Navigating Founders
I. Co-Founder Alignment
II. Fundraising
III. Stock-options
IV. Exit
I. Co-Founder Alignment
“Teamwork makes the dream work, but a vision becomes a nightmare when the leader has a big dream and a bad team.” – John C. Maxwell, author of the ‘21 Irrefutable Laws of Leadership’
WHAT
There is a reason why co-founding a company is often compared to getting married. More so, co-founders spend more time together than with their significant others. Therefore, it is essential for co-founders to align their visions and address potential concerns to avoid a (hostile) divorce that could lead to the dissolution of the company. In short, always date before you marry.
At MACE, we call that ‘co-founder alignment’, a fancy term to describe sitting down with the co-founders to identify any issues and document agreements to avoid future disputes, lawsuits, and possibly the dissolution of the company. These talks typically cover the co-founders’ (business and personal) goals and vision, work ethic and ambition, operational role, ideas on equity and ownership, thoughts on exit, etc.
WHY
Because it’s better to be safe than sorry. Many start-ups fail because of disagreements between co-founders; disagreements that could have been unearthed if they had taken the time to date. Discussing important issues could get uncomfortable or perhaps even cause rifts between the co-founders but can ultimately lead to the making or breaking of the company. Moreover, strong co-founder alignment is a fundamental basis for success. It boosts confidence, increases credibility, and provides peace of mind. Things that warm even the most cold-blooded investor. Because at the end of the day, everybody loves a good love story.
HOW
At MACE, we practice what we preach. That's why we host expert sessions (zoom or face-to-face) on co-founder alignment, where we deep-dive into your business and personal relationship with your co-founder(s) and evaluate your marriage. Something along the lines of "I'll show you mine if you show me yours," but then from a legal perspective.
II. Fundraising
“Raising venture capital is the easiest thing a startup founder is ever going to do.” – Marc Andreessen, co-founder of the venture capital firm ‘Andreessen Horowitz’
WHAT
Raising capital is a founder’s most important and time-consuming job. After all, no money, no honey, and vice versa. If your company’s fundamentals are solid, chances are you have a variety of options for raising capital. But while cash is king, each funding option has its pros and cons, depending entirely on the circumstances: what your goals are, how much money you need, what you are willing to offer, etc. Each founder does best to consider each option thoroughly.
WHY
HOW
To accelerate growth you need to raise capital. But as exciting as raising capital can be, it can also be detrimental to the company in the long run. Especially if the company is no longer relying on money from angel investors (friends, family, and fools) to get funding, but on that from venture capital firms to accelerate growth exponentially. The upside is that you can secure funding for your business even if you don’t have any assets or cash flow; the downside is that you may have to relinquish some control over the company.
Do your homework! Before you begin your fundraising, determine what you need, know your financial situation, and think realistically. How smoothly the investment process will go and how much leverage a venture capital firm will ask in return for its money depends entirely on your preparations. The tastier the honey, the better the money, and vice versa. MACE will guide you through the entire investment process, from doing your homework to passing the exam. We strive to be the Robin to your Batman. And since the devil is in the details, you can rest assured that we will have done our homework too.
III. Stock-options
“Just rest and vest.” – Bighead, character on Pied Piper, an HBO sitcom
WHAT
Stock options are a form of compensation. They give an employee of the company the right to buy several shares of the company at a predetermined price for a finite period of time. The benefit of stock options is realized once the company's share price rises above the predetermined exercise price. In that case, the employee can exercise his/her stock options and obtain a small percentage of the company’s equity.
WHY
Generally, stock options are issued to recruit the best and the brightest and to encourage key personnel to build the company and share in its growth and success. After all, you are offering them a piece of the pie. And who doesn't like pie? Stock options come in all shapes and sizes. For example, the company may decide to make these stock options contingent on performance-based criteria or limit them over time. The stock options then vest only once these conditions are met. In legal jargon, this is called "vesting."
HOW
First, the founders must determine how much of the company they are willing to share with key personnel. Second, they must agree on vesting conditions (basically what key personnel must do to obtain these shares – you want to avoid personnel just resting and vesting). Third, they have to formalize their plan. And that traditionally requires a lot of paperwork. MACE relieves you of these worries and guides you through the design and formatting of the stock option plan. Finally, they have to ask approval of the board and the shareholders to slice the cake and divide the pie. At MACE, however, we make sure that you keep the icing and the cherry.
IV. Exit
"If you have an exit strategy, it's not a passion." – Mark Cuban, shark at ‘Shark Tank’
WHAT
Typically, the entrepreneurial struggle is one between passion and wealth. Although you need money to pursue your passion, it is easy to be consumed by it. But for some, generating wealth is the goal from day one. They founded the company with the plan of cashing out at some point by selling the ownership of the company to interested parties. They planned on ‘exiting’ the market well in advance. They have what is called an ‘exit strategy’. This strategy can consist of either selling the ownership of the company, going public, or simply merge with another company, and that withing 5-10 years from the company’s founding.
WHY
HOW
For profit. Plain and simple. And reward their investors for their risk-taking along the way. Some entrepreneurs are not in for the long haul. They want to cash out, limit their exposure, and enjoy a well-earned buck. However, an exit strategy is not to be taken lightly. Some questions immediately arise, such as: what does the timeline look like, what should you pay out your investors, who can trigger an exit, etc. Therefore, an entrance strategy is as important as an exit strategy.
As always, preparation is key. As with investment rounds, an exit requires a lot of (legal) work. After all, you are selling the ownership of your company and that is a big deal. Of course, you want your company to be as "sexy" as possible to attract interested parties. That means documenting your business, determining the valuation of the company, and making sure your company is "lean and mean”. At MACE, we prepare you for an exit and defend your interests during the process. Typically, such deals are paved with legal concepts in favor of either the seller or the buyer. Based on our years of experience, we help you navigate these legal waters and ensure you arrive in the promised land with a pot of gold, ready for your next adventure.
