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Avoid Legal and Tax Mistakes Business Owners Make with Mital Makadia and David Siegel from Grellas Shah LLP from Silicon Valley

Avoid Legal and Tax Mistakes Business Owners Make with Mital Makadia and David Siegel from Grellas Shah LLP from Silicon Valley | Ep. 124 | Business Podcast

Avoid Legal and Tax Mistakes Business Owners Make with Mital Makadia and David Siegel from Grellas Shah LLP from Silicon Valley | Ep. 124 | Business Podcast

Avoid Legal and Tax Mistakes Business Owners Make with Mital Makadia and David Siegel from Grellas Shah LLP from Silicon Valley
Avoid Legal and Tax Mistakes Business Owners Make with Mital Makadia and David Siegel from Grellas Shah LLP from Silicon Valley

Summary

Did you know that 65% of businesses fail because of a conflict between founders/business owners?

Imagine that, it’s not because the company has a bad product or service, not because there’s no market for the product, not because pricing is off. Simple human dynamics. 

Mital Makadia and David Siegel are partners at Grellas Shah LLP based here in Silicon Valley who are both intimately familiar with the common and unusual founder disputes that happen. They’re also know how founders can avoid these mistakes.

We talk about how to avoid the mistakes founders make from splitting equity, to company formation documents and extremely important tax documents that have to be filed to avoid incurring large tax bills if your business is successful. One of these forms needs to be filed within thirty days of issuing stock.

We cover these legal and tax business issues and more in our conversation today.

Find Mital and David atGrellas Shah LLP

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More Information on Build a Business Success Secrets

Brandon: 

Hello Friends. Welcome to the show. Today. We’ve got an exciting episode with Metal McKay, DEA and David Siegel from gorillas shaw law firm here in Silicon Valley. Talking about how to avoid one of the top two things that bring companies down and believe it or not, statistics show that 65% of companies fail because of a founder dispute, not because you don’t have a great product, not because there’s not a huge market simply because founders don’t get along and it brings the entire company down. So we’re talking today about how to avoid that. We’re talking about different forms of vesting schedules so that you and your co founders and employees are all incentivized In the same way. 

Brandon: 

And we’re talking about forms that you’ve got to file one of them within 30 days of granting stock or you will incur huge taxes. 

Brandon: 

You’re gonna love this episode with a bunch of legal concerns that you need to know to make sure your business is successful. 

Brandon: 

One quick disclaimer. 

Brandon: 

Before we get started, while we are talking about legal and tax issues today with lawyers. This is not legal advice for you. This is simply a conversation about these issues and you should not substitute this conversation for any legal advice as it relates to your business. Your business can be very different and have different circumstances than what we are talking about today. So I encourage you to seek your own legal advice with your lawyer and or tax accountant or financial advisor. And with that behind us, here we go. Welcome to build the business success secrets. The only podcast that provides straight talk for entrepreneurs whether you’re an entrepreneur, starting with an idea or growing your business. This show is for you. We’ll teach you how to build a strong mindset, powerful body and profitable business so you can achieve success and here’s your host Brandon. See white metal, where are you coming from us today? 

Brandon: 

From Milpitas California. 

Brandon: 

Milpitas

David: 

Yes. 

Brandon: 

Kind of kind of not really right. 

David: 

It’s at the end of the day it’s yes, the north part of self. 

Mital: 

I got Yeah, well, thanks a lot for joining today. 

Brandon: 

This is unstructured and I do that on purpose because we’re already recording. 

David: 

There you go. But both of you are experts in, well, you’re an expert in law, but in startups and in founder conflict for the most part is that right? 

Brandon: 

Hopefully resolving it more than the conflict. 

Brandon: 

So we’re gonna, we’re gonna talk about that today did because you’re talking to an entrepreneur who has not always been able to resolve that, that conflict. 

Brandon: 

So I’m interested to hear from both of your perspective, some of the common things and then and how you actually Resolve these conflicts and could you or I don’t know how we want to go around now now have a round table. 

Mital: 

I’ve never done to people in 100 no 121 podcast so far. 

Brandon: 

Maybe. 

Brandon: 

I don’t know more when somebody listens to this special. Um well when when you when you both contacted me I was like are we going to do both people? 

Brandon: 

I really haven’t done that yet. 

Brandon: 

But you know what two lawyers let’s make it happen. 

Brandon: 

Really? 

Brandon: 

1 1/2. 

Mital: 

1 1/2. 

Brandon: 

Yeah we were very much on the same plane. 

Brandon: 

We finish each other’s sentences. 

Mital: 

Yeah. 

David: 

Oh well that’s interesting. But you haven’t both of you went to different law schools, David, you went to N. Y. U. And you went to Georgetown? 

Brandon: 

Right? That’s right yeah. 

David: 

We never met before. 

Mital: 

We were in new york at at the larger firms at the same time. But we never um yeah until gorilla shaw. 

David: 

And how long have you been there? 

David: 

A gorilla shaw? 

Brandon: 

10 years. 

David: 

Yeah. 

Mital: 

Oh that’s a long time. 

Brandon: 

Mhm. 

David: 

Well at least you came over to the right coast. I’m saying that as the east coaster originally myself. 

Brandon: 

So are you are you here on the west Coast? 

Brandon: 

I’m right here in Half Moon Bay. 

David: 

Oh nice. 

Brandon: 

Very very coast. 

Mital: 

Yeah. I miss Costa. I I don’t know you can look out the ocean. We should have done. I’m almost done my studio in my backyard. And you both could have come over and then we could have walked to the ocean but it’s not quite ready yet. 

Brandon: 

No that would be great. 

David: 

How does that work with the sound though interfere? 

Mital: 

What’s that? 

David: 

The ocean. 

David: 

Yeah. 

Brandon: 

Being outside just being outside generally. 

Mital: 

I was wondering that with Meghan and Harry’s interview with Oprah, how do they do this? 

David: 

They’re outside very, very expensive mix. 

Mital: 

Um but my studio isn’t outside, it’s actually inside, but it I have a whole door that opens into the yard, so it’s a separate building that I’m building, believe it or not. 

David: 

And I think it maybe it happened because of Covid, I don’t know. 

Brandon: 

Um but I started to think, well if we’re gonna do this podcast thing again, we should probably do it. 

Brandon: 

Right. 

Brandon: 

So they were so let’s talk about because I know our listeners get tired of me um rambling sometimes, but the we’re talking about startups and conflicts that happen in startups. 

Brandon: 

Could you both, whoever wants to go first to or whoever finished each other’s sentence is what are some of the most common conflicts that come up and um that you see or that you’ve seen recently? 

Brandon: 

Maybe even with Covid? 

Brandon: 

Maybe Covid has increased those conflicts because everybody is under tension and money’s getting tight in some businesses and things are happening. 

Brandon: 

I can give you the one word answer and then we’ll give you the more elaborate answer. 

Brandon: 

Its equity. 

Brandon: 

Usually, usually it’s around the cap table in equity and it’s, it’s about, you know what someone’s getting, how much someone is getting and someone’s not getting enough. 

