Making Billions: The Private Equity Podcast for Fund Managers, Startup Founders, and Venture Capital Investors

Attorney's Pro Tips for Founders and Fund Managers Raising Capital

July 03, 2023 Ryan Miller Episode 67
Attorney's Pro Tips for Founders and Fund Managers Raising Capital
Making Billions: The Private Equity Podcast for Fund Managers, Startup Founders, and Venture Capital Investors
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Making Billions: The Private Equity Podcast for Fund Managers, Startup Founders, and Venture Capital Investors
Attorney's Pro Tips for Founders and Fund Managers Raising Capital
Jul 03, 2023 Episode 67
Ryan Miller

Send us a Text Message.

When launching a startup or investing in one, it's easy to get carried away by the next cool thing that will light consumers with delight.

But did you know that all of that can go up in flames if you don’t have the right legal work in place?

In this week’s episode of Making Billions, I bring on my friend David Siegel.  David is an attorney with 20 years in this industry on helping founders and investors to establish profitable legal groundwork.   

Getting legal foundations in place while delighting your investors are all critical skills we need in our pursuit of Making Billions.

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Website: pentiumcapitalpartners.com

[THE GUEST]: A Partner at Grellas Shah, David Siegel is an unusual startup lawyer in having done sophisticated legal work in both transactional and litigation matters. He is an accomplished startup lawyer and litigator with extensive experience handling a broad range of corporate, transactiona

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DISCLAIMER: The information in every podcast episode “episode” is provided for general informational purposes only and may not reflect the current law in your jurisdiction. By listening or viewing our episodes, you understand that no information contained in the episodes should be construed as legal or financial advice from the individual author, hosts, or guests, nor is it intended to be a substitute for legal, financial, or tax counsel on any subject matter. No listener of the episodes should act or refrain from acting on the basis of any information included in, or accessible through, the episodes without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer, finance, tax, or other licensed person in the recipient’s state, country, or other appropriate licensing jurisdiction. No part of the show, its guests, host, content, or otherwise should be considered a solicitation for investment in any way. All views expressed in any way by guests are their own opinions and do not necessarily reflect the opinions of the show or its host(s). The host and/or its guests may own some of the assets discussed in this or other episodes, including compensation for advertisements, sponsorships, and/or endorsements. This show is for entertainment purposes only and should not be used as financial, tax, legal, or any advice whatsoever.

Show Notes Transcript Chapter Markers

Send us a Text Message.

When launching a startup or investing in one, it's easy to get carried away by the next cool thing that will light consumers with delight.

But did you know that all of that can go up in flames if you don’t have the right legal work in place?

In this week’s episode of Making Billions, I bring on my friend David Siegel.  David is an attorney with 20 years in this industry on helping founders and investors to establish profitable legal groundwork.   

Getting legal foundations in place while delighting your investors are all critical skills we need in our pursuit of Making Billions.

WANT TO LEARN HOW THE BEST INVESTORS MAKE MONEY? SIGNUP FOR OUR NEWSLETTER:

https://mailchi.mp/d41cfc90bd9f/subscribe-to-newsletter

Subscribe on Youtube:
https://www.youtube.com/channel/UCTOe79EXLDsROQ0z3YLnu1QQ

Connect with Ryan Miller:
Linkedin: https://www.linkedin.com/in/rcmiller1/
Instagram: https://www.instagram.com/makingbillionspodcast/
Twitter: https://twitter.com/_MakingBillons
Website: pentiumcapitalpartners.com

[THE GUEST]: A Partner at Grellas Shah, David Siegel is an unusual startup lawyer in having done sophisticated legal work in both transactional and litigation matters. He is an accomplished startup lawyer and litigator with extensive experience handling a broad range of corporate, transactiona

Everyday AI: Your daily guide to grown with Generative AI
Can't keep up with AI? We've got you. Everyday AI helps you keep up and get ahead.

Listen on: Apple Podcasts   Spotify

Support the Show.

