siegel

This is a tough question to answer based on these facts.

But my first question is this: you "incorporated the company in late January." Ok, but what did you and she actually sign? That could make this a very easy situation or a very hard situation.

Over the past few years, mass arbitrations have become an imperfect way for consumers to get relief where there is an arbitration provision with a class action waiver.

Unfortunately, you'll see in the Hulu agreement (as well as in other standard user agreements, e.g. DoorDash), that companies (and their lawyers) have gotten creative in figuring out ways to avoid even mass arbitrations.

In the case of Hulu, you cannot even file an arbitration until you: (1) send a written notice of dispute; and (2) have an individual one-on-one call or teleconference. You can hire a lawyer, but you have to personally participate in the teleconference.

What is the point of this? The CEO of Hulu doesn't have to participate. They'll just send some rando in-house counsel or paralegal. The only purpose here is to make it as painful as possible to file a claim.

You need someone to look at your consulting agreement. This is largely about IP ownership. Happy to take a quick look if that's helpful.

What type of co-founder agreement is this? I'm at a bit of loss as to what he, as CEO, is really contributing here. But that aside, it's completely unclear what the terms are.

If you have an draft, I'm happy to take a quick look. Lots of experience with these things.

Have you practiced with anyone you trust and respect? Self-assessment in interviewing skills is really difficult. You need feedback about how you are actually coming off.

Oh, and think about recording yourself practice interviewing.

I wouldn't say the complications themselves are intentional. But take a look at a typical Series A. There are 5 core documents. Dozens and dozens of pages of legalese. I'm a lawyer and understand them. But most founders don't.

What's interesting is that virtually every word in those docs is there to protect the investors, most at the expense of the founders and other existing shareholders.

Ok, so maybe that sounds obvious. Why would it be otherwise?

Well, take a look at the initial docs when a company is founded. The "market" is for those docs to be as simple as humanly possible. A certificate of incorporation is a page or so. No protections at all for the founders in there, most often.

But when you bring in investors, the market is to lard up that same document with investor protections and no protections for founders.

That's how founders get screwed. It's not that the complications are there to screw founders. It's that the standard forms are built with one party's interests in mind.

What type of startup are you running? Is this a SaaS product?

As someone who does a lot of startup contracting (focusing on SaaS, but not exclusively at all), this is a bit surprising. Most of my clients use their own paper most of the time. Large customers typically push their own paper. Smaller customers don't.

Candidly, getting an explanation of the terms in a customer's version of a contract is insufficient. It's not just about what's there - it's equally important what's NOT there.

Well, that's of limited value if there are two founders, no other shareholders, and equal ownership. It's just deadlock, unfortunately.

I work with quite a few company with dual class voting common shares. I will never understand the notion of not implementing that at incorporation if you want it. Will you have the leverage to get a VC to agree to let you keep it? Maybe, maybe not. But the worst that happens is you get rid of it, which is virtually costless.

Honestly, implementing a 10M share one class common company just to make a VC happy sends horrible signals for negotiating with investors. It shows that you are happy to pre-negotiate against yourself from the get go just to look VC friendly. If you cared about retaining control, why would you do that?

1x IS a liquidation preference. I very, very rarely see in excess of a 1x liquidation preference, regardless of the round.

On the last point, that is why it is CRITICAL that you do not give your investors the right to demand registration based on the mere lapse of time. In most rounds I do, I get investors to agree that demand registration only arises after an IPO. It looks like a small point. But it is essential if you want to keep your options open (which is really what the Saastr article is about).

Or they would get their money back, in the alternative. Depends on what's better for the SAFE holder.

Part of this depends on what your plan is with the company. If you intend to seek VC funding, vesting is going to be renegotiated. Will your co-founder even agree to that?

I am concerned because vesting immediately is way outside of the norm. What stops him from walking off the next day?

A one-year vesting schedule is not advisable either. Are you really going to have a liquidity event in a year? If that's the concern, have acceleration terms to deal with that. I agree with rogerkirkness that 4 year vesting is the right way to go. I don't think 5 is necessary, though you can do that.

You can avoid the "boss-employee" vibe by having the same vesting schedule for yourself.

Trust me - I see a lot of bad co-founder situations. You don't want to have a co-founder with tons of equity who isn't working out.

Yes, it is easy to take advantage of...And easy to blow. So, something to be careful about. But hugely valuable.

Is your company a C corp?

Yes, you can apply to VC alone. Some investors want to see a founding team. Some don't care.

But other than the desire to a have a co-founder in theory or to secure investment, why on earth would you continue with this co-founder? If they aren't contributing anything, why do you want to work with this person?

And 50-50 is absurd. 50-50 is, of course, always a recipe for deadlock. I've dealt with countless 50-50 co-founder situations where there was a breakdown due to deadlock. And those are almost always situations where the co-founders were enthusiastic working together at the start. (I'm a lawyer by the way - so I see worse case scenarios all the time.)

Here your prospective co-founder isn't contributing. You need to move on.

Happy to discuss my experiences with this and how you can extricate yourself as best as possible.

This is not 100% accurate from a trademark perspective, at least with respect to "famous" marks.

Generally speaking, you are correct - unless there is a likelihood of consumer confusion, you are free to use a trademark already used by a senior user.

But marks like Apple and Mickey Mouse, from a trademark, are sufficiently famous that they get special protection. There is a concept called trademark dilution that only applies to sufficiently famous marks. With respect to such marks, a junior user can be liable for use of the mark even if there is no likelihood of confusion.