Brandon: 

Obviously, you know, when in startups, when you have founders putting in 80 90 hours a week and giving it their all, there’s going to be, um, you know, the feelings are gonna run high, but it’s, it’s usually around compensation and equity. 

Brandon: 

Um, sometimes it’s about the direction of the company. 

David: 

Obviously, you know, someone person wants it to kill another way. 

David: 

One person really wants to push the VC route and try to get funding and there’s disagreements there. 

David: 

Um, but I would say the majority of them are, are around compensation and equity. 

David: 

Um, and I think I was saying this to David earlier when it’s kind of like in a marriage when both both husband and wife or both spouses, I think they’re putting in 60% of the work and the other one is putting in 40. 

David: 

I’m sure. 

David: 

I think that I think that to, um, but it’s the same in a startup where you’re putting in so many hours and you’re putting in so much work and you don’t necessarily, it’s hard to see that the other person is doing the same. 

David: 

And so sometimes there’s no hard feelings about what the initial breakdown of the equity was at the outset and what the reality is in terms of how the work is being done, you know, three years later, there’s not always, there’s usually a mismatch there. 

David: 

What do you think, David? 

David: 

Uh That is correct. 

Brandon: 

I need to add the slightly more cynical take on that. 

David: 

All of that is true. 

David: 

And then you have to add in the creeping in of greed. 

David: 

In some cases, it just um, one can’t escape that it is a part of this world, the start up world where there can be dollar signs. 

David: 

And um, I have seen my fair share of situations where um, Founder A decides some months in that, uh, it would be better for them to, you know, have a larger percentage of the company by getting rid of Founder B. 

David: 

And they’ve gotten what they feel like they need out of founder B. 

David: 

And so they push founder be out. 

Brandon: 

Um And it could be about more noble reasons, like direction of the company or good faith differences about who’s putting in the work, but sometimes, unfortunately, sometimes it literally is just great. 

Mital: 

Uh, and I hate it when that happens, but it does. 

Mital: 

Yes, we talk about how we hate the concept of, uh, dead weight on the cap table. 

Mital: 

I don’t know if you’re familiar with that term brand, I’m not only familiar with it. 

Mital: 

I was a venture capitalist and uh, done, I’ve had to exit so far and I probably tried, times, um. 

Mital: 

maybe maybe more, depending on what you call projects. 

Mital: 

But the, the dead weight is, it’s really painful. 

Mital: 

You mean from the investor side or from the, from people who, when people come early on and they do. 

Mital: 

I’m not saying that they don’t contribute, they contribute at that moment. 

Mital: 

And then, and I want to talk to you both about this and how to mitigate this because for some reason, after two to get two decades being an entrepreneur and venture capitalists and angel investor, I still sometimes get it wrong because I think human nature is that you don’t want to address that conflict when you’re starting a company early on because it’s, it’s early, but talking about dead weight is, is just that you have this person who, I guess at the moment, you, I’m saying the team agreed. 

Mital: 

Uh, and a lot of the time the lawyers aren’t involved in the early days, uh, not in terms of the breakdown, they internally they should be, they should be, I’m saying they should be. 

Mital: 

But as an entrepreneur also, you’re trying to be cheap and usually broke or even if you’re not broken, you’re doing it again. 

Mital: 

You’re trying to cut down on expenses. 

Mital: 

But I think it’s really, it, it becomes painful and then too late years later you look back and you say, who am I working for? 

Mital: 

Right, right. 

Mital: 

But then there’s also the other side of it, right? 

Mital: 

Which, what was the point of that for your vesting schedule? 

David: 

Right? 

Brandon: 

If, if, after having put in four or five years, um, and then the company or the VCS deciding that they’re not adding much value and now, all of a sudden they’re dead weight. 

Brandon: 

What was the point of working for four years and having the vesting schedule if it’s a forever vesting schedule? 

Brandon: 

Well, let’s talk about that because I don’t think most, I think in technology companies that is a generally known thing that you should do, but I would suggest that in the broader entrepreneur founder startup world, people don’t understand what you just described. 

Brandon: 

So, could you talk about what you just meant by vesting? 

Brandon: 

Oh, um, sure, vesting schedule is really just, uh, founders right to keep their equity, um, when you know, let’s say, David and I are starting a company, we each get half of the company, but if I were to leave before I’m quote unquote fully vested, then the company would have a right to take back essentially half of my shares if I left, you know, halfway through my vesting schedule. 

David: 

And so you own the shares outright when you, when you buy the shares fully, but the company has a right to repurchase those shares if you stopped providing services and that right lapses over predetermined schedule called the vesting schedule. 

Brandon: 

I hope that Kiva, it was interesting is it helps. 

Brandon: 

What about the, and I think that that’s what happens sometimes. 

Brandon: 

The other way to do it is is that the person doesn’t own that stock, right. 

Brandon: 

It basically has a stock option. 

Brandon: 

With a stock option. 

David: 

It would work the way you just said that you that you wouldn’t hold the stock option until each vesting points. 

Brandon: 

So if it vested monthly over four years, each month, you would Get 1/48 of the total amount of options. 

Brandon: 

For tax reasons. 

Brandon: 

That doesn’t work with stock. 

David: 

You do it sent the way middle explains with options. 

David: 

Yeah. 

David: 

Typically founders would get stuck and once you’ve raised VC funding and you’re hiring employees, the employees after that would get options. 

David: 

What, what do you mean by you slipped it in there, David? 

David: 

Because it’s not taxed? 

David: 

Uh, I guess you don’t have a tax advantage by doing it. 

David: 

And why is that the attacks essentially tax efficiency. 

Brandon: 

So, um, if you take, um, let’s say you tried to treat stock the way you were talking about treating options where again, let’s just pretend it was Vesting monthly over a four year period. 

Brandon: 

So 1 48 per month. 

Brandon: 

And let’s say what you tried to do was say, ok, you would you would actually own 1:48 More stock every month. 

Brandon: 

So you start out with zero in months at the end of month one, you have 1 48 to stock etcetera, 1 to 48 in the second month. 

Brandon: 

That would mean that you’re literally being granted that stock each month. 

Brandon: 

And when you’re granted that stock at the moment of the grant of the stock, you are either you have to pay the fair market value of the stock, you’re being granted or you get taxed on that fair market value. 

David: 

And so on day one, that’s fine, your founder of the company is worth nothing. 

David: 

But let’s say you’re two years in now, um and you’re still vesting if In month 25 the shares are worth, say a dollar a share and you’re investing in 1000 of them. 

David: 

Suddenly you’re you have to pay $1000 that month or get taxed in $1000. 

David: 

To avoid that vesting for shares is treated literally opposite way. 

David: 

You get all the shares on day one when they’re worth nothing, and the company just has elapsing overtime right to take back the shares at your initial cost of essentially nothing. 

David: 

Um So that’s why from a tax perspective, it with shares, it’s really more of a reverse vesting than investing. 

Brandon: 

But the idea is completely the same from, from the perspective of the founder or employee or whatever, whatever they are, um It ends up working the same over the course of the vesting period, you gain a vested right in the shares or options a right that you can hold on. 

Brandon: 

Um The question then becomes with dead weight on the capital on the track table is mm What is that vested right? 