DISCLAIMER: The information in every podcast episode “episode” is provided for general informational purposes only and may not reflect the current law in your jurisdiction. By listening or viewing our episodes, you understand that no information contained in the episodes should be construed as legal or financial advice from the individual author, hosts, or guests, nor is it intended to be a substitute for legal, financial, or tax counsel on any subject matter. No listener of the episodes should act or refrain from acting on the basis of any information included in, or accessible through, the episodes without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer, finance, tax, or other licensed person in the recipient’s state, country, or other appropriate licensing jurisdiction. No part of the show, its guests, host, content, or otherwise should be considered a solicitation for investment in any way. All views expressed in any way by guests are their own opinions and do not necessarily reflect the opinions of the show or its host(s). The host and/or its guests may own some of the assets discussed in this or other episodes, including compensation for advertisements, sponsorships, and/or endorsements. This show is for entertainment purposes only and should not be used as financial, tax, legal, or any advice whatsoever.

Ryan Miller  
My name is Ryan Miller and for the past 15 years have helped hundreds of people to raise millions of dollars for their funds, and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, and the show will give you the answers, so that you too can enjoy your pursuit of making billions. Let's get into it. 

When launching a company or investing in one, it's easy to get carried away by the next cool thing that's going to light your consumers with delight. But did you know that all of that can go up in flames if you don't have the right legal work in place, so getting legal foundations in place while delighting your investors are all critical skills we need in our pursuit of making billions. Let's get into it.

Ryan Miller  
Hey, welcome to another episode of making billions. I'm your host, Ryan Miller. And today I have my dear friend, David Siegel. David is a partner at grellus Shaw, his law practice is focused on supporting entrepreneurs from pre seed to pre IPO, David has advised startups in raising well in excess of a billion dollars in funding he has written or appeared in outlets, including entrepreneur, CFO, magazine, and more. So what this means is David is the guy you call to help you with contracts, compliance and term sheets for your startup. So David, welcome to the show, man,

David Siegel  
thank you so much for having me. I'm very glad to have gotten acquainted with your podcast, you know, I'm kind of in a bubble in the world that I live in, I get to talk to a lot of founders, I get to talk to a lot of pure tech investors. But not only do I get to hear a different perspective, but I get to hear about people investing in all sorts of things that are just not pure tech world. So I learned a lot. And that's one of my favorite parts of my job. So it's nice to have outlets outside of my job for that as well. So thank you.

Ryan Miller  
Yeah, well, it's good to have you, you know, I've been impressed with everything you've done. And all the work that you've you've put in and building your career and supporting entrepreneurs from the beginning almost to the exit. So this is good. We're gonna we're gonna get into a lot of good stuff. But before we do, maybe you can walk us through like, how did you get started this industry? How did you become an expert in contracts? And all things start up on the legal side?

David Siegel  
Yeah. So I mean, I've been practicing law for 20 years, you know, I graduated I was in New York, I graduated NYU Law School and startup world was not where I thought I was going. And it's not where I went, I thought I wanted to be a litigator and be in court all the time. So I went to a big international law firm and work for several years on big teams on, you know, multibillion dollar litigation cases that, you know, types of things that were in the news, which was, which was exciting and challenging, but not quite the fit for me. I kind of learned two things about myself. One, I want to help people build things, which is not what litigators do, that's not a knock on litigators. They do something very important, but they're not building up. They're protecting and in the life they're fighting. And the other thing is, as a person by my role that I like to have with people, it's kind of people call me a conciliator a, I'm somebody's trusted advisor, I'm the person and this is I am on calls very frequently at 910 o'clock at night, because clients call me to talk about whatever is on their mind. And that's not a litigator role. That's a corporate role. And the other thing is technology, I've always been working in IP. So technology is already of interest to me. So it's kind of a natural fit. So I moved out to California, I found the firm that I'm at now and have been working here for 12 years already and have had a great opportunity to work with large with the founders and entrepreneurs, but also with investors, helping them grow companies. And it's been a wild ride in a changing ride over time. Of course, as I'm sure you can imagine, man, well,

Ryan Miller  
yeah, what a wild ride to 20 years, 12 years at this current firm, you've been busy. So now that you've been there, and your practice has been built up, and you build a pretty impressive background and reputation for yourself, maybe can walk us through, you know, some of the good stuff that you're up to today. And some of the people that you felt,

