January 5th, 2021
With Paul Swegle, general counsel to a variety of tech companies and advisor to a dozen others as outside counsel. To date, he has served as general counsel to thirteen companies and has completed $12+ billion of financings and M&A deals, including growing and selling startups to public companies ING, Capital One, Nortek, and Abbott.
Join us for this fabulous conversation with Paul Swegle about startup law and fundraising for entrepreneurs. Paul’s first book, “Contract Drafting and Negotiation for Entrepreneurs and Business Professionals,” shares what he’s learned working on thousands of agreements across varied industries for over 20 years. It’s all about avoiding common contract pitfalls and maximizing commercial relationships. It’s also a frequent Amazon bestseller in business law.
Law schools and business programs across the country use it, as do law firms and in-house law, procurement, and sales departments. Paul’s second book, “Startup Law and Fundraising for Entrepreneurs and Startup Advisors,” was published on July 23, 2020, and is about helping entrepreneurs do three things: – build their companies on a solid foundation, – avoid costly and distracting legal and regulatory mistakes, and – raise the money they need to succeed.
Anyone interested in startups and small businesses will find Startup Law and Fundraising invaluable. But it is also designed to provide a turnkey entrepreneurial law and finance class at any level, including law school, MBA, undergraduate business, community college, or startup accelerator. Paul’s third book, “Careers in the Law,” will be published in late 2021. It profiles more than 200 areas of law, plus many non-law alternatives for law degree holders. As a busy practicing attorney and leader in the legal profession, Paul interacts daily with attorneys across many different areas of the law.
He has mentored and advised hundreds of law students and attorneys. At all times, his several companies have engagements in place with 20+ law firms across the country and globally. As a bar leader, Paul has a front-row perspective on the impacts of technology and other forces on the legal profession.
Careers in the law will be a uniquely rich, insightful, and timely look at law careers and non-law career alternatives, with insights from hundreds of attorneys. Paul is also an adjunct law professor and teaches entrepreneurial law and finance at Seattle University School of Law. He was a lawyer for the U.S. Securities and Exchange Commission and the Department of Justice early in his career.
Biggest takeaways (or quotes) you don’t want to miss:
- “It’s challenging for people to find a lawyer, it’s challenging for people to budget for it.”
Check out these highlights:
11:30 What are companies not doing so well?
14:50 What’s an accidental partnership?
20:57 Why do people mess it up when it comes to legal needs?
30:00 Mistakes to avoid when creating a start-up with the intention of selling.
42:00 “13% of startups fail because of co-founder issues.”
1:04:43 Finding investors.
How to get in touch with Paul:
On social media:
Paul Swegle is general counsel to tech companies and advises a dozen others as outside counsel. To date, he has served as general counsel to thirteen companies and has completed $12+ billion of financings and M&A deals, including growing and selling startups to public companies ING, Capital One, Nortek, and Abbott.
Paul is also an adjunct law professor and teaches entrepreneurial law and finance at Seattle University School of Law. He was a lawyer for the U.S. Securities and Exchange Commission and the Department of Justice early in his career.
Learn more about Paul here.
Imperfect Show Notes
We are happy to offer these imperfect show notes to make this podcast more accessible to those who are hearing impaired or those who prefer reading over listening. While we would love to offer more polished show notes, we are currently offering an automated transcription (which likely includes errors, but hopefully will still deliver great value), below.
GGGB Intro 0:00
Coming up today on Guts, Grit and Great Business.
Paul Swegle 0:04
And this is a really hard mistake to recover from, if you give 20% of the company away for $50,000, because you didn’t want to take out a home equity line, or you didn’t want to try to at least use $20,000 of credit card debt to get to an interval where you had a higher valuation. And maybe you could give away 10% for $100,000. Right in just a few months with $20,000. You can probably get to that kind of valuation. Once you have a prototype, some software coded some beta testers get to some key metrics of success before you raise money. So bootstrapping. You know, using your own money is an important first step to avoid raising money too early when the valuation is too low.
GGGB Intro 0:55 The adventure of entrepreneurship and building a life and business you love, preferably at the same time is not for the faint of heart. That’s why Heather Pearce Campbell is bringing you a dose of guts, grit and great business stories that will inspire and motivate you to create what you want in your business and life. Welcome to the Guts, Grit and Great Business podcast where endurance is required. Now, here’s your host, The Legal Website Warrior®, Heather Pearce Campbell.