Brandon: 

If the the intention in the background is for it to essentially be renegotiated at the end, which is something we can talk about. 

Mital: 

Yeah. 

Mital: 

So before we go there, a question on that, the company at the time that it grants that stock Has the right to buy it back at the same price, which winds up being .0001 cent or a par value. 

Mital: 

And and that’s there’s no consequence to the company. 

Mital: 

Even if you’re two years in the person leaves, the company wants to buy back. 

Mital: 

The stock is on paper because it got two rounds of funding worth $10 a share. 

Mital: 

Let’s say the company still because of that agreement Gets to buy it back from that co founder, early person at that agreed upon .0001 price, yep. 

David: 

That’s right. 

Brandon: 

And in your experience, does that ever cause significant heartburn for that co founder, who’s now getting, who’s seen two rounds of funding and says and leaves or gets kicked out or however that mechanism works and then says, You know, but I’m leaving this, I’m leaving $10 million dollars on the table. 

Brandon: 

And then it turns into a lawsuit, not typically because most founders understand that that’s what vesting means. 

Brandon: 

Having invested stock means you essentially don’t have a right to it and lose it. 

Brandon: 

So what you’re describing is usually not a problem. 

Brandon: 

That’s that’s generally accepted. 

Mital: 

Okay, well, that’s good to know. 

Mital: 

And for all our listeners, um listening out there, this is a really important thing to understand when you’re starting a company because if you get this wrong you are now going to wind up in some crazy negotiation about what everyone contributed and it becomes emotional Um and find that 83 b. 

Mital: 

If you’re doing it so can you you threw that in there? 

Mital: 

But that’s a really really important part here. 

Mital: 

So could you explain that? 

Mital: 

Oh sure you really want to get technical? 

Mital: 

Huh? 

Mital: 

I want people to know because if you I want you to describe what it is please. 

Mital: 

And then if you don’t file it can you still recover when that happens or how does that work? 

Mital: 

Usually not usually not. 

Mital: 

The I. 

Mital: 

R. 

Mital: 

S. 

Mital: 

Is not very forgiving of that hard 30 day deadline. 

Mital: 

Um So I can give you a brief overview of 83 B. 

Mital: 

But in order to understand 83 B. 

Mital: 

I think you have to understand the section 83 A. 

Mital: 

Of the I. 

Mital: 

R. 

Mital: 

S. 

Mital: 

Code. 

Mital: 

So Section 83 A. 

Mital: 

essentially says that if you are providing if you’re getting property for services provided you have to pay tax on that property and you have to pay tax on that property when you fully have it. 

Mital: 

So for example if I was providing Brandon legal services for you and you gave me a car I would have to declare that car as income and I’d have to pay tax on it at the end of the year. 

Mital: 

Now if I’m providing services for David’s new startup and he’s giving me stock that’s property and I have to pay tax on the fair market value of that property on the time at the time I’m getting it. 

Mital: 

But add investing right we have the stock isn’t fully vested until 1 48 that each month over a four year period, that essentially means that the the company can take it back and it’s not fully mine. 

Mital: 

So why am I paying tax on something that I don’t necessarily already have? 

Mital: 

And so the I. 

Mital: 

R. 

Mital: 

S. 

Mital: 

Says that you’re not going to be paying tax on that property until the risk of forfeiture has lapsed on that property. 

Mital: 

Now, what 83 B does? 

Mital: 

It’s a voluntary election. 

Mital: 

And by finding it, the founders essentially saying, look, I get it, I might not get that car fully or I might not get that stock, but I’m going to go ahead and declare the entire car for all of the stock as my income for services provided on day one. 

Mital: 

And I’m going to voluntarily pay tax on it. 

Brandon: 

And the reason why founders do that is because that’s 1 40th of that stock. 

Brandon: 

You know, two years from now, it could be $10 a share. 

Brandon: 

At which point I don’t want to pay tax every month. 

Brandon: 

You know, at that price $10 a share right now, the stock that I’m getting usually founders that inc they’re going to get their stock at .0001 cents a share Right now, I’ll pay tax on $10, I’ll pay tax on you know, .0001 sense of share stock. 

Brandon: 

Even if that stock might be taken back from me, as you said, two years from now, that’s that’s a risk I’m willing to take. 

Brandon: 

I’ll go ahead and make that 83 B. 

Brandon: 

Election until the I. 

David: 

R. 

David: 

S. 

Brandon: 

That I got this stock for services provided and I’m going to pay income tax on the stock for the value of the that the stock is worth right now. 

Brandon: 

Now the beauty of 83 B. 

Brandon: 

Is that the election has to be made within 30 days of you actually getting that property. 

Brandon: 

So once you sign that stock purchase agreement when you’re joining the company you’re finding your invention assignment agreement, your offer letter, Your your stock agreement, make sure you file that 83 b within 30 days and make sure you have proof of that filing. 

Brandon: 

In my experience. 

Brandon: 

It’s not really the I. 

David: 

R. 

David: 

S. 

Brandon: 

That comes knocking right and audit to you two years from now or seven years from now or whatever. 

Brandon: 

It’s usually a problem in diligence when the company is being acquired. 

Brandon: 

But yet it’s important to if you if you’re getting stock options then you don’t necessarily have an 83 b. 

David: 

Filing unless you’re early exercising. 

Brandon: 

But if you’re getting your restricted stock at inc as a founder, It’s important to make that 83 B filing in time. 

David: 

And what happens. 

Brandon: 

And just to be very specific, that means that when a person who generally incorporates in Delaware files that inc and gets whatever its common stock, If you don’t file that within 30 days, you’ve lost completely that opportunity. 

Brandon: 

Yes. 

Brandon: 

Yes. 

David: 

It essentially means you have to treat it as income and declare income tax, pay income tax on on the property that you’re getting at each vesting point, which translated for everybody listening means that you are getting taxed at ordinary income because that technically is a short term gain or is it just because its income in general, it’s ordinary income, no matter what it’s just that you’re going to have ordinary income tax on each, at each vesting point in during the vesting schedule. 

David: 

And it could be presumably at a time in the future when the stock is worth a lot more. 

David: 

Let me ask another question. 

David: 

If there if someone isn’t vesting. 

David: 

So let’s say the three of us create a company, uh legal advice dot com or whatever we do and and and we we all get the stock, there’s no quote unquote vesting schedule on it. 

David: 

Is there any reason at that point too To file the 80 83 b. 

David: 

Right. 

David: 

Right. 

David: 

No, if there’s no vesting schedule, then there’s no 83 B requirement. 

David: 

So this is all around the vesting schedule. 

David: 

Mhm. 

David: 

Right. 

David: 

All right, go ahead. 

David: 

One step worse. 

David: 

Um Because if you think about what you’re having to file taxes on and pay taxes on, it’s at each vesting point, the difference between the fair market value at that time, this is if you don’t violate. 

David: 

Um It’s different from the fair market value at that each vesting point and the amount you paid, which means taking a position at every vesting point about what the stock at that point is worth. 

David: 

Uh So it’s it’s it’s a headache in addition to to being more taxed. 

