Startup Law 101 Series – Tips from a Business Lawyer for Becoming a Founder


Why become a founder? What are some of the things you can do to become a successful founder?

Having worked extensively with founders as a startup lawyer in Silicon Valley for many years and having built my own business as well, I have some advice to share on these points.

Tips on why you should become a founder

Why become a founder?

1. If you are successful as a founder, you will earn much more than you would as an employee. Obvious, but it bears repeating.

Founders want the big advantage that will come from a successful company. The goal is very difficult to achieve, but the rewards can be great.

2. If you are successful as a founder, you keep more than you earn.

As an employee, you will be hit with ever-increasing taxes on your compensation.

Forget the rich. It’s the average employee who gets soaked. You pay, say, up to a third of what you earn in federal, state, and local income taxes. Add another nearly 10% for payroll taxes. Now suppose that inflation pushes you into higher tax brackets. Then the rates for those sections are raised. Then payroll tax rates go up. And the cap on social security was lifted. And new taxes were added to fund future health benefits. You will be left with a smaller and smaller net amount of your salary. Welcome to be the employee of the future.

However, as a founder, your biggest reward by far will not come from salary, but from a liquidity event where you cash in your tokens. At that point, you pay a one-time capital gains tax on much of the financial reward you get from your business. You pay less income tax because the capital gains rate is lower. And you pay no employment taxes at all. With capital gains, you also have some control over time, and this can help minimize what you pay.

Everything comes from the same effort. You sweat for what you earn. You can take your reward as ordinary income or, as a founder, convert a large part of it into much more advantageous capital gains. With success, you not only earn more, but also keep more.

3. Being a founder can be rewarding not only financially but also psychologically.

When you venture out, you have the opportunity to realize a vision for your company and benefit not only yourself but also your co-founders, your investors, your employees, your customers, and the general public. You have the opportunity to see your company grow and prosper. You have the opportunity to see how it has an impact on others forever.

The satisfaction that can come from success is a great intangible reward.

4. Finally, being a founder gives you the independence of being your own boss. You will rise or fall on your own merits. This is a great opportunity and a great challenge. This is the one advantage that most employers will eventually say they value the most.

Tips for becoming a successful founder

What does it take to be successful as a founder? Here are some thoughts.

1. Above all, build from strength.

Be prepared before you venture out. Get a solid education. Work with the best to get great training in your field. Master your craft. Build relationships. Take what you do best and make it better. That is the key to innovation. And this is the best path for most founders.

Or it may be based solely on the strength of exceptional business talent. Or a specialized skill that allows you to work in a team with others who supply what you may lack. Nothing formulaic here. But you need to build on some force form.

This also means that you do No venture based on a naked idea. Try this one from the bubble age: “I’ve been in manufacturing for a year and I know how to revolutionize that field through an idea I have for a website.” I’m sorry, but abstract ideas get you nowhere.

It also means that you do No do something just because you’re tired of something else. Think twice about that romantic little tea shop. That is, unless you know about the tea shop business. Others do, and they will make you pay. Know what you are doing before you get into something.

No one will carry you when you go out alone. So be prepared to build on something you do exceptionally well. That is your main key to success as a founder.

2. Count the cost before you venture out.

You need the right temperament to start your own business. If you crave security and certainty, being a founder is not for you.

Don’t idealize the process either. Business is tough. You will lose the certainty of a regular paycheck. You’ll have bills to pay, whether you’re making money or not. You will face an endless variety of challenges, from people problems to financial pressures, competitive challenges, legal disputes, enormous psychological pressures and all kinds of other obstacles. When you get through all of this, or at least most of it, you will have built “goodwill”—that is, going-concern value—for your company. Goodwill is nothing more than the benefits you gain from the blood you have shed. It is a great advantage that makes your business better than others. but you Will blood must be spilled on it. Understand this from the start and be prepared to pay the necessary costs.

It follows, of course, that if you’re not willing to pay the costs, you should stick with the steady job.

3. When you pitch, try to pitch with a multi-talented team.

There is no fixed rule here. However, experience confirms that a team is much more likely to succeed than a single founder. This may just be another way of saying that if something is really good, others will be drawn to it. Most likely, it’s another way of saying that launching and building a successful company is hard to do and that it takes a multi-talented team to make it happen. Where you cannot supply everything, others will supply what you lack.

4. Make sure you have a solid business model.

Technical innovations are great, but by themselves they usually can’t sustain a business. Sometimes they can be sold or licensed to a large company. Nothing wrong with that. In most cases though the technology will not be enough.

With or without key technology, for a company to be successful, it must have to have a solid business model that allows you to build and maintain a significant competitive advantage that makes you consistently profitable.

Without that, you’re not going to get anywhere, no matter how innovative this or that element of your company is.

5. Watch your spending.

Waste is perhaps the biggest flaw of early-stage businesses.

Small business entrepreneurs have much less difficulty with this than startup founders. Why? Because they are usually dealing with their own money. If you know what it cost to win it in the first place, the chances of you being wasteful with it are greatly reduced.

One aspect of wasteful spending is simply extravagance. You fund and you go out and you get the best money can buy. expensive offices. Extravagant salaries. lavish parties. And so on. In early-stage businesses, you will regret such an expense when you hit roadblocks where you wish you had that cash. Inevitably, you will run into those potholes. Plan accordingly.

Yet another side of wasteful spending comes from not focusing your efforts properly in the early stages. You have ten great things you want to do as a company. You don’t make good judgments about which of these to focus on. You spend on all of them. Before long, your funds are dissipated before you can generate a reasonable income stream.

Use your best judgment on where you can best use your limited funds, and use them wisely.

6. Carefully plan your legal implementation.

Don’t charge unnecessary legal fees up front. However, when you’re ready for a significant launch, set it up properly.

If you have a founding team, be sure to give serious thought to using restricted stock rather than direct stock grants when making grants to founders. In other words, keep chains in action until won unless there is some exceptional reason not to. Use cheap stocks to avoid tax problems. Get the IP in the company. Obtain employment and consulting deals, ensuring that all intellectual property from those deals goes to the company. Review your trademark issues in relation to any trademark you make. Submit provisional patents as appropriate. When you’re ready to bring in a larger team, set up an equity incentive plan.

Work closely with a good business attorney to get the legal steps right.

7. Fund your business incrementally when possible.

The worst trap an early-stage business can fall into is one where it overextends itself. Plan smart to avoid this trap.

Work with early-stage investors or have a reserve of your own funds to take you through the phases before you have significant income.

Don’t put yourself in a position where you run out of options, except to buy your opportunity for venture capitalists. Either you will not receive funding (the most likely outcome) or you will be butchered on the terms of the funding.


Think carefully before you venture out as a founder. The rewards can be great, but you have to be ready to meet the challenges. If you think you are, a great open world of opportunities awaits you.

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