David Siegel  
one thing I've learned over the years is in the legal world changes, not quick lawyers aren't often open to change. So there are very few people who are good at the transition from say, being a litigator to being more of a corporate person. And I was fortunate enough to be able to make that change. But it's really helped me in terms of helping clients that corporate lawyers don't typically know they they structure transactions, they write contracts, they negotiate contracts, but they don't know what happens to this stuff later. That's when the litigator comes in. That's something that I know, because I've done it. And I was thinking pretty recently, you know, I do a lot of m&a work. And I negotiate m&a transactions. And that's at the LOI term sheet level, like the high level negotiating, and it's also the 100 page merger agreements, you know, making sure everything is the way the client wants it. And it's something that a lot of people don't focus on. But pretty recently, I had a transaction, we actually took over post term sheet they moved over from another firm, which happens I was dealing with a dominant founder at the time and he was concerned about a very particular issue, which is a real issue about liability. You know, if you're a private company selling off to a buyer, you know, you're going to be making reps and warranties and indemnifying the buyer for all sorts of things. And this founder had a friend who got screwed because they had post acquisition, the seller, the buyer, excuse me got sued for patent infringement because of something to do with the sellers IP. It was not a meritorious case. The buyer litigated the case one something like $11 million in legal fees were spent by the buyer and the seller, stockholders had to pay that $11 million in legal fees, even though in reality, the sellers IP didn't infringe and they tried to negotiate in my client tried to negotiate this away that right away at the term sheet phase and got shot down. But the reality is, and I've noticed this since then over and over a lot of corporate lawyers, big firm corporate lawyers don't understand indemnification provisions and how the actual words are interpreted, I was able to make literally a two word change in the merger agreement, the buyer always drafts it went over, nobody noticed it, because they don't know what these words really mean, in court solve the whole problem never debated again. Now, it hasn't been that long. I don't know if this client spider will get sued. But this client is protected. And I'm telling you, that's millions and billions of dollars that you can save.

Ryan Miller  
Wow, that is phenomenal. So you know, you remind me the old school yard chant Sticks and stones may break my bones, but words can never hurt me. But in this case, David on the case, the wrong words can hurt you. But the right words can certainly save you like to wear chain that is the world that we that we live in. And so whether you're a startup or a fund manager, your contracts matter. And I would argue lightly, that not only do contracts, not only do contracts matter, but the person that you're seeking to work with to write those contracts matter. And so working with David or anyone in this industry, it's I know a lot of people are like, well, I don't know, my my brothers a family law or something like that. No, no, no, no, no, no, don't do that. I know, when you're entrepreneurs, you're starting out, if you're an emerging fund manager, you want to save money, don't save it here, save it somewhere else work with somebody, I'm not saying you know, spend all your money on legal but I am saying don't cheap out because you can get what you pay for. And so with David, who's built a phenomenal reputation in this industry, working with founders, you know, working with him can actually save your behind. Now, I'm not saying this isn't an infomercial, I'm just drawing this drawing the illusion here that it's important to work with people who are competent, who know this industry and in fact, know exactly like you said, these little wordings these two are things I know what those mean, in court, these are very subtle, but very kind of it's an ace up the sleeve. And I know what will protect my clients, this is what I'm hearing. So working with, you can certainly save a lot of problems for you, but also your investors. Would you agree,

David Siegel  
I fully agree with that, when you're looking for legal help. I agree, don't go to someone who does everything. There are people who specialize in these areas. And that's, that's you need you need people who know the issues and know the market as well. You know, from an entrepreneur perspective, I hate to say you don't want to go to the lawyers who represent your investors, because you're a small heed saying at the beginning, you're a small fry, you're not there billables the investors are there, the investors are repeat business. And there are subtle ways in which that will impact the advice you get from an investor perspective. You know, I say the opposite. You get your claws into a company tried to get them to go to a firm that you have a good relationship with. The lawyers are not going to screw the company. But it'll be you know, in little ways, at least in your favor. And a lot of a lot of entrepreneurs will listen, if you tell them, hey, you know, go to this great law firm, it doesn't have to be the exact law firm you used for the deal.