David: 

And you could if I understand this correctly, also over pay because the stock could fall and you would have paid tax on higher price that six months in the future. 

David: 

It dropped. 

David: 

Yeah. 

David: 

Yeah. 

David: 

Uh entirely possible. 

David: 

Um So for everybody listening, this is only when you have a vesting schedule, four founders when you are granting the stock when they joined. 

David: 

So someone just let me make sure David Montella, I have this right that you could have a founder who founds a company. 

David: 

And Does this inc they own all the stock at that point. 

Brandon: 

There’s no vesting schedule for them. 

David: 

They don’t need the 83 b. 

David: 

election because it there’s no vesting schedule. 

David: 

Three years later they bring someone on as a partner, they decide to give 30% of the company to that person. 

David: 

At that point, when that person gets that document that says you’re being Given 30%, that’s going to vest over ah four years I guess in general At that point that person has 30 days To file that 83 b. 

David: 

election. 

Brandon: 

Right, wow. 

Brandon: 

This can get really complicated. 

Brandon: 

This would be a good reason to hire a lawyer. 

Brandon: 

In the beginning. 

Brandon: 

You’re going to have people who invest, right? 

Mital: 

Mhm. 

David: 

Yeah. 

Brandon: 

Generally you want to make sure you’re doing that part right? 

Brandon: 

It gets expensive afterwards. 

Brandon: 

What happens if you grant the person stock they vest that stock, they get through their vesting schedule, they quit at that point, They stay with the company still 15 years later is still going and they’re still sitting on the cap table. 

David: 

They haven’t contributed anything and you go for a sail. 

David: 

And I’ve seen this happen where founders will or the current management team will say, you know what? 

Brandon: 

Like this person has been sitting on the cap table for 10 years. 

Brandon: 

They worked here for, Haven’t done a single thing they own, you know, double digits of stock. 

Brandon: 

We want to renegotiate. 

Brandon: 

That. 

Brandon: 

Does that happen? 

David: 

And generally, how does that go? 

Brandon: 

You’re talking at one point, I think you mentioned there being a potential sale of the company is are you talking about in the context of an actual sale or kind of preceding looking at proceeding, looking at the company, they say, you know, founders say, hey, look, it’s time to sell this thing. 

Brandon: 

Maybe they’ve gotten a soft inquiry or an inbound and they’ve, you know, haven’t officially signed anything at that moment. 

Brandon: 

And they’re starting to go back through their binder. 

Mital: 

Um, hint, hint for anybody out there that should have a corporate binder with all their legal documents ready for diligence. 

Mital: 

And they’re like, oh my God, you know, john smith been sitting on this cap table, we’ve been busting our butt and this person is going to benefit, We’re going to go, we don’t think that they should have that. 

Mital: 

Are there any mechanisms at that point that you can either reduce their stock, add another class of stock, go back to that person and say, hey, we want to buy that stock? 

Mital: 

I mean, what, what sort of mechanisms do people have to, even if any, at that point to get someone off their cap table? 

Mital: 

Not, not much. 

Mital: 

I mean usually in, in the, in the start up world, it doesn’t end up being at that point, it’s usually Right after the person leaves. 

Mital: 

Um, it’s rare that a company would go like 10 years and not notice that there’s someone on their cap table. 

Mital: 

It was, you know, who is long gone. 

Mital: 

They would usually do something about it before that. 

Mital: 

Do you think? 

Mital: 

I think a gremlin guy, well, I shouldn’t wait. 

Mital: 

We, we lost a bit of what you were saying. 

Mital: 

I’m sorry. 

Brandon: 

I’m sorry. 

Brandon: 

Bad connection. 

Brandon: 

Yeah. 

Mital: 

Yeah. 

Mital: 

So what I was saying was, once you’re, once you leave the company, that’s when the, the startup would try to determine how to, how to account for that, that person on the cap table, uh, they’re not going to wait that long. 

Mital: 

Most companies don’t wait that long. 

Brandon: 

And once you’re in the, uh, the sale stage or pre sale stage, it’s almost already too late because no buyer is going to want to take on that kind of risk. 

Brandon: 

So what type of advice do you both have for people coming together? 

Brandon: 

Because oftentimes, especially here in the valley, but I think it happens everywhere. 

Brandon: 

Even with a cupcake company in Tennessee, founders get together, they have this great idea over dinner and they start working on it. 

Brandon: 

And there’s never this discussion of, because the initial idea isn’t, well, I think everybody wants to make money. 

Brandon: 

I think they should, at least otherwise it’s a hobby and it’s not a tax deduction, um, is, you know, there’s never this discussion around equity and then money starts being made. 

Brandon: 

And two, I think until you are saying, you know, everybody thinks that they contributed 60% to the, to the company. 

Brandon: 

So if you wind up in that situation, because the advice otherwise is don’t wind up in that situation, which we can talk about. 

Brandon: 

But when you do wind up in that situation, and probably when both of you are involved at that point, in some sort of mediation before a lawsuit happens, what advice do you have two people to sort of figure out really what that equity split should look like? 

Brandon: 

So you’re talking about the situation where where they kind of haven’t really thought about it or? 

Brandon: 

Yeah, they got a business, they just they started making cupcake, they got this magic batch that eventually become sprinkles times 10. 

Brandon: 

They start selling all these cupcakes, they start making money. 

Brandon: 

They’ve never talked about an equity split. 

David: 

You know, at that point, they probably haven’t even incorporated. 

David: 

They’ve got to incorporate at this point. 

Brandon: 

And now they’ve got to have this discussion about equity. 

Brandon: 

What sort of advice or how do you both handle that? 

Brandon: 

When you’re sitting in the room with these, let’s take it to people to come to a halfway rational discussion about how you do split up the pipe, right? 

Brandon: 

I mean, it’s, by the way, usually when it’s gotten to that point, what’s more likely to have happened is they kind of have had discussions and they both think they know exactly what they, uh, and uh, that has its own harry nous, but it’s a slightly different question, but it is the more common one if they really haven’t spoken about it. 

Brandon: 

Um, the first thing to do is to disabuse and this is not the answer to the question, but you first need to distribute them. 

Brandon: 

Of the 50 50 notion, A lot of when you’re talking about two founders in particular, they will, unless they think that they somehow have this great claim to a much larger percentage company, they will think 50 50 50 50 is a recipe for a disaster, um, on many, many levels, the most kind of obvious one being, um, you can’t do anything if you disagree, and they just, they just cannot work. 

Brandon: 

Um, and the reality is, someone is going to have a majority. 

Brandon: 

Somebody needs guilt of, essentially, break deadlocks. 

Brandon: 

You know, if it’s more than two people, and if you can’t be comfortable with somebody else having that power, um, and you can’t convince the other person, you should have that power, then you can’t work. 

Brandon: 

It will never work. 

Brandon: 

It just can’t, um, somebody, I mean, somebody has to be a minority shareholder, um, and it can be hard to kind of accept that, but somebody has to be, and you have to go into a startup understanding that, um, particularly if you’re a minority shareholder, that you could get kicked out, you could have decisions made and imposed on you, that you don’t have control over and that this might not be either, this might not be the vessel for your dreams to be filled and it might not be the cash cow, you had mentioned Brandon towards the beginning, like, you know, two successful exits 20 others, depending on, you know, whether you want to call the project or start up, and that is every particularly young founder. 

