jordan willms on business, entrepreneurship, technology and the web

On Saturday (March 24th, 2007) I attended YCombinator’s Startup School event at Stanford University. YCombinator, an innovative (and controversial) Venture Capital firm, works with carefully selected entrepreneurial startups over a summer session in Boston, and injects a small amount of money into these startups in exchange for 5% ownership of the company.

Mark J. Macenka, gave a great speech on The Great Value of Avoided Mistakes in startups. If you are interested in starting a company, or have already -- this list can be really beneficial to you.

Here is his advice:

1. Don’t get too focused on control.. Many entrepreneurs get obsessed with keeping 51% of a company. Don’t get bogged down on dilution. Just get the money and get changing the world.
2. Family & Friends are not of any value of sitting on your board. Besides, you'll get their advice for free anyways.
3. Solicit strategic and tactical advise on business/legal issues early. Don’t fail to do this, don’t be shy to ask for this
4. Regarding Capital Structures. KISS Principle: Making complex structures incurs lots of legal fees, and makes it more complicated to bring in additional investors. Proper documentation is important: All founders need to sign all important information (If things need to be fixed, investments can be delayed while waiting to fix the problem)
5. Intellectual Property: Right of former employers. You need to be aware that many of the ideas you may have though of at your previous employer may be owned by them. DO NOT develop ideas or products on your company laptop. Be aware of your communication with your company email. Don’t talk about your ideas and so forth.
   - If you hire a programmer or consultant to code something for you. For gods sake, make them sign a legal document saying you own the resulting Intellectual Property.
   - 3rd party claims of infringement. If you use proprietary code or open source code make sure the license rights allow you to go to business with it. This could be costly (or devastating) to try and fix later.
6. Intellectual Property: Project your trade secrets. Spend the legal time to create and sign confidentiality agreements with employees, licensees, contractors, etc.
7. Founders Issues: Who’s on the board? . You can’t have all the founders on the board, especially when you start getting investors sitting on the board. In later stages, maybe 1-2 founders will be on the board.
8. Founders Issues: Non-competition agreements. Probably a good thing. You don't need a co-founder leaving and creating a direct competitor.
9. Founders Issues: "Breaking up is hard to do" or "Anyone can get hit by a beer truck". Vest your ownership in the business. Make people work for their ownership. If they get hit by a car or leave, it won’t dilute the company.
10. Be prepared. Start organized and stay organized. Do it with advisers who know what they’re doing. Pay attention to your corporate legal records