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How do you calculate and determine what a fair valuation cap is?

A fair valuation cap is whatever the market will bear. So look to the market for comps. There are plenty of good explainers for what a valuation cap is and does, so I won’t get into that. Just keep in mind that it’s only one of several key terms negotiated between startup companies and their investors by which the investor purchases a security instrument (a convertible note or a SAFE) issued and sold by the company to raise money. The valuation cap is a dollar figure that relates most closely to the perceived value of the company, but only indirectly. A fair number would be one that a willing investor would accept from a willing company, assuming on both parts a degree of sophistication, rationality, access to information, and bargaining position that all lie within normal bounds.
Gil Silberman
Gil Silberman , Founder, lawyer, investor, engineer.
15 Sep 2023

What do you give up when you take outside investors?

Taking in angel or venture money requires a setting of an entrepreneur’s expectations that may come as a shock at least at first. From the moment such an investor looks seriously at your company, the investor or VC partner is thinking of the end game, the ultimate sale of the company or even of an eventual initial public offering. There is no middle ground.
Dave Berkus
Dave Berkus , President , Berkus Tech Ventures
8 Sep 2023

7 Key Questions to Ask Before Hiring a Startup Lawyer

Starting a new business is exciting. Founders often have a mental image of how they imagine their new company will be: the new Google. But before they can create a new verb, they first need to make sure that they have the best corporate setup, have raised adequate funding, have commercial contracts to protect their interests, and that their intellectual property, including patents and trademarks, are protected. When you have early stage legal needs, you want to find a law firm that specializes in working with startups and know how to guide them toward an exit. To choose the right one, business owners need to evaluate their needs as well as the abilities and experience of the startup law firm. We have identified seven key questions that startup business owners need to ask before hiring a startup firm. These should help business owners choose the law firm that is best suited for their needs.
David De La Flor
David De La Flor , Startup Attorney , SPZ Legal, P.C.
1 Sep 2023

Choice of Entity: LLC vs. Corporation

For many entrepreneurs, their first experience with corporate law occurs when they decide to organize their fledgling business into one of the several forms of business entities permitted by law in most states. For the first-time business owner, the options presented by legal counsel can be confusing, in part because the differences among some types of business entities are subtle or highly technical. The appropriate form of entity can depend on numerous factors, including the nature of the business, its intended ownership and management structures, the need to raise equity capital, the desired tax treatment of income and losses and the importance of limiting the personal liability of the business’s owners. The good news is that for nearly all startup businesses (particularly the tech, tech-enabled or life science businesses that I most commonly represent) the choice of entity can be narrowed down to two options – the corporation or the limited liability company.
Jared M. Sorin
Jared M. Sorin , PARTNER , Brown Rudnick LLP
21 Aug 2023

What Is Startup Business Insurance and Why Do I Need It?

In the fast-paced world of startups with ever-growing risk, having insurance in place can mean the difference. Startup business insurance protects your company, investors, board, property, and customers from lawsuits. Think of insurance as an investment in your business designed to cover the financial cost of unforeseen liabilities and business losses. It is a way to help transfer the financial risks of running a competitive startup from you and your company to another entity. In the event that something does go wrong, you can file a claim, and your insurance provider takes it from there.
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