Brandon: 

And this is usually an issue with young, first time founders needs to hear words like that because, um, it’s not just that most start ups fail, it’s that this is not your own chance. 

Brandon: 

Um, so there has to be a dose of, I feel like I’m being sent today, there has to be a bit of a dose of realism uh that we need to kind of convey that uh you know, depending on the person, maybe, maybe I am talking to the person who is more naturally the dominant founder. 

Mital: 

But it’s harder discussion with the person who won’t be just explaining to them that we can’t create a situation where you will have everything you want and be protected in every way because that threatens the company’s by ability. 

Mital: 

Um so that’s the first thing is we just need to get people out of the 5050 thought process and then, we really just need to understand better what what the intent, like what people have done, what people are contributing and um and and then it’s really, it’s focusing them towards the discussion between each other. 

Brandon: 

Um because the reason that this discussion should happen early is because it might make, it might not make sense for people to work together. 

Brandon: 

It’s really bad for this discussion to happen six months or a year in because too much has been devoted. 

Brandon: 

It needs to happen at beginning because it’s so important and it might just Klingle might not work. 

Brandon: 

Um, so the best we can really do where it really works is where we’re facilitating a discussion between the founders rather than, I mean, we can’t tell them what the centuries are. 

Brandon: 

We don’t, I mean, we don’t really know, it’s so fact specific. 

David: 

Um, but we’ve seen enough of this to kind of maybe educate them enough to have the conversation. 

David: 

Uh, and then it’s a whole different situation if they, I think they had well before I go there, because I want to talk about that, because that’s the more common situation, it sounds like from your experience, and you get to see that all the time mentality, you have anything to add on that. 

David: 

Um, yeah, I would say also just be realistic about, you know, whose nests, who’s more necessary going forward in your example with the cupcakes, right, whose whose recipes were they to start with. 

David: 

But but now that we have the recipes then, that part’s done, who’s who’s going to be the one to carry this forward and turn it into, you know, multi location franchise, National corporation, like, who’s it? 

Mital: 

You know, there might have been an understanding at the beginning and that understanding is different now, but the reality is who is actually going to be taking this forward. 

Brandon: 

So those are tough conversations, but you kind of have to accept that maybe you’re not the one who’s going to take this to the next level, you’re gonna have to take that minority position, David on the more common uh where people think they’ve had that conversation, which I think that’s right. 

Mital: 

I think that’s usually what happens whether or not that actually happened in someone’s head or in the physical world. 

Brandon: 

I’m not, never sure. 

Mital: 

Can you comment on that? 

David: 

And and what happens there? 

Mital: 

Yeah. 

David: 

That’s that’s where things are more likely to go south. 

David: 

Um uh, It depends. 

David: 

I mean, you you need to from a lawyer script and it’s very helpful to figure out if there’s a misunderstanding or somebody getting greedy. 

David: 

Um where it’s the latter where it’s somebody being really. 

Brandon: 

Um, It will never, I mean, it will never work. 

Brandon: 

It almost never works. 

Brandon: 

And there needs to be a separation. 

Brandon: 

Um uh, if to be quite honest, if you’re the the minority founder in that situation, um, you should want to get out. 

Brandon: 

These are not treats traits like greediness that, I mean, I don’t wanna, I don’t have rose colored glasses. 

Brandon: 

There’s some level, I mean, everybody has a bit of that in them. 

Brandon: 

But if it’s going to cause a person to be dishonest, materially dishonest, it’s going to pop up in other ways. 

Brandon: 

So in that situation it’s worth getting out. 

Brandon: 

But um, if it’s an honest misunderstanding or misinterpretation, most often it’s trying to steer things towards a renegotiation, just trying to, trying to get people understand people are working in good faith. 

Brandon: 

And then it’s pretty much starting from scratch with some hints of what’s been discussed. 

Brandon: 

Uh, and that, and that could work that can, that can very much work. 

Brandon: 

It’s when there’s hard feelings about it that cause cause real problems. 

Brandon: 

I think one of the things that’s really important to bring up that you just made a distinction about is greed gets a negative connotation. 

Mital: 

But if you’re not starting a nonprofit, you are, all of us are doing something to help people, but we want to make a lot of money. 

Mital: 

But what you made the distinction is really important that I think founders should take Hayden’s is in, is that if it crosses the line to make someone dishonest and she so to speak or undermine, then I would just walk away as painful as it would be. 

Mital: 

I might fight for some minority share, but I would walk away because it will never work, right? 

Brandon: 

Yeah. 

Brandon: 

I mean, you’re, you’re right that, um, if you’re not starting a nonprofit particularly, I mean, this is maybe it’s not completely unique for the start up world, but there is, you know, in the start of world, this, um, this notion of, in a few years going from nothing to many, many millions of dollars that for a lot of more traditional small businesses is not the kind of trajectory you’re usually talking about, um, for all sorts of reasons of exceptions, every role. 

Brandon: 

Um, but so in particularly the start up world, yeah, I mean, you could your drive to be from competitiveness and all sorts of things, but a lot of people come quite naturally that chance of the, you know, millions at the end of the Rainbow is going to be a motivating factor. 

Mital: 

And that’s, that’s a great motivating factor. 

Mital: 

Um, but you’re working as a startup founder, particularly if you’re going to have co founders and have, uh, investors is your part of your, part of a team, You’re part of various types of teams. 

Mital: 

But um, it can’t be a zero sum game because it’s a zero sum game then, um, if, well, unless, I mean if two people are playing a zero sum game on the same team that will never work, and um, if you’re, you know, you just have a co founder who’s playing a zero sum game against you, um yeah, I mean it could be successful, but you’re you’re going to be unhappy and it probably won’t be much success for you. 

Mital: 

And there’s a distinction between greed in the market, right? 

Mital: 

Greed vis a vis your potential acquirers or your investors and greed within your co founding team. 

Mital: 

I think, I think that, you know, that kind of greed, the wanting to maximize your your returns on this start up this and trying to make it, um, I would say that kind of greed is what’s going to drive most started but agreed between, you know, your partners and your founders, that’s that’s not gonna work. 

Mital: 

Yeah, I just like to and I appreciate you both talking about that because I just like to make that connotation. 

Mital: 

I think in today’s society things are getting so polarized and so crazy that there’s this notion that if you have a lot of money or you make a lot of money that you’re evil and it’s bad and I don’t agree. 

Mital: 

Um, I certainly look at it through a lens of an entrepreneur who I want, I want to solve people’s problems. 

Mital: 

Having said that, I do want to make a lot of money because that’s besides feeling fulfilled is the scorecard and I tried with Wells Fargo to pay our mortgage with, I’ve done some good things this month. 

Mital: 

Could you just take that as payment sort of like that movie? 

Mital: 

I don’t know if you ever saw saw that movie couples retreat where it’s like we pay in smiles. 

Mital: 

It doesn’t work man. 

Mital: 

So you gotta, you gotta make money. 