Heather Pearce Campbell 1:28 Alrighty, welcome. I am Heather Pearce Campbell, The Legal Website Warrior®. I am an attorney and legal coach based here in Seattle, Washington. Welcome to another episode of Guts, Grit, and Great Business. I am super excited to share with you a friend and colleague Paul swingle, who I twisted his arm a bit to get him onto my podcast, but I’m super excited that he’s here. This is actually the first attorney Paul, you should know you’re the first attorney that I’ve had on my podcast. But so I’m super excited. I wouldn’t invite just any attorney. I will say that. But Paul’s a real pro. He has a really important topic to talk about AI. It’s one that I would like to learn more about myself. And Paul has also just recently published a book that we’ll chat about as well, that I just think is a tremendous resource. But for folks listening, Paul Spiegel is general counsel to tech companies and advises a dozen others as outside counsel. To date. He has served as general counsel to 13 companies and has completed more than $12 billion in financing and merger and acquisition deals, including growing and selling startups to public companies in Capital One, Nortek and Abbott. Paul is also an adjunct law professor and teaches entrepreneurial law and finance at Seattle University School of Law. He was a lawyer for the US Securities and Exchange Commission and the Department of Justice early in his career. Paul’s first book, contract drafting and negotiation for entrepreneurs and business professionals, shares what he’s learned working on 1000s of agreements across varied industries for over 20 years, then I’ll tell people listening I bought that book as soon as it came out, and it’s another tremendous resource for people in this space. Paul’s second book startup law and fundraising for entrepreneurs and startup advisors, was published on July 23 2020 and is about helping entrepreneurs do three things, build their companies on a solid foundation, avoid costly and distracting legal and regulatory mistakes, and finally raise the money they need to succeed. And I love Paul’s mission because mine overlaps with a lot of that. Paul’s third book, careers in the law will be published in late 2021. Look at you go, Paul. I just don’t even know how anybody can follow this. It profiles more than 200 areas of law plus many nonlaw alternatives for law degree holders. As a busy practicing attorney and leader in the legal profession. Paul interacts daily with attorneys across many different areas of the law. I can attest to this because I’ve called on Paul several times to help with cases that I have ended up with. He has mentored and advised hundreds of law students and attorneys at all times has several companies have engagements in place with 20 plus law firms across the country and globally. As a bar leader, Paul has a front-row perspective on the impacts of technology and other forces on the legal profession. careers in the law will be a uniquely rich, insightful, and timely look at law careers and nonlaw career alternatives with insights from hundreds of attorneys. Paul, you’re such a gem, you’re just you know, you’re a walking resource to those of us who know you and for many people who don’t yet know you so I’m so grateful to have you here today.
Paul Swegle 4:45
Well, it’s a lot of fun to be here, Heather, thank you for inviting me. I’m honored to be on your great show. I’ve listened to a number of podcasts and they’re fantastic.
Heather Pearce Campbell 4:55
Oh, well, it’s so fun. I, you know, I tell people it was really you know, I can say that this podcast originated out of a little bit of a selfish desire to create one more way to connect with people during COVID. All of our face to face interaction dropped off. And for me, I just I needed to create an alternate way that I could keep interesting conversations going. So I super appreciate you showing up to have this. For people listening talk, I’d love for you to walk us backward a little bit and talk to us about how through your law career you became interested in entrepreneurship and business law.
Paul Swegle 5:34
Sure. Let’s see. Walk us backward. You know, I’ve I did come, you know, I came out of the securities exchange commission went into a pretty stuffy, you know, industry, I was director law for Plum Creek timber at that time, it was, you know, largest private landowner, United States. And what got me into startups was in 2000, you know, right, right before the .com bubble burst, I saw an ad for a broker-dealer that was looking for a lawyer. And it really wasn’t that, you know, it wasn’t looking for a job particularly, but that one caught my eye. It was called net stock. And I threw my resume in the hat. And I had a pretty cushy job. So you know, wasn’t looking around for anything too risky. But this startup was a broker-dealer and securities, which is sort of my background, and well, that’s kind of interesting. And so I, I got hired there, and they had just raised $20 million, and then the bubble burst, that company ended up being called sharebuilder. And I was there for 12 years as General Counsel, and we sold it twice. And it’s almost like a triple rainbow because we sold it to IMG direct, then the EU made IMG group split up a bunch of things. And so we, we had to sell it again. And we ended up selling it the Capital One I stayed on for four months, and then essentially became an outside advisor to Capital One. Years later, Capital One divest some of those assets. I’m again now advising Sharebuilder, advisors 401k for small business. That’s why I called the triple rainbow of life. If you’re drawing a paycheck,
Heather Pearce Campbell 7:14
It doesn’t ever get away from it.
