro-investor terms have been included before negotiation with investors.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
*Thank you to JD McCullough for edits to this post. JD is a health tech entrepreneur, interested in connecting and improving businesses, products, and people.*
Considerations for founder restricted stock purchase agreements.