You’ve discovered the next big thing, and you feel you planned everything from concept to market entry. In the coming months you will make a multitude of decisions that will define the fate of your new company, and as an experienced startup consultant, I have seen the best and worst of cases.
Below I briefly describe my experience with two of my clients, both of which faced the kinds of decisions that make or break a startup. While it’s true that you can never anticipate the full scope of challenges that will come your way, you DO have every opportunity to limit specific uncertainties.
Be clear about each person’s role. An entrepreneur and client of mine was recently approached by an industry veteran, who in turn for his valuable guidance, asked for a “managerial role” and X% stake in the startup. The immediate question that my client (and others) failed to ask was what does “managerial role” mean? Does it mean he wants to be a “c-level” exec? Does it mean he wants to be on the board? It is crucial to understand and define what the other person wants and what you are willing and able to give. No matter how experienced or well connected an outsider claims to be, ask yourself questions about the other party’s intent.
Know your industry’s standards and keep a controlled cap table. Think of the shares in your company as your currency. Is the X% stake the consultant is asking for standard? You need to advise with someone with an understanding of the industry to make sure you are not giving too much too quickly. Remember, there’s only one pie to share. In addition, not keeping track of your promises can cause problems down the road. Oftentimes, I recommend a third party to come in and do the dirty work of clarifying roles and setting clear limits. This affords you the luxury of focusing on your end goals, while maintaining a pleasant relationship with your contacts.
Protect your idea. Make sure you have NDAs and other clear and concise agreements including non-compete and non-solicitation in place right from the start. Not everyone can afford to pay the Winklevoss twins tens of millions of dollars…
Protect your asset – company shares. My second client involved a more mature during an acquisition transaction. In the eleventh hour of the due diligence process, we discovered a one-page agreement between a company founder (before incorporation) and a consultant, promising the latter 5% of the company’s capital. This specific agreement didn’t state whether the 5% was on a fully diluted basis or not. Neither did it indicate whether it was shares or options – it simply stated “5% of the share capital”. Most alarmingly, there were no terms attached to it, meaning, it could be interpreted as if the consultant received the 5% regardless of his work with the company.
Take heed that even a forgotten promise written on a dinner napkin can come back to haunt you. In this case, we were forced to deal with major setbacks in the acquisition process and jeopardized the company’s relationship with the buyer. The consultant was no longer with the company and neither was the founder. We had to track both down and make a great compromise in order to save the company’s exit.
In the end, you are the keeper of your destiny. Never underestimate the value of small actions now – they can, and usually do, re-emerge in the future.
Moran Barnea earned her MBA from New York University’s Stern School of Business in 2010, specializing in Strategy and Marketing. Prior to attending NYU, Moran was a corporate attorney in the hi-tech team of Herzog, Fox & Neeman. Barnea&Co is a consulting company dedicated to providing entrepreneurs with the tools to start their business. We work with entrepreneurs from both the US and Israel and provide a “one-stop shop” for our clients, while tailoring services required for each one. Founded by Moran Barnea, who currently resides in Tel Aviv.