Ryan Miller  
Okay. So if you're a founder, get your own counsel, if you're an investor on the other side of the transaction, try to fill them in and use your counsel where you have a relationship, thank you for providing both sides of that coin. I really appreciate it right. And again, it's not because there's anything illegal or shady going on, we're just saying relationships wise, relationships matter on this show, we understand reputation, relationships really do matter. And so leveraging your relationships on your deals that matters as well or separating from other things. So I think David is giving us just a perspective from someone in the business of saying depending on who you are, here's a good strategy. And that's why people like yourself, and many of our listeners come now, you mentioned that you deal with a lot of people from pre seed to pre IPO when it comes to say precede to a I know convertibles are a pretty important vehicle in completing that deal. So on a proceed to a ish range, convertibles maybe can walk us through just the basic stuff. What are convertibles? And why should investors in early stages consider using them?

David Siegel  
Yeah, and this is a lot of this is an alignment between founders and investors, the use of convertible. So there are different instruments, the two big ones being convertible notes, and so they called safes that are used so that investors can frankly just quickly put money into a company without a lot of legal fees. And without a lot of negotiation. The idea being that a full on series, a equity round involves a lot of legal documentation, a lot of terms that have to be negotiated. And by using these Convertible Instruments monies put into the company with a promise to convert it into equity later and you defer those negotiations until series A or whatever it happens with a convertible note, which used to be more traditional, but it's I wouldn't say fallen out of favor, but it's not as common, at least in major tech areas. It's it's a no it's debt, that investor will hold in the company as interest. So that's a maturity date. But it has a feature where under certain circumstances it will convert into equity based on some sort of formula. A safe is actually much simpler. There's no debt, there's no interest, there's no maturity. It's just an agreement to convert into equity at the next equity round based on some sort of formula. Of course, the devil is in the details. And this is where investors and founders will diverge and interest and some of this is really kind of tradition because these documents can be varied in different ways, right. But the typical safe nowadays is referred to as a post money safe and without getting into the complications of it. Basically, its feature is that all of the dilution that is experienced by raising more and more safes until a conversion round falls on the founders. While a typical convertible note or the older pre money safes that exist that dilution is shared. So if you're an investor, if you're going to do a safe go to the YC website, hold off post money valuation cap safe or valuation cap and discount safe and use that and that's gonna give you a lot of protection. If you're a founder and you have the negotiating leverage, try to get a pretty money safe convertible notes have pluses and minuses for founders and investors, they can be more beneficial to investors. Of course, they could be written in that post money way. It's just not traditional. It's odd that there are just these standards that have developed in the tech ecosystem, it can be somewhat hard to get around them. But if you're a founder and you're stuck with a post money safe, it's really okay. The big thing I would say for founders dealing with post money safes is when you think about the valuation cap, there's a valuation on these safes usually. And that's the way it's determined how will convert don't get stuck talking about what you think the company is worth. Now, at the moment, you're raising the safe, you're you want to talk about the projected valuation at the time, the safe will convert, that is what can protect you from some of the dilution. Of course, if you're an investor, don't fall for that argument.

Ryan Miller  
Got it? And you know, thank you for that. That's brilliantly said, so why would you say control should be the primary focus at this stage. So

David Siegel  
taking a step back, when I look at the negotiations between an entrepreneur and a VC, the VC has an advantage of being a repeat player in the way the entrepreneur often isn't VCs negotiate deals all the time. And then so they have a lot of familiarity, and the in the founder doesn't, and then the VC has the money. So that's automatic negotiating leverage. So there's a tendency for founders in in the ecosystem to encourage founders to kind of negotiate against themselves from day one. So you set up a company with no protections for the founders and VCs in these simple incorporation documents, even from the largest law firms, you spend $1,000 or more an hour on partners, at the end, you're getting the most simple documents that you can get off of some online resource, and then you do a VC round. And suddenly, you're have these larded up corporate documents with dozens and dozens and dozens of pages of protections for your investor, you don't, it doesn't have to be that way. You can set things in place, you have control at the beginning. So set the stage at the very beginning when you can to at a minimum signal to your investors that you care about this. And one simple thing founders can do or at least consider not every it's not for every founder, but you can create two classes, at least have common stock at the beginning, create a super voting class, say the message in the industry is don't do that investors will make you get rid of it. So who cares? That's it, no extra money or time to do that. And the reality is, at a minimum, at an absolute minimum, you're forcing your investor when you're negotiating to ask you to do something. And whenever they ask you to do something, you can ask for something, maybe you won't get it. But it really has worked. I've seen it survived VC rounds quite a number of times. And there are arguments to make that work. But also just negotiating or something else. I had a client a couple of years ago, whose company has since been sold off. But they negotiated what they wanted is the ability to force the investors to go along with any sale, if the investors get a 3x return, they didn't know if they were gonna shoot the moon or not. And they were getting very prominent investors and they didn't want to get stuck and the investors went along with this get rid of Class B will give you this will give you this thing that is not a standard get. And it worked out they had like a 4x return on their sale, it was not a shoot the moon company, it just didn't go that way. And so they were able to take advantage of it at the beginning, when you have the ability to set things up any way you want it least try at least consider trying don't pre negotiate the simplest thing in the world to make yourself the most attractive company for a VC critically, because attractive for a VC in this sense, is just giving up everything on day one.