Mital: 

So I appreciate you. 

Mital: 

Um, comment on that. 

Mital: 

One thing I want to go back to as it relates and I do want to touch on on, we’ve talked about founders, but I think it may be able to be expanded to all team members because investors are in there with your family, you’re getting married and all this. 

Mital: 

But until you said something earlier that I made a note of that, I think those of us who are experienced and see it every day. 

Mital: 

I don’t want to say we take it for granted. 

Mital: 

It’s just we see it every day. 

Mital: 

It’s like, oh well you didn’t sign an employment contract. 

Mital: 

You didn’t sign over your I. 

Mital: 

P. 

Mital: 

Rights. 

Mital: 

You didn’t sign the stuff over in the beginning and that causes problems. 

Mital: 

I’ll give everybody an example of which both of you will laugh at and probably say oh well for somebody who has so much experience that didn’t work out well for you. 

Mital: 

Which is I did not get people to sign over the iP in the beginning and you know as a, you know I’m not a lawyer. 

Mital: 

I got an M. 

Mital: 

B. 

Mital: 

A. 

Mital: 

And I’ve got a lot of experience and work with lawyers and deals and all that. 

Mital: 

But when you’re in the midst of starting a company it’s just it’s just like another piece of paper work that we’ve got to deal with. 

Mital: 

We’re trying to get it like customer number one, maybe customer number 10. 

Mital: 

And you’re not worried about this. 

Mital: 

But it’s vitally important because we actually did get a patent granted in a company that I was a co founder or I was founder and had some co founders in and to get that signed afterwards was eight took me an enormous amount of time because now the leverage is with them because they can make an IP claim that creates what I’ll let you both talk about an enormous, I mean good fees for you uh, hard for us. 

Mital: 

You know, as on the company’s side to absorb and They basically with that one getting not getting that piece of paper work, they’ve locked you up in a sale. 

Mital: 

So could you both talk about the or to tell you you brought it up? 

Mital: 

Talk about the core documents that you like. 

Mital: 

Absolutely should not miss when you all are singing kumbaya starting the this grand new venture. 

Mital: 

There’s really just two right. 

Mital: 

There’s the equity grant and the IP assignment for the equity grant. 

Mital: 

I just want to make a PSA um having, having the number of options or the percentage in the offer letter or having it as an exhibit to your consulting agreement is not enough. 

Mital: 

You actually have to follow through and give them the equity. 

Mital: 

So I know a lot of my clients will say, well, yeah, we promised everybody equity. 

Mital: 

It’s in their offer letters. 

Mital: 

But you know, we never actually gave the stock options. 

Mital: 

We never actually did a 49 a. 

Mital: 

We never did all that. 

Mital: 

That’s going to get really, really expensive and there’s going to be tax issues because you have not actually granted that stock. 

Mital: 

You simply promised them that stock and especially if you’ve used percentages. 

Mital: 

Forget it. 

Mital: 

Right now, we’re five years later and you’re trying to be, you’re going to be acquired for $50 million. 

Mital: 

That person is going to get a percentage of that, not the percentage at the time of the offer letter. 

Mital: 

So definitely get the equity done. 

Mital: 

It’s not that hard. 

Brandon: 

You can use Clerk E. 

David: 

You can, you know, there’s lots of online tools you can use or get a form from your lawyer and just use that over and over. 

David: 

We don’t care, we’re okay with that. 

David: 

Um, so get get the equity done and then on the on the other side, um, make sure that the I. 

David: 

P. 

David: 

Is locked in. 

David: 

That’s that’s not something you want to hold out right before the acquisition. 

David: 

You don’t want to be chasing that person down, giving them all the leverage, as you said. 

David: 

Um, having said that, uh, most of these things work out. 

David: 

There’s a lot of scrambling at the end and some money wasted a lot of money wasted and maybe some taxes, additional taxes that have to be paid. 

David: 

But thankfully it’s it’s rare that you have a true holdout unless somebody is really just, you know, just really angry and it has a vendetta. 

Brandon: 

Um Most people act rationally and and can come to the table and resolve these things. 

Brandon: 

But it becomes very, very expensive to do later. 

Brandon: 

So get those two things done. 

Mital: 

So on the equity part. 

Mital: 

I I did make that mistake to um, I gave founders a percentage per se, but it was based on I did put a line in there. 

Mital: 

And another thing for everybody listening lawyers can be expensive, but I promise you as much as it will pain you to pay that bill, it will save you an enormous amount of money because I wrote the document and I did put a line in there that said you you will be granted x percent at the time of the cap table at this moment, so that when a subsequent round came they were diluted as well. 

Mital: 

Will that satisfy your legal test in terms of what number of shares they should be getting? 

Mital: 

Likely. 

Mital: 

Yes. 

Mital: 

But um you didn’t actually give them the stock right. 

Mital: 

And so now you’re going to give them stock after you’ve signed that Series a term sheet for you know 20 million pre money valuation. 

Mital: 

You’re not going to actually give them that stock until that series a closes and you do a 49 a. 

Mital: 

And then you have to give it to them at that higher evaluation. 

Mital: 

So yes. 

Mital: 

I mean you saved yourself in terms of how many shares is this person getting and are they going to be diluted in this round? 

Mital: 

Sure. 

Mital: 

You know how you know likely it’ll be okay. 

Mital: 

Both sides agree they’re going to get 100,000 shares that will dilute but that 100,000 shares all of a sudden became a lot more expensive for that person. 

Mital: 

So you’re gonna have, you know, some unhappy employees on your hand, you’re going to have to give them some sort of bonus or something to make them happy for their tax burden. 

Mital: 

My next question is going to come because you’re going to say, wow, this guy’s got a lot of scars on his back, but don’t you think that you should also get an employment agreement or consulting agreement? 

Mital: 

Whatever? 

Mital: 

However, you know, if you’re not a W two, your 10 99 because I’m not going to name the firm here in Silicon Valley, but there is a true story where a person was a co founder, they didn’t get a description of their jobs sort of contribution. 

Mital: 

So in order to force that person out, they became the janitor. 

Mital: 

And so they said, well we can’t, they didn’t have an employment agreement that said you’re going to be this sea level person or you’re going to be a you’re not going to be an engineer. 

Mital: 

Didn’t say that said that you’ll be with the company. 

Mital: 

So they just said well we changed your job, you’re now the janitor of of it and we expect you to do the floors and if you don’t do that then you know, we’ll have a reason to fire you. 

Brandon: 

It basically got them out. 

Brandon: 

And the lesson for me in the early years was having like when you join a company have some sort of agreement about what your role is and what that’s going to look like in the terms of which you could be fired, meaning you know, if I steal if I cheat or anything. 

Brandon: 

What are your thoughts on that? 

Brandon: 

It’s a little bit unusual because most, most of these employment terms unless it’s a term employment it’s at will. 

Brandon: 

So you could they could have fired the person at any time unless there was some sort of acceleration for you know termination without cause um in which case maybe they wanted this person to quit and not actually have to fire them and maybe that’s why they did it that way. 

Mital: 

But usually you can just fire anybody because that’s all at will employment. 