Paul Swegle 7:16
Yeah, that’s a pretty good endorsement for startups. It’s, it’s, they don’t all work out quite that way. Yeah. It was interesting on shareable, It was really built. Well, from the ground up, we didn’t have a ton of regulatory problems, legal litigation issues, stupid contracts, poorly protected IP, you know, it’s just sort of a well-run company, and I coming from Plum Creek timber, which is very well run, you know, and others had come from, like Disney and other, you know, big players that were well run, brought those same best practices to share builder. And so it wasn’t a chaotic startup, really, it had a lot of entrepreneurial a stick, you know, sort of DNA was very entrepreneurial. But it wasn’t, you know, there’s there wasn’t a scofflaw component to the DNA or just sort of an I don’t know what we’re doing the component. And so we were able to sell it or twice, and we really plan on taking it public. And so it was, it was groomed well to go public or be acquired. And in 2007, when things got rocky again, we had, we’d successfully sold it to IMG direct. And so we kind of dodged another downturn. After that people were saying that was brilliant, you got out, you know, because no way things really melted down. So after that, I was just not really looking too hard for anything. But a company approached me called Numeira. And they said, and their headhunter approached me and said, I don’t think they can afford you. I don’t think they need a full-time GC but would you talk to them about you know, some part-time arrangement. So long story short, that ushered in an era that continues where I’m part-time general counsel to startups, and numeric became new you and then new you, I was there for years of both of these, you know, it’s really the same company but renamed we just sold it to Abbott Laboratories in May. So and now on guys with laboratories and I have smattered swag. So and So once I was doing the new you new mirror thing then other companies said, Hey, I hear that you do part-time. And another thing that started happening as companies started hearing, I hear you fix broken startups. I don’t know how that got started. I get a lot of injured startups. It feels like people are bringing their startups to fix it. So I do have sort of that reputation I’ve been General Counsel about 13 companies. Some of them great, and we’ve sold them and they’ve been sold and others have sort of flatlined, and the You know, that’s not a terrible thing. But you know, sometimes an idea just doesn’t have a place in the market and it, it just doesn’t make it. So, you know, I don’t really say that disparagingly that something has sort of gone away. That’s what we that’s the American Dream is.
Heather Pearce Campbell 10:14
Paul Swegle 10:16
Yeah, again. So that’s, that’s kind of the long and the short of it. And I’m also when I left Capital One, after they acquired Sharebuilder, I went to a very good friend who’d done a ton of litigation work for Sharebuilder, my law school classmate, Bill Kensal, who was a Perkins CO and then he went on his own. And so I said, Hey, can I just hang my shingle here so that I can have a way to invoice Capital One when they ask questions. And so then that happened in 2012. And I’ve been I’ve counseled to Kinzel offices since 2012. And that’s why I have about a dozen other companies. I do kind of more ad hoc work for all startups, and but technology and CBD and manufacturing, consumer products, SAS. All kinds of things.
Heather Pearce Campbell 11:06
Yeah, no, that’s awesome. And I know you’ve got a really rich, you know, the background of experience. And you’re, you’re just one of those people that I know, if I have a question, you know, you’re gonna give me a solid answer. Talk to us, because it sounds like you’ve got experience inside of companies that have done things the right way from the start, like a cleaner, better-looking startup. But part of the conversation that I want to have today is really about the other side, what right, what is happening when it’s not going so well? What are the mistakes that those folks were making? And I know, even before this call you and I had chatted briefly about addressing kind of two segments in the marketplace, people who are creating more of the lifestyle business, they want something that’s sustainable, that they can thrive in and do good work. But they’re maybe not on the path towards a startup and getting a lot of outside funding. But talk a little bit about your experience as it pertains to those businesses. And then folks who are more on the startup side, like we talked briefly about SAS, people are developing SAS products in the marketplace. And folks who are more positioned to do that, you know, I’d love to hear specifically about some of the pitfalls that live on that side of the coin, and what people need to be watching for, you know, what they need to be planning for, and some of the early stages that people often miss, and then they find themselves in a big hole. So where would you like to start? So we talked for a minute about folks that are living on the lifestyle side of a small business?