Ryan Miller  
And well said my man. So just making sure that those documents are in place. I like what you said of saying make them ask you because that is also an opportunity, if they ask you get an asset. And so having those super voting shares that you alluded to, or some type of way of just saying how do we maintain control for as long as possible, if not indefinitely, but a lot of these things, whether you force on a sale at a certain rate or any other issue, when you're in the early stage, don't just think about who gets what, as far as profits or participation. So as we call but also the control. And so covering both the participation rights and the control are a great place to start brilliantly said moving forward, not everybody's in precede to series A some people are in their growth phase or Series B Series C around that range. So now we're going to talk about a little bit of the opposite, have a little bit of losing control, particularly on the board. So a lot of times you start to see some some interesting things start to trickle in or around the board at this phase and accompany when they're in growth phase because a lot of change going on emotions, egos, there's all kinds of stuff I just real talk. And so in that time, if you're a founder or an investor in a company like this, probably have a board, which very fundamentally is just a bunch of people that represent the shareholders, or at least they should be and what does that mean when and when you're at this phase, whether you're in a fund, you have a board, whether you're in a startup or any company or you're on a board, what does it mean to lose board control at this phase? And how can startup companies maintain control while still pleasing their investors? Yeah,

David Siegel  
I mean, this is one of those areas where it's treated. I mean, it is a zero sum game, but you can be somewhat more creative about how to give everybody some of what they want from the founder perspective. Yes, as soon as you start having real investors and equity rounds, your investors are going to want most likely want board representation for a company perspective. That's usually actually a good thing. I will say from A founder perspective at the early stages, a common ask from the investors is they'll say, hey, let's have a three member board to common one preferred, but one of the common should be is going to have to be whoever the CEO is, at that moment. And that is the slippery slope towards founders losing control of the board. So as a founder, you want to be careful about that. Because if you for whatever reason cease to be CEO, then it's a black box, who's going to be in that seat going forward. But as things go later on, it's often the case that there'll be one or more investors, and then maybe even the one an independent board member. And there's a concern, a lot of times investors say, okay, so we'll have two investor members and one independent and one are too common. And you're going to be thinking as a founder, hey, I want I want a majority of the board. So I want for common investors to say that's too big a board. And a lot of people just don't know that you can have a board seat with multiple votes. So you can have control over the board without with one person in that controlling seat. I wouldn't say it's common, but I've certainly done it. So it's a tool to keep in mind. from an investor perspective, you don't necessarily have to have the most board seats to get what you want. As a preferred board member, one thing you can have are preferred board veto rights, you can have a set of major things that require preferred Board approval to do and that way at least you won't have common board members, even if they control the board, they won't be able to do anything on their own, the major things will require your face. So you always have to think when you're thinking control this offensive control I call it offensive control and defensive control, right? The ability offensive control is the ability to make something happen in the defensive control. It's like a veto, right? I think investors best arguments do usually until their majority is for veto rights as opposed to offensive control. Do they take over the company when they're in majority, then it's a different story. But there are ways to kind of give some everyone at least some of what they want, which is often the right solution, though not not always.

Ryan Miller  
So how do you roll out the mechanics on that? Is it just through like shares? Or how do you get like control the board with one seat? Mechanically, from a legal perspective? How do you set that up?

