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Protecting Yourself as the FounderRyan Howard
Founder, Practice Fusion
Protecting Yourself as the Founder
The Price of Being an Entrepreneur
Sequoia's founder says 45% of founding CEOs of their investments fired in 18 months
Founders of Twitter, Paypal, Cisco, Telsa, were all exited
Incorporating your company
‒ Allocate 3-4 common seats to maintain control‒ Have clear vesting for founders and rules for termination‒ Issue FF class shares to yourself for early partial liquidity‒ Consider a B corp structure; community outweigh shareholders
Protecting Yourself as the Founder
Your employment agreement
‒ Always be thinking about your downside‒ If this ends today
‒ What do I have in my bank account? ‒ Can I liquidate my equity?
‒ California is at-will, even for founders
Protecting Yourself as the Founder
Your employment agreement
‒ Always be thinking about your downside‒ If this ends today
‒ What do I have in my bank account? ‒ Can I liquidate my equity?
‒ California is at-will, even for founders
Protecting Yourself as the Founder
Your employment agreement
‒ Get a great employment attorney unassociated with the company ‒ A cure provision: timetable for making things right‒ Severance
‒ Cash:6-12 months if you have closed Series A‒ Accelerated vesting ‒ Extended exercising*
Protecting Yourself as the Founder
Your employment agreement
‒ Get a great employment attorney unassociated with the company ‒ A cure provision: timetable for making things right‒ Severance
‒ Cash:6-12 months if you have closed Series A‒ Accelerated vesting ‒ Extended exercising
Protecting Yourself as the Founder
Corporate Counsel
‒ The majority of large firms will work on contingency upfront‒ Incorporate, founder/employment agreements, convertible note
‒ You don’t pay until you are funded‒ If they want equity, just say, “no”
‒ Instead, ask them to invest :)
Protecting Yourself as the Founder
Corporate Counsel
‒ A great lawyer can assist in managing your board‒ Many larger firms also represent investors (conflict of interest)‒ If you don’t like your attorney, simply cut them loose
Protecting Yourself as the Founder
Your teams
Three teams you want to be constantly focused on‒ Your management team‒ Your board team‒ Your personal support team
Protecting Yourself as the Founder
Management team
Exceptional management team members will be force multipliers‒ Free up your time to be more strategic‒ Have a network to recruit from to rapidly build a team‒ Deliver much better results for their function that you can
Protecting Yourself as the Founder
The wrong leader
The wrong leader can greatly harm your organization‒ Can set functions back by a year (sales)‒ Put the company behind company plan‒ Be the reason you to get fired‒ Enough wrong leaders will cause the company to fail‒ Ruin culture, cause dysfunction, fighting, people to quit
Protecting Yourself as the Founder
Interviewing
Your ability to assess during an interview is critical‒ Group interviews result in more data and consensus‒ Candidates should explain how every part of a problem was solved ‒ Test everyone (A day in the life)‒ Check references that the candidate didn't give you‒ Must be a culture fit (Tolerating assholes will ruin your culture)
Protecting Yourself as the Founder
Your board team
The biggest single mistake founder's make is assembling their board‒ Allocate 3-4 common board seats‒ Spend more time on vetting these candidates versus all others‒ Avoid bloated boards so you can run your company ‒ Do not add board members unless you absolutely have to
Protecting Yourself as the Founder
Investor board members
Overtime, the majority of your board members will be investors ‒ Interview them
‒ Ask when the last time they fired a CEO was, and why‒ Explain your expectations of them‒ Explain how your run the board meetings
‒ Watch for dysfunctional behaviors‒ Check references
‒ Call CEOs in their portfolio companies ‒ Check their reputation on ‘The Funded’
Protecting Yourself as the Founder
Board member pitfalls
‒ Operators > MBAs‒ Partners > Associates‒ Never rush filling a board seat ‒ Common seats: find someone you trust implicitly (advisor first)‒ Board observers can have undue influence in meetings
Protecting Yourself as the Founder
Your personal team
Think of yourself as an athlete‒ A great athlete has
‒ Coaches‒ Trainers‒ Advisors‒ Therapists
Protecting Yourself as the Founder
Your personal team
‒ Great coaches, advisors, and success models‒ People who have been in your shoes
‒ Therapists ‒ Someone to vent to, that’s always on your side‒ Hire a professional, not your spouse
‒ Personal Assistant‒ To keep your life together, while you work
‒ Build strategies to your routine to relax‒ Meditation, message, social time
Protecting Yourself as the Founder
Your personal team
‒ Great coaches, advisors, and success models‒ People who have been in your shoes
‒ Therapists ‒ Someone to vent to, that’s always on your side‒ Hire a professional, not your spouse
‒ Personal Assistant‒ To keep your life together, while you work
‒ Build strategies to your routine to relax‒ Meditation, message, social time
Protecting Yourself as the Founder
Don’t give up your life for a company
Protecting Yourself as the Founder
Don’t give up your life for a company
Protecting Yourself as the Founder