Brandon: 

So would you encourage people not to do that because that will give you a lot more leverage than actually a contract? 

Brandon: 

Probably bind you in. 

Brandon: 

So the the agreement typically taking a step back to the typical forming again. 

Brandon: 

This is, this is starting now I’m talking startup world. 

Brandon: 

The typical form of IP assignment agreement usually has other terms to it. 

Brandon: 

One of which is that employment is at will. 

Brandon: 

It’s just the standard forms that any law firm or any clerk e stripe atlas. 

Brandon: 

Any of these platforms use will have um at will employment terms um and the default, I mean employment laws creature of state law so it does to some extent depending on the state you’re in but generally speaking in the in the United States um the default is all employment at will. 

Brandon: 

Um It’s a good idea. 

Mital: 

I mean an offer letter is is very commonly used and we encourage offer letters which would say what the position is um and some basic terms like salary and um but that’s not going to save you but that’s not going to save you and and the lack of it is not um it’s very rarely as that could have become an issue down the road if you didn’t have an offer like uh well I appreciate still good. 

Mital: 

I think, I think what would save you is the acceleration for termination without cause or resignation for good reason that it might be what existed and that the example that you gave and that’s that’s what and that’s why they wanted to stay there and that’s why they needed to fire them because they saved the equity effectively is what happened. 

Mital: 

Right? 

Mital: 

And that that speaks to the importance when you’re, if you’re ever on either side of the table of the negotiation about acceleration for termination without cause making be very careful that would cause means. 

Mital: 

And if you’re on the employee side, you want the corollary to that which allowed people miss which is you get accelerated if you’re terminated without cause or if you quit for a defined set of good reasons such as if you were hired as a, you know, CFO of the company or Ceo and then you’re then you’re reassignment janitor or your salaries cut in half or you’re given the privilege of the mandatory opening of the Fargo North Dakota office. 

Mital: 

I apologize anybody who’s listening from part of it. 

Mital: 

Um but well I actually commenting because someone listening that’s probably like Brandon, you’re asking these, these lawyers, these crazy questions like where are you pulling this out of? 

Mital: 

But these are real world experiences. 

Mital: 

These are real world experiences that can happen and before we go and I’m really grateful for you both. 

Mital: 

Taking the time out of your, out of your busy schedules to come on here and answer these questions because this is really important stuff. 

Mital: 

I I’ve seen some statistics that say and you both probably know better than I do that. 

Mital: 

Maybe 65 plus percent of startups fail. 

Mital: 

Not because they don’t have a good idea, not because they ran out of money, but because of founder conflict. 

Mital: 

Mhm. 

Mital: 

Yeah, When you bring people together that way, it’s um it’s not surprising to us because we see so much of it. 

Mital: 

Well, you’re both very happy people and smiling. 

Mital: 

So I’m grateful that the cynicism that you probably could have does not come through. 

Mital: 

So I’m grateful for that one last p uh section I want to cover just that. 

David: 

We’ve sort of covered the spectrum. 

Mital: 

How do you both feel about having it in the investor agreement? 

David: 

That you can buy them out at a pre determined um At some predetermined price, whether that’s 10 above what they did or find the investor out buying their investor out, just like you could just vest the investor just like your vesting an employee. 

David: 

It’s unusual. 

David: 

No, no, I’ve never seen an investor agreed to that. 

David: 

I mean, you could well, let me ask you this. 

David: 

So in the Series C documents that have been going around, there’s a clause in there that says that the company can some claws the causes that I would use today from an experience that I had is that with at least that series seed on a convertible note, you have, the company would have the option of buying out the investor at some pre that would need to be negotiated, but at some predetermined price. 

Brandon: 

Yeah, I see it in notes, I think I see it more often at the note level than I would in an equity round. 

Brandon: 

I’d never see it on an equity round. 

Brandon: 

The most I see in an equity round is, um, the veto rights over a sale sunsetting. 

Brandon: 

Um, If if the return is, you know, at least two X. 

David: 

Or three X. 

Brandon: 

At that point, they cannot block a sale, and they won’t stand in the way as long as they are doubling their money. 

Brandon: 

For example, if I see that in an equity round, but I never see a like a reverse redemption right for an investor. 

Brandon: 

Yeah, it’s interesting because the typical, not that it’s common, but what you end up seeing is kind of rented the reverse of what you say, which is a redemption right where the investor can force the company to buy back their shares after a certain period of time. 

Brandon: 

Um Five I’m trying to think of a deal that I’ve seen where the company can buy back the investor shares. 

Brandon: 

It’s hard because most mhm. 

Brandon: 

More often than not by a huge margin, the investors have more leverage at the moment when these deals are getting negotiated. 

Brandon: 

It’s just kind of the way things are. 

Brandon: 

Um, and, uh, I see it at the note, the convention. 

Brandon: 

No level. 

Brandon: 

Sure, yeah, I’ve seen that that happened. 

Brandon: 

And, you know, it it could be very valuable. 

Brandon: 

I mean, use later on, investors don’t tend to care about how much, I mean, later on, investors don’t care that, you know, some seed investor put in $1 million dollars and hasn’t put in any money since then. 

Brandon: 

Really, they don’t really care about that in the way they care about early on employees who are no longer there. 

Brandon: 

Um, but early investors can also be a paint, um, particularly they can be a pain if, um, you sign you as a founder signed side letters with them that give them all sorts of rights that you can’t get rid of. 

Brandon: 

Uh, so that’s a that’s another P. 

Brandon: 

S. 

Brandon: 

A. 

Brandon: 

Uh, be careful about what you sign with your investors, uh, particularly side letters. 

Brandon: 

Anything that’s in a side letter to get extra special scrutiny. 

Brandon: 

Uh huh. 

Brandon: 

I think that’s good advice. 

Brandon: 

And, and, and I know it’s super hard as a as a entrepreneur to not do that because you want that money so bad because you believe that the money is going to make your idea come to fruition. 

Brandon: 

I will tell you that that is not necessarily true. 

Brandon: 

And sometimes not having the money is better candidate because you become more creative, but I know you want that money and I appreciate you making that distinction as it relates to the note. 

Brandon: 

I did have a note and I didn’t have that clause in there. 

Brandon: 

And it was very clear that, that the relationship, and I’m sure you’ve both seen this over and over, where, you know, everybody’s in love in the beginning and everybody looks hot and then, you know, six months later, you’re like, you’re really not as hot as I thought and then you want to break up and I in this case or I shouldn’t say I, our company wanted to buy back the investors money and the ambassador wanted to stay in even though we weren’t getting along because they saw that they probably make some money and it was excruciating. 

Brandon: 

It was really, really, really, really hard. 

Brandon: 

So I encourage you. 

Brandon: 

It’s really hard to seem really hard a lot. 

Brandon: 

It’s really hard to do to talk to you both because we, all of us here, you have to wear both hats. 

Brandon: 

So you hate to say to entrepreneurs, hey, always put in that clause, you can get back. 

Brandon: 

But as an entrepreneur had to be like always put in that clause because that’s a good cause for you, if I also think there’s a distinction to be made between investors when you’re dealing with them individually and investors when they’re part of a, um, a group, right? 