Paul Swegle 12:31
Well, you know, I think that all businesses essentially, you know, generally are built from a similar foundation. And so I really don’t start segmenting. What what I might think of as a lifestyle company, not a pejorative term, a lifestyle company, maybe just doesn’t need third party investment, it, it’s probably not going to be sold anytime soon. Because the founders have come together to create their own business, they want to keep they want to grow, they enjoy the business, and they’re not trying to flip it. And so they may bootstrap and invest their own money, and maybe more importantly, get to revenue and profitability fans. lifestyle just means that the company is intended to provide the type of lifestyle that the founders want. And that sort of means economically speaking, and maybe also a balance of work life and home life, social, recreational life. So all companies need to be built on a solid foundation. And so I’ve gone around leading up to writing this book, I had been hit with so many calls, I get calls every week from folks, you know, who want some sort of guidance or help regarding a startup with some issues. And so so those conversations led me to go around the country. And I gave a talk called startup launch fundraising 25 times in 15 cities. And it was really, part of the idea was to travel tax deductively. And at the same time, carry this message of how not to mess up your startup so that people don’t have to call lawyers and say, we broke our startup, right. And so the things that I focus on are the things that are essentially the calls that I get the requests, and the ones that are more heartbreaking, you know, like, that’s kind of unfixable type of mistake, you know, those I put front and center. And so the very first step of a startup is an idea. And does one person have it or two people have it? Is it a group, sometimes it happened in an academic environment or, you know, shared workspace right then and there is the first place that mistakes can happen. If people start talking about an idea, say one person really has the idea and has no money to fund it, but then brings in others and they contribute meaningfully to the conversation and to the product. Well, you can have what’s called an accidental partnership, more formally called a general partnership. And all of a sudden, everyone’s Niko owner. I mean, that’s so that is one of them, that’s one of the big mistakes, you can lose your company, you can lose your idea by tripping over that issue of the accidental partnership. So if you’re the founder, and you’re looking for people to have as a sounding board, and maybe to bring in as founders, we’ll think about forming the entity first. If you don’t want to go to that difficulty, at least sign NDA is in your name, that is assignable to any subsequent entity, and then make people sign these. And make sure you’re not giving any way away from any rights information you share, you continue to own. And there’s no license being granted. So that’s, the first mistake is just having drinks and talking about a business getting a lot getting enough information that someone could file a claim. Because that goes to the cap table that goes to who owns the company. And there are few things more important to a company than who owns it. And if you have questions or clouds of who owns the company, that’s terrible. Yeah, you can, you can have very similar issues with intellectual property. Very often, folks will not really dot i’s and cross T’s and they’ll have someone develop intellectual property. A lot of times, if you have someone develop intellectual property, you don’t sign the right types of documents, they might be the owner, particularly if that IP is a patent, and you’re not their employer, or it’s a copyrightable work, maybe software code, if you don’t call that work for hire, if you don’t have tight language, assigning that intellectual property to you, and you’re paying for it. And it’s documented with a document signed by both parties, not just an email, loosey-goosey email, you know, everything under the sun happens, I see everything under the sun. So protecting ownership, protecting intellectual property, those are some of the key foundational things, but whether or not you’re a lifestyle company, or a hard-charging, emerging growth starting, that’s going to raise a lot of money, those issues, if you mess them up, they’re a problem. And very similarly, early on picking the right type of entity. So you know, for most startups, it’s either going to be an LLC or a corporation. And it would be boring to go too deeply into that. But LLC does have some tax attributes that people like you can write off as a founder, you can plow a bunch of, you know, capital in and write that off against your other income. Right? That’s a big advantage that a lot of folks are attracted to. On the other hand, corporations are much easier. they’re easier to form, there’s a myth that LLC series, your LLC is easier to form poorly. Most of them are formed poorly. So just because it’s easy to form poorly, I don’t really think that’s a huge advantage. But a corporation, you know, you can file a certificate of incorporation, it’s one page, you can get some bylaws off the shelf that are pretty darn good. You can easily issue stock, you can fairly easily set up an equity plan, and use stock options, and restricted stock and restricted stock units to recruit folks on the LLC side, offering equity to employees is something you know, I have to do it every now and then. But I have clients sign disclaimers, I make them consult with tax advisors. When you give equity and the equity award to an employee and an LLC, they stopped becoming an employee, also, they’re an owner, they have to get a K one. All of a sudden, it’s a completely different relationship. I mean, you can still control the employment relationship. But from a tax perspective, they’re an owner, and they have flow-through taxation. Now, when we get too boring, but you know, an LLC can be structured to be taxing a corporation, a corporation can be structured to be taxed as a partnership, I still think it’s important to pick the right one, many lifestyle companies can be structured very successfully as an LLC. And I think all high growth, you know, hard-charging startups should just be formed as corporations. So those are kind of a few of the key foundational mistakes that are sort of, you know, decisions that have to be done correctly. Whether you’re an LLC or whether you’re a lifestyle company, or an emerging growth company with you know, aspirations of, you know, an eight-round a B round and a C round, intellectual property who owns the company, what type of entity So those are probably like the first six chapters of the book, right? You know, just getting that far to avoid that, you know, bad foundation.