David Siegel  
No, it's actually not, it's assuming you're the standard issue Delaware corporation, it's your Certificate of Incorporation has to say there's this one board seat that gets X number of votes. And that's where it's house. It's not done through shares.

Ryan Miller  
Okay. So in your articles, great. And then, you know, with that, how can business owners use their budgets, just to work with the board represent regulatory issues? Like what have you seen?

David Siegel  
Yeah, I mean, so it's important, it's important all spend, obviously, in growth stage all spend is important. You want to you want to spend money on legal wisely, I've seen it use too little and too much to ill effect more often than I'd like to say. But what I would say is first thing first, I'm assuming here, you're not you're not in healthcare, you're not in a regulated industry. If you're in a seriously regulated industry, you have to expect to spend a lot of money on legal and have somebody in house probably pretty early. That's just the way life is standard issue, standard issue a B post a BC stage company, but for you have in house counsel, I like to talk in the 50 to $100,000, for getting through a year of routine ish legal, particularly for enterprise where you're where you're negotiating a lot of contracts. And like, if you're a consumer, it's a little different. And the costs go up more later than at the beginning. But if you're if you're currently in the enterprise world, I would say 50 100,000. And, and that doesn't include investment rounds, a real investment round your series B, your Series C are gonna cost extra money. The rule of thumb I like with that is usually your investors are going to want to have you reimburse them for their legal fees for the round. I tell clients budget 1.5x, what the investor asked for. And the reason is that is twofold. One, the company incurs more costs than the investor, which is they draft through the initial drafts, they have to do all the filings. There's just a number, a lot more work on the company side. But the other thing is the amount the investor asks a signal about how hard they're going to drive you in the round. So if an investor is asking for 30k at a series B, it's not going to be that huge deal you've put in I would budget 45. But if the investor is asking for 100,000, well, then I'd seriously think about the investor, but but I would expect to spend a lot of money on that round.

Ryan Miller  
Okay, perfect. So So 1.5x times what the investors asked for, but rule of thumb is I say thumb to the Sun estimated around 50 to 100,000. If you're in the b2c, or you're in a growth company, that's about what you should budget just to address regulatory issues. This is good. This is tactical stuff that people can do, you know. And finally, a third thing we got, we got to get the three things late stage IPO, when's the right time to introduce liquidity programs when your is at this stage or others?

David Siegel  
Well, formal liquidity programs, usually you want to wait until late stage because there's cost to it, it's usually not worth it in a formal sense at earlier stages. I want to let you think about early stages in a minute, but when you're at the later stages, it's a good time. Because if you do because you're gonna have to do something like probably a tender offer, which is a formal system where you have to make disclosures and you have to keep offers open for a certain period of time. You might have to file things. It's it's not a cheap process. And by the way, I said disclosure, so you're you're giving up financials and things like that, that early stage companies even under an NDA don't like doing so this is this is a good time to do it. It has to be done correctly, or you can get sued and you can get sued in a lot of ways. There's a lot of there's a lot of regulation around this because as I said you have if done correctly, you have to do certain types. disclosures in life, but also at the same time, let's say it's a company buyback is the form of a liquidity event, there's potential liability. Are you gonna do a company buyback right before the company's gonna file for an IPO? No, right before the company is going to be sold off? No, it depending on what's going on the major events in the company that might be secret, you can't even do one of these events, or you have to at least check with counsel, before you do companies deal with employee transfers of equity in different ways. Some have blanket transfer restrictions, they no one can sell without board consent, some rely on a right of first refusal on the part of the company, which is great and all, but let's say you've gotten an LOI for an acquisition, and you have some employees who want to sell their stock and find some buyer and you really don't want them to sell to that buyer. Can you as a company exercise that right of first refusal, it's kind of hard, right? Because this acquisition is gonna happen. You don't want to get sued. from a company perspective, the right of first refusal isn't necessarily enough. The other thing to keep in mind in the late stages is if too many people are selling off their stock to other people, you could end up with investors who don't want a and b, let's say some early stage employees have 100,000 shares, and they sell to 10 or 15 different people, you could end up going over a threshold where your private company suddenly has to become an SEC reporting company and have all that expensive administrative hassle of very much like a public company before an IPO. That's something you want to avoid. That's, you know, blanket transfer restrictions, probably the best way to avoid that, even though I do sympathize with employees who hate them. So it kind of go both ways. They're from an investor perspective, I definitely would push for a transfer restrictions.

