Michael is a partner at Cooley LLP and has been a TechStars mentor since 2007.
Lawyers are too expensive. We're a stealthy, scrappy startup. We are just going to use the family lawyer or, better yet, file an LLC certificate ourselves. When we get the prototype finished and we get a VC term sheet, we can fix whatever we mess up. Let's just initial the page with our equity splits so there is no dispute later.
|--The Thrifty Entrepreneur|
That's a great example of the application of the 80/20 rule, and 80 percent of the time it's the most cost-effective answer. But 20 percent of the time something different from what you anticipate occurs. It's different because you haven't had the opportunity to see 300 start-ups in formation and financing. For example, take the example I have seen a half-dozen times—co-founders who are close friends split the stock of the company, and later one of them can't stomach the lack of income or meets her true love and moves across the country. Without the correct vesting agreements, you are destined to share the upside with someone who didn't share the risk and economic pain of your startup. There are thousands of simple mistakes ranging from bad decisions that can be fixed with money to fatal problems that can kill a financing.
Okay, so you decide to just do it right? But given that lawyers charge ...