Heather Pearce Campbell 20:09
It’s true. And, you know, the regardless of what ends up, you know, whatever size the business is, how many people are involved the number of times and you and I do a little bit different work, you’ve got more experience with larger entities and larger organizations, but the issues that you talk about are same, or the same at every level, people just have a, you know, like a never-ending capacity to screw it up. And my question for you is, what do you think it is, in your experience that keeps people out of that? I don’t know whether it’s a mindset issue, whether it’s just a big fear of legal, like venturing into the legal world often doesn’t feel super fun for people if they just think it’s going to be so cost exorbitant, like what keeps people from getting the help early on that they really need?
Paul Swegle 20:57
Well, it is a combination of things. One is sort of, you know, naivete a little bit. And the idea that you really don’t know what you don’t know, that’s right. And maybe a little bit of hubris that if there’s a problem that can be fixed, you know. But that is, I think, combined in equal parts with resource constraints. And one of my slides in my talk, both, you know, I better get around the country. And now that I’m, you know, still using as an adjunct professor, is, what percentage for legal? And as I always say, when I was going there,
Heather Pearce Campbell 21:34
Is there a number?
Paul Swegle 21:36
Well, there’s one that it’s not it’s not 00 is associated with a lot of problems. When it’s zero, I just know there’s problems.
Heather Pearce Campbell 21:47
Travel, you’re not building a business. If it’s zero, it’s just not happening.
Paul Swegle 21:50
Yeah, rather than building it on a foundation, you’ve built it on a bunch of napkins, you know, you’ve written scribbling notes on about what kind of entity it is, and who owns what and, you know, I’ve seen it all. I’ve seen things on napkins, literally, I believe that you know, you get 5% of this here that’s not formed, you know, like, what is that? It’s two layers of the problem. Yeah. And so, yeah, I, I don’t know, I think it’s, it’s challenging for people to find a lawyer, it’s challenging for people to budget for it. And so I do spend a certain amount of time throwing out ideas. One of the ideas is, I’ll give you a few of them, but one is, law schools often have legal clinics, and they’re looking for startups and entrepreneurs to help out. Right?
Heather Pearce Campbell 22:42
Yeah, I spent well, several years participating in a mediation clinic where I’d run free medications for people, right, just because they needed support, and we needed to learn mediation.
Paul Swegle 22:53
Heather Pearce Campbell 26:17
No, I like I mean, I really enjoy that you help educate in this space around matching people to solutions in the marketplace? Because I agree, I think it’s one of the stumbling blocks, people just, you know, you mentioned the challenge of finding the right attorney to help with that specific problem. I mean, even in the work that I do, the number of times I’ve had people come to me and say, like the challenge of finding somebody who understands my business model, and each of the legal needs that I have, versus having to go shopping in five different places to figure out what my needs are. It’s, it’s really an obstacle for smaller businesses. So I love that you take the time to educate people around that, and I, and the creative use of resources in the marketplace, I think is really important for small businesses and entrepreneurs. Like it’s just you have to be scrappy.
Paul Swegle 27:09
I agree. I agree. And you can’t be so proud that you’re not willing to ask for some help.
Heather Pearce Campbell 27:13
Yeah, yeah. No. And I love that you are reflecting the fact that people often get it if you make the ask. And so that’s right. Yeah.
Paul Swegle 27:22
For a variety of reasons. It’s, you never know who’s gonna say yes. And you never know exactly why. But you don’t know. Unless you ask.
