Startup Law 101 Series: Business Lawyer’s Tips for Becoming a Founder


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

Having worked extensively with founders as a startup attorney in Silicon Valley for many years, and having built my own business as well, I have some tips 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.

The founders want the great advantage to be gained 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 affected by increasing taxes on your compensation.

Forget about the rich. It’s the average employee who gets soaked. You pay, say, up to one-third of what you earn for federal, state, and local income taxes. Add another nearly 10% for payroll taxes. Now suppose that inflation puts you in higher tax brackets. The rates are then increased for those tranches. Then the payroll tax rates go up. And the limit on social security was lifted. And new taxes were added to fund future health benefits. You will have a net amount less and less of your pay. Welcome to be the employee of the future.

However, as a founder, your biggest reward will come not from salary but from a cash flow event where you will redeem your tokens. At that point, you pay a one-time capital gains tax on much of the financial reward you earn from your business. You pay less income tax because the capital gains rate is lower. And you don’t pay any payroll tax. With capital gains, you also control a bit of time and this can help to further 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, turn a large chunk 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 can watch your business grow and prosper. You can see how it has an impact on others forever.

The satisfaction you can get from success is a great intangible reward.

4. Finally, being a founder gives you the independence to be 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 entrepreneurs will ultimately 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 else, build on strength.

Be prepared before venturing out. Get a solid education. Work with the best to get excellent 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 can be based solely on the strength of exceptional entrepreneurial talent. Or a specialized skill that allows you to work as a team with others who provide what you may be missing. No formulas here. But you need to keep building Some form of force.

This also means that you do no venture based on a simple idea. Try this one from the bubble era: “I’ve worked in manufacturing for a year and I know how to revolutionize that field through an idea I have for a website.” 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 will make you pay. Know what you are doing before getting into something.

No one will take you when you go out alone. So be prepared to take advantage of something you do exceptionally well. That is your primary key to success as a founder.

2. Count the cost before venturing out.

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

Don’t romanticize the process either. Business is tough. You will lose the certainty of a regular paycheck. You will have bills to pay whether or not you are making money. You will face a series of non-stop challenges, from people problems to financial pressures, competitive challenges, legal disputes, enormous psychological pressures and all kinds of obstacles. By the time you get through all of this, or at least most of it, you have built “goodwill,” that is, going concern value for your company. Goodwill is nothing more than the advantages you get from the blood you have shed. It is a great advantage that makes your business better than others. But you Will I have to spill blood on him. Understand this up front and be prepared to pay the necessary costs.

Of course, it follows that if you are not ready to pay the costs, you must stick with the steady job.

3. When you start out, try to do it with a multi-talented team.

There is no hard and fast rule here. Experience confirms, however, that a team is much more likely to be successful than a single founder. This may be just another way of saying that if something is really good, others will be drawn to it. This is most likely another way of saying that launching and building a successful company is hard to do and it takes a multi-talented team to make this 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 cannot sustain a business. Sometimes they can be sold or licensed to a large company. Nothing wrong with that. In most cases, although the technology will not be enough.

With or without key technology, for a company to be successful, has 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 are going nowhere, no matter how innovative this or that element of your company is.

5. Watch your expenses.

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

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

One aspect of waste is simply extravagance. You get funds 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’ll regret such an expense when you hit the bumps in the road where you wish you had that cash. Inevitably, you will run into those potholes. Plan accordingly.

Yet another aspect of wastefulness comes from not properly focusing your efforts 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 dissipate before you can generate a reasonable income stream.

Use good judgment about where you can best use your limited funds and use them wisely.

6. Carefully plan your legal implementation.

Don’t charge up unnecessary legal expenses. However, when you’re ready for a meaningful launch, get the setup right.

If you have a founding team, be sure to seriously think about using restricted shares rather than full stock grants when making grants to founders. In other words, keep the chains on the stock until they are won, unless there is some exceptional reason not to. Use cheap stocks to avoid tax problems. Bring intellectual property into the company. Obtain employment and consulting agreements, ensuring that all intellectual property in those agreements goes to the company. Review your trademark issues in relation to whatever trademark you are going to do. File provisional patents as appropriate. When you’re ready to onboard a larger team, set up a capital incentive plan.

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

7. Fund your business incrementally whenever possible.

The worst trap an early-stage business can fall into is one where it spreads too far. Plan wisely to avoid this trap.

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

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


Think carefully before venturing out as a founder. The rewards can be great, but you must be prepared to face the challenges. If you think it is, a vast open world of opportunity awaits you.

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