Ryan Miller  
All right, great. So if you're an investor blanket transfer script, oh, yeah, sections, yeah, throw them in there.

David Siegel  
Now for yourself, you can usually mark it not for investors just for everybody else would be as restrict everybody else in meal, I didn't want to say the moment to think about liquidity is not post Series C or D, the moment to think about liquidity is day one is absolutely as a founder day one. Because the way you structure your company impacts your ability to get liquidity you as a founder, let's say Series B, you won't still own 30 40% of the company, you want to sell off, you know, 10% of your holdings to get some take some cash off the table, you can set up your company in a way to make that much more tax efficient. But that has to be done at day one. And and for everyone there are you know, there are tax rules. USBs being you know, big one, where you can deduct up to 10 million of your gains, or depending on how things structured maybe more if you set your company up correctly and maintain it the right way. But that's not something you can do three years in, that's something you do on day one. So control is important. But I should mention liquidity is the other thing. I mean, money, money matters. I mean, most people want to make money and don't want to pay as much taxes. Yeah,

Ryan Miller  
fair, fair point. Most people, myself included. So final question on on this late stage IPO stage, in your opinion, what are some of the most important securities laws issues during this late stage that people should focus on?

David Siegel  
Yeah, where I see people trip up where I see companies trip up is not having blackout periods. So ending up in situations where they're stuck. Either they actually buy back employee stock, or they can't buy back employee stock because they don't have blackout periods when employees can't sell or they they open up sales and end up without speaking to lawyers and end up either with a situation where they there are restrictions on sales of private securities and where they without being a public company. And they run into foul of those rules. Or as I said, the tender offer rules. If they're going to do it correctly. They otherwise violate tender offer rules and have it It happens all the time. You can have a class action against you with a class of employees suing you for sec violation. Perfect.

Ryan Miller  
So as we wrap things up, is there any other last comments, anything else at all that you'd like our listeners to know? Maybe how to contact you anything at all? Yeah, I

David Siegel  
mean, in terms of what to know, the big thing is legal stuff does matter. It matters at the beginning. It matters throughout, it's not something to spend excess money on, I realize it's not the first thing people want to spend money on. So it's something you should budget for and ask for estimates and the like. But because as a founder, it's your chance to have somebody who's on your side who is the repeat player in the market. The investors don't that side, the investors don't need but the founders do in terms of reaching me, our website is www.grellas.com G R E L L A S I'm on LinkedIn, the firm's on LinkedIn by emails on the website, but it's DC, Colette, grellus.com, d si, e g, e l f girlis.com. If anyone has questions, you know, I'm happy to do you know, initial consultations I don't charge for generally and for anybody coming from the show certainly won't. So I'm happy to give advice I like to talk. I'm not just doing it here. I like to think I have useful things to say. And I like to impart knowledge that I'm in the right industry for that. Well, that's

Ryan Miller  
absolutely perfect. Man. You're a fun guy and coming from an attorney who has been told to charge more, not really something too many attorneys here but certainly appreciate that. So you know, as we wrap things up, just learn about safes, convertibles and control when you're starting out whether you're a fund or fund manager, both of those matter and also when you're building your legal documents or a company or negotiations, whatever it is, if you're really in that foundational stage or you want to address the foundation of an investment, talk about the board and the control of the board and how is that treated and really master that budget for legal make sure that's priced in and have a healthy budget. David said you know, 50 to 100k on like a standard year. If you're fundraising you want to go a little bit more and then ultimately, it hasn't been obvious. I'll say it right now work with experienced attorneys. It's better to work with someone two inches wide and 100 miles deep and someone who's 100 miles wide and two inches deep. You do these things. and you too will be well on your way in your pursuit of making billions

Ryan Miller 
Wow, what a show. I hope you enjoyed this episode as much as I did. Now if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes awhile, you get to know our guests even better. And make sure to come back for our next episode where we dive even deeper into the people the process and the perspectives of both investors and founders. Until then my friends stay hungry focus on your goals and keep grinding towards your dream of making billions


(Cont.) Attorney's Pro Tips for Founders and Fund Managers Raising Capital

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