Checklist of things to do BEFORE starting your own company

  1. Get incorporated as a California C corp ( $800 ). Reasons:
    • Incorporating later can be time consuming/distracting.
    • Procrastination makes for a harder job later.
    • Enables taking any investment directly in the company, rather than as a personal loan. (i.e. company is party to the investment not founder personally )
    • Enables hiring contractors ( consulting agreement is with corporation )
    • Enables financial separation between your personal finances and the company. ( important for IRS and other tax agencies)
    • Enables stock grants when that second co-founder is discovered. ( otherwise all you can do is a ‘handshake deal’ which lawyers love to litigate )
    • IP protection: if someone helps you, enables clear transfer of their IP to the corporation.
    • Succession: If someone bails how does their ownership get transferred.
    • Easier to handle non-equal ownership.
  2. Get a packet of legal document paperwork together:
    1. Consultant agreement ( both project and long-term )
    2. Adviser agreement
    3. NDA agreements
    4. Partnership agreements ( working with another company – just a basic document so there is something )
    5. Stock Option Plan
    6. Board of Directors Sample Minutes
    7. Corporate Bylaws
  3. Clear up all personal financial issues:
    1. I still have a 401k at last company that I have to do something about!
    2. I hired a certified financial planner — so the stock market would not distract me.
    3. Family issues if in a relationship and/or you have kids. Your family can support, hinder or neither your effort:
      1. Who will handle the day-to-day finances – pay rent, etc.
      2. What can be eliminated now from personal budget
      3. Who picks up the kids?
      4. Date nights and family time so you don’t end up distracted by a failing relationship
      5. When will you walk away from the company? This is important to decide now so that later in the heat of the company work you know when you should step back or end it. You may change the “walk away” criteria but you and your spouse should always know what it is. Very importantly you do not want to end up destitute as a result. Preserve your future.
    4. Financing. Know this in advance because it determines how and what kind of company you start
      • VC-funded: Seems attractive but do you want a VC calling you on a Friday at 6pm giving you grief? Also VCs want homeruns, a steadily growing business (like oh… Walmart) is not interesting to them.
      • Self-funded: You are your own boss but it is your own pocketbook on the line as well.
      • Bank loan: The bank will require that you personally guarantee the loan, but on the other hand they are not on your BoD.
      • Government Grants: ?
    5. Define Success. Know what you want out of starting a business.
      • Money? ($4million)
      • Income? ($130K/year)
      • Knowledge? Maybe the business will fail but you can still regard it as a success because you learned some things that you didn’t have the opportunity before to learn.
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