How to assassinate your start-up: a legal guide
By Sarah Reed
Sarah Reed is General Counsel at RA Capital Management. She is the only lawyer to have received the National Venture Capital Association’s Outstanding Service Award, for her leadership role in conceiving of and spearheading the NVCA Model Legal Documents
Image: Public domain, via Wikimedia Commons
June 30, 2021
You’ve been pitching, pivoting, iterating and leaning-in like crazy -- you even momentarily morphed into a Covid company. It feels like years, but it’s only been a few months since you last slept. Here, then, for those dark moments when you feel like calling it quits, are some helpful lethal prescriptions from a lawyer who has observed all of these first-hand in legal hospice. To be sure, none of these can ensure death with dignity, but most will speed your start-up’s demise – especially when taken as combination therapy.
And for those of you with a tin ear for irony and a yearning for success, simply follow the opposite of what is indicated below and go to the links for more information.
“Nothing’s better than free, right?”
You’re right, legal services are fungible, and it matters not that your dad’s college roommate is a semi-retired divorce attorney in Vermont, as long he is providing free services and advice.
“What’s the BFD? He’s my BFF!”
Don’t document any of the arrangements with your co-founders regarding, for example, how the equity is split, what happens if someone leaves/dies/becomes disabled. Why opt for documentation, when you can have drama and maybe even a lawsuit?
“Did our valuation just go up because we changed our company name to Biogene, Inc.?”
Pick a super trending company name and logo, pay to have it inscribed on business cards, letterhead, hoodies and other company schwag. Don’t check or care if anyone else is already using that name, or an arguably similar name, for a related business! (Also consider adding the words “Total Landscaping” as a suffix to any company name.)
“Hello, I’m from the IRS, and I’m here to help you”
Don’t bother issuing yourselves stock immediately after you incorporate the company. Why waste a few precious bucks on that when you can wait to do it on the eve of your financing round, creating a black hole of tax risk?
“I think the 83bs are a girl band my mom used to listen to?”
When your Founder stock is subject to any kind of “forfeiture” (e.g., a company repurchase right), convince yourself that your noble quest to cure cancer excuses a failure to timely file an 83(b) election under the Internal Revenue Code.
“Investors really are cyborgs”
When you pitch them, trust them when they say they are only interested in hearing about your company. Unlike all other human beings, they have no interest in talking about themselves and their own successes. Also remember, they have supercomputer cybernetic implants (courtesy of the Gates/Pfizer cabal, of course), so they’ll probably understand everything the first time, no need to prepare simple explanations of complex ideas.
“Sorry, did you say your last name rhymes with Frump?”
Tell your potential investors up front that you will incur casualties before you’d ever hand over the reins to another CEO. Investors love working with dictators!
“Can I get a charitable tax deduction because I accidentally gave away half of my company?”
Have your foundational IP work done by outside contractors/consultants (or better yet, unpaid interns), but don’t enter into any agreements with them regarding invention assignment/work for hire.
Buddhism or bust:
Very important if you want to truly escape your personal capitalist hellscape; be sure not to keep any records/documentation of the fact that like a shmuck you put your entire life savings into the company in the early days instead of buying crypto. That way you can be sure you won’t be reimbursed, and you will be part way down the path to freeing yourself from this material world.
“My true passion is zip-lining anyway…”
If you thought inside the box, you wouldn’t be the dynamite entrepreneur that you are! The very fact that 99% of venture-backed start-up companies incorporate in Delaware is reason enough to domicile in Alaska.
“But I follow him on Tiktok!”
Best practices dictate that your slides include at least one high-profile advisory board member/KOL. Just find your favorite influencer who will be surprised to get a call from a potential investor and will demonstrate a total lack of familiarity with your business.
Optimize or die:
It’s not a done deal until the final documents are inked. Rework the cap table before closing to change the pre-money valuation. You’ll think of something to explain it away if they notice!
“It’s just an expression of my love for humanity!”
Are you the person who could not narrow down your wedding guest list below 1,000 invitees? How then can you possibly resist the temptation to accept money from 1,000 strangers? Isn’t magnanimously promising equity to every random person who gives you an idea for your company what crowdfunding is all about? Besides, think of all the pleasure you’ll get out of seeing your nebbish attorney actually weep real tears when you let them know!
Your “no” is my “yes”
A well-known investor sends you a polite turn-down and welcomes you to re-engage if and when you’ve demonstrated substantial progress against major milestones. Don’t let that slow you down! Prepare a pitch deck and send it to that well-known investor’s peer firms (heck, what are the chances that we actually talk to each other?) announcing on the cover page that said well-known investor is strongly interested in investing and seeking to round out the syndicate.