(BTW: By "senior" user, I means a user that gained trademark rights first and a "junior" user is one that started using the mark in commerce later.)

I think "privacy" here is the wrong word. Carta owes some obligations to companies that sign up or their services (though they are vague and ambiguous).

But I hope people wake up to what they are agreeing to when they sign up as a user for Carta. Carta makes you agree that they owe you NO duty of confidentiality with respect to any information you submit into the service.

That's nice that they are leaving the secondary trading business. Of course, they can restart that business again.

But this all begs two questions:

1) Do their legal agreements protect customers sufficiently in terms of use of customer data? I'd argue no. They are a bit of a mess, but very broadly give rights to Carta and its affiliates to use customer data in all sorts of ways. Quite arguably they had every right to do what they did here.

2) Legal agreements aside, forget policies on use. How on earth did a CartaX employee get access to Carta customer data?

The reality here is that the loose legal restrictions on Carta's use of customer data plus what appears to be loose internal restrictions on employee access to customer data makes me wonder what ELSE they are doing with customer data that we CAN'T so easily see.

We have a lot of clients who happily use Pulley. I believe they are a YC company themselves. I don't have a dog in this fight. But there are plusses and minuses to these various solutions. Carta is not the be all and end all.

That's not universally true. For most marks, you are right. But for certain particularly "famous" marks, the owner has a potential cause of action for dilution of the owner's mark. Unlike trademark infringement, which requires a showing of likelihood of confusion (which is bolstered by a showing that the two purported mark users serve the same market), trademark dilution does not.

I'm assuming they mean from the owners of the Nerf brand of foam toys (I think owned by Hasbro nowadays). They could attempt to argue that NerfStudio dilutes the Nerf mark. Not necessarily a frivolous argument and they don't need to show likelihood of confusion in that case.

If the consumer sues in small claims court, then the company would need to petition the court to compel arbitration. Large companies (like Apple) sometimes expend what would seem like irrational amounts of money on lawyers to make a statement. So, I wouldn't assume that they would balk at petitioning to compel arbitration.

In terms of the arbitration itself, it is very hard in the US to get an arbitration award overturned. So, wouldn't bank on that.

As an attorney who deals with responding to (and, well, also drafting) letters like this, I think LinkedIn may very well go away if you remove any reference to LinkedIn from your website and otherwise refrain from stating or implying that your tool can be used to scrape LinkedIn.

If you are ok with that, a carefully drafted response letter that shows that you take their concerns seriously and are taking steps to effect the above changes might end this. At a minimum, you'll be able to get clarity as to whether they want more that just stop referencing them.

To some extent, it isn't that different from how you raised funds for your prior startups (assuming you did). And, in fact, you might very well want to start with the investors you worked with in the past. You don't need a VC fund to raise $1M. Several angels can get you that money.

But you need a good business plan and to explain how you are going to do better than investors could do investing on their own (or through another fund).

Your assumption that they don't have a trademark may not be correct. In the US (and a number of other countries), you can get common law trademark rights by using a mark even if you don't register it. It sounds like they are using the mark we are talking about. So, they may have trademark rights already.

Doesn't mean you can't use the name. Perhaps the name is generic or sufficiently descriptive of what the software does that it can't get trademark protection. Or maybe your product is so different that there wouldn't be a likelihood of confusion.

Can't answer that question in a vacuum (don't know the mark, how they are using it, how you plan to use it). But assuming they have no trademark rights is dangerous.

Where is your domain registrar? Are they in the US? (And are you in the US?) These folks are obviously scammers and you need to have a lawyer reach out to them.

I have very mixed feelings about this. While the proposal is new and commentary, thus far, is limited, I mostly see discussions of how this impacts the big players (Facebook, Google, Amazon, etc...) and the small startups that would otherwise be scooped up.

What is an interesting question is how this impacts the companies in the middle - i.e. sizable tech companies with, say, $50 million in annual revenue, who don't typically have the resources to acquire startups that are being pursued by the big players.

Would legislation like this allow those middle-market players to grow via acquisition and, thus, create a larger pool of "big players" post-pandemic?

Why emergency powers are being proposed to be used for anything other than increasing supply of necessary hospital supplies, increasing hospital capacity, increasing testing capacity, and saving the economy, is a mystery and a scandal of historic proportions.

There is a six-year statute of limitations on patent infringement claims. But there is a separate doctrine called "laches" that says that, notwithstanding any statute of limitations, if a plaintiff sits around on their rights, their lawsuit can be barred.

But the Supreme Court recently held that laches was not a defense in statute of limitations cases. So, that wouldn't be an issue here.

This is true, but starting as an LLC and converting to a C corp does have a potential QSBS benefit, if you are able to meet the 5-year holding period. The QSBS deduction is the greater of $10 million or 10 times your adjusted basis at the time of acquisition of the C corp stock. If you incorporate as a C corp initially, you get the $10 million deduction, at best. If you form as an LLC and only convert to a C corp (and get your C corp stock) at the time of your first financing, your adjusted basis may be significant. If the value of your equity share is, say, $3 million at the time of your first equity round (not unheard of), when you convert to a C corp, you potentially get a QSBS deduction of 10 times that (i.e. $30 million).

Please note that in a conversion from LLC to C corp, you only get the QSBS on the gain over the initial basis. So, in my example above, if you end up selling the shares for $2 million in an exit (when the basis when you received the shares was $3 million), you will get no QSBS deduction.