David: 

So if you have a troublesome series a preferred stockholder, they’re not going to cause much trouble for you because most of the decisions are made by a majority. 

David: 

And so as long as the majority group can kind of, you can deal with them and try to get their signatures on things. 

David: 

Then one troublesome, you know, series a preferred stockholder is not going to be a problem, but if you’re going to have individual relationships at the seed level with a note holder, then it’s probably wise to have a way to get out of it. 

David: 

Well, that was a very good, politically correct answer. 

David: 

And I actually think beyond just played Kucharek the right answer. 

David: 

Mental. 

David: 

So thank you for that from both of you may be individually or collectively. 

David: 

What three tips? 

David: 

High percentage tips would you give a group of people who are founding a company out there are thinking about founding a company to do before they get on with creating this greatest new thing. 

David: 

I would say tip number one is make sure people are going into it with open eyes, right? 

David: 

Um as we were talking earlier, sometimes you can get a personality in there that’s really just um mistrusting and or greedy for example, and just does not at every step of the way. 

David: 

It’s like pulling teeth, trying to get them to see that we’re all working towards this or were, you know, no one’s trying to cheat you, no one is trying to push you out, like you kind of have to have faith in everybody. 

David: 

So, you know, we talked a lot about, you know, don’t make sure you get your paperwork’s line, make sure this gets done otherwise, there’s all kinds of pitfalls. 

David: 

But I mean, majority majority of teams are working together and right there, most of it usually works out so you don’t want to be on the other side of it where you’re you’re so um suspicious all the time that someone’s out to screw you. 

David: 

And that can also kind of cause delay and and hold things back. 

David: 

So make sure the team that you’re going into it with, that everyone’s, you understand that this is risky, but we could lose money. 

David: 

It might not work out, but you kinda have to have a level of faith and trust in each other. 

Brandon: 

Um, Same thing with your early investors, right? 

Brandon: 

You can get you can get some high net worth individual who can float you 100 K. 

Brandon: 

Or 200 K. 

Brandon: 

But if they’re not, they’re not in this ecosystem and aren’t um, aren’t aware of the risks. 

Brandon: 

They might approach it differently and they might get again suspicious along the way and asked to see financials and asked to see how did that 200K gets spent and want it back six months from now or want updates in a way that startups can’t provide. 

Brandon: 

So either stick with people who, who have done this and who kind of know what’s what standard or if you’re going to get some, you know, gallery owner or some doctor who just has money laying around investing in you make sure they understand that this isn’t like any other investment, that this is, this is a startup and um, there’s going to be risking, then they might not get a lot of information for a while and they just have to be okay with that level of risk uh, somewhat related to that, but don’t put off hard discussions and hard decision. 

Brandon: 

Um, and, and that relates to that does relate to the paperwork, equity split thing. 

Brandon: 

Don’t, you know, don’t put those things off to later. 

Brandon: 

Those are hard discussions and their decisions that are important to make and should be made at the beginning because they’re cheaper to make at the beginning, but also because being on the same page from day one, we’ll save people a lot of time and party, but that just will travel with you for your life of being an entrepreneur, particularly when you’re, when you have a team of co founders or really when you’re working with people in any capacity, things decisions don’t get easier. 

David: 

Typically over time, it doesn’t get easier to discuss things or document things or make a decision on things later. 

David: 

I mean, in some situations you need more information, but if you’re just putting something off because, um, you think it’ll be hard to discuss X with your co founders. 

David: 

Um, that’s just gonna leave the problems later. 

David: 

Um, and then I would say also educate yourself, right? 

David: 

Um, there’s a lot of smart people out there, I can’t, I don’t understand the technology, I don’t know what, you know, the founders themselves are doing, but, um, they know what they’re doing, they’re smart, I know they’re smart, but sometimes, you know, we have a class of founders who are very smart and then there really, you know, trying to make a go of it with this company, but they’re completely ignoring, um, one side legal side of it, for example, you don’t necessarily need to get into all the details, but understand, right, understand the lingo, understand what what it is that you’re you’re actually doing and signing onto so that it’s not just, you know, don’t ignore it. 

David: 

And when your advisors and your your lawyers and they’re, they’re trying to tell you something that you can actually hear them, because if you don’t understand the lingo at this point, and um, then you’re gonna be in trouble and there’s really no excuse because there there are a lot of resources out there to educate founders. 

David: 

So yeah, I would say do your homework. 

Brandon: 

Well, I think there’s a great and before we go, how would someone listening to this work with your firm in both of you? 

Brandon: 

Is there a process? 

Brandon: 

Do you apply? 

Brandon: 

Do they find you on the web? 

Brandon: 

Can can you tell our listeners how they do that? 

Brandon: 

Yeah. 

Brandon: 

Most people just find us on the web. 

Brandon: 

Most of our meetings are, you know, on zoom or most of the work is done over email. 

Brandon: 

We do have an office in Cupertino. 

Brandon: 

So people are welcome to schedule in person meetings when we’re back there. 

Brandon: 

But um, but for now, yeah, we have clients all over the world really. 

Brandon: 

And obviously the concentration here in the Bay area. 

David: 

But yeah, I just find us on online gorillas dot com. 

David: 

Can you spell that for our listeners? 

David: 

Sure. 

David: 

G R E L L A S dot com. 

Brandon: 

And you handle all aspects of early stage companies, intellectual property, corporate governance formation of the company in uh, I don’t know what else. 

Brandon: 

I’m uh, a B C. 

Mital: 

Financings. 

Mital: 

The whole nine yards, whole nine yards. 

Mital: 

So again, one more time you’re, you’re l sure it’s www dot Grella’s dot com. 

Mital: 

That’s G R E L L A S. 

Mital: 

Well, thank you both for taking the time out of your day to join us. 

Mital: 

And I really appreciate all the great advice. 

Mital: 

Thank you. 

Mital: 

Great thanks for being generous with your time and joining us for this episode of build a business success secrets before we go, let me ask you a quick question, Are you the type of person who wants to get 100% out of your time? 

Mital: 

Talent and ideas? 

Mital: 

If so, you’ll love our monthly built a business success secrets newsletter? 

Mital: 

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David: 

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Mital: 

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Mital: 

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Brandon: 

As a fellow entrepreneur who’s aiming for nothing short of success, you owe it to yourself to subscribe, check out the special offer with bonuses for you at be success Secrets dot com. 

Brandon: 

That’s b as in business success secrets dot com. 

David: 

And until the next episode remember you are just one business plan away. 

David: 

I’m rooting for your success. 

Brandon: 

Mhm. 

Brandon: 

Mhm. 

Mital: 

The model is are there you are, you’re both on couches that like a lawyer thing. 

Mital: 

I’m on a photon which is A 20 something year old thing. 

Mital: 

Which I am obviously not. 

Mital: 

He said no a lawyer. 

Mital: 

It’s not a lawyer thing. 

Mital: 

Not not having adapted to working from home in an age appropriate way thing. 

Mital: 

Uh huh. 

Mital: 

Well, are you both working? 

Brandon: 

You are are you able to work from home now? 

Brandon: 

I guess you are really right. 

Mital: 

Mm

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