Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist

Every employee of a startup, including founders and each of the company’s executives, must sign a Proprietary Inventions and Assignment Agreement to protect the startup’s rights to its intellectual property.

Regardless of the actual thresholds, it’s important to never allow investors to negotiate different automatic conversion terms for different series of preferred stock.

The right of first refusal is not a big deal, and in some cases it’s good for you. But make sure you define what a major investor is and give this only to them. At a minimum, you can make sure that shareholders get this right only if they play in subsequent rounds.

There are three conditions to watch out for since they usually signal something nonobvious on the part of the VC. They are:

Don’t put yourself in a position where you can be held hostage by angels. They are important, but they are rarely in a position to determine the company’s direction. If your angel group is a small, diffuse list of friends and family, consider setting up a special-purpose limited partnership controlled by one of them as a vehicle for them to invest.

Investors will also expect a company to include copies of its financial records, budgets, major customer lists, and employment agreements in its data site.

investors that demand a PPM.

we feel more strongly than ever that a ROFR on common is a good thing for the company and should be supported by the founders, management, and investors.

Investors will expect a startup to provide copies of its original organizational documents, including the