Heather Pearce Campbell 27:29
That’s right. Well, and, you know, there’s something that I like to remind people of, because there are times where I feel like attorneys have, at least certain attorneys have earned a, you know, a reputation in the marketplace, that that doesn’t serve the rest of attorneys who are there doing good work. And one of the things I personally know to be true about attorneys. And it’s interesting because I’ve done some speaking, especially around ethics. And I, a couple of years ago, I flew out to speak to the Maryland State Bar Association at their mid-year conference. And it was a thought leadership series, but I was speaking on kind of what’s happening inside of the legal marketplace. And you know, how attorneys are reacting to it like and part of my questionnaire to hundreds of Washington state attorneys before I flew out and spoke to Maryland attorneys, was why did they go to law school? Why did they choose the law to begin with? And do you know that like, 95 to 96% of the answers were, because I’m good at solving problems, and I want to help people? It wasn’t like, I wanted to make a ton of money. And there were like, I provided a lot of other answers that they could have picked that may have been accurate. And a few people said it was because they wanted to make money. I had a few people that said because my parents made me do it. You know, there were a few of those. But by and large, the way that I view attorneys are, they’re generally pretty decent problem solvers. And they’re there to help people. And so I love this reflection of like making the ask and it will often work. And you just never know.
Paul Swegle 28:55
Yeah, I think that a lot of business attorneys are very eager to help entrepreneurs get off the ground successfully, and, and also eager to develop a relationship and help grow the company and launch the products and fund the success of the company. So I think there is a lot of a lot of good motivation out there and business attorney world.
Heather Pearce Campbell 29:18
No, I think so in its, you know, for me, what I personally enjoy, and what I fundamentally believe is that, you know, you can’t build whatever size of business you can’t really build it successfully without legal like, at some point, you’re either gonna treat your business like a business or you’re gonna struggle or, you know, continue to struggle and my joy is in helping people be more successful. And you know, for so many others that are serving especially small businesses, you know, when you can take care of your business in a way that it helps you provide for yourself and your families and your employees, families and you give back to the community and you can contribute to causes in the world that you like, there’s just so much good influence with We can have through building businesses, right? So yeah, it’s a really fun, fun playground. And I personally love the overlap of lawn business. So, you know, you talked about some of the early mistakes that people make, regardless of what kind of business they’re creating, and why they tend to make those mistakes. What are some of the other big pitfalls that you see for people that are in let’s move mostly to the startup side that are going the startup route, they’re really wanting to create a business that they can sell? What do you see there that is particularly problematic?
Paul Swegle 30:34
Well, HR is is an area where most startups get off to a kind of a bad start. They, don’t have good onboarding. They don’t have good hiring. And I would say most of the issues that just are sort of sand in the gears for startups are unwinding bad employment decisions, making mistakes in offer letters, another area where there are just common mistakes, and I, it’s so pervasive, and I get so many calls about it. I wrote a blog this weekend about it, avoid these 10 common equity compensation mistakes. I think number one is, if you’re an LLC, don’t promise stock options. That’s a fraudulent promise LLC. Don’t issue stock, and they don’t grant stock options, their membership units, and they have such completely different tax ramifications that, you know, as I say, in the blog, before you promise any equity compensation to any employee in an LLC, you must spend some time and money with a tax lawyer. And generally, you’re probably not going to love the answers. I do get a lot of champions of LLCs taking exception to that. But I’ve done enough equity compensation plans for LLCs and talk to enough tax lawyers to know that the rare, it seems to me the only people who benefit from LLC equity compensation are the lawyers.
Heather Pearce Campbell 32:10
Nobody likes that.
Paul Swegle 32:11
Yeah. Sign me up for that for sure. That’s not true. Well, and so there’s just there’s a lot of ways to issue stock options. And correctly, one thing that happens very commonly, people just promise stock options. And then you know, they don’t do, they don’t put them in front of a board and get them approved, and then document them with signed option agreements and option grant notices. And so then, a year or two later, they realize, Oh, we didn’t grant your options.
Heather Pearce Campbell 32:44
We’ve made this in the offer letter. They’re making those promises. Yeah, that’s going up.
Paul Swegle 32:48
Yes, we’re on a napkin or whatever it happens to be. But there are expectations. And then what happens if the company’s valuation has gone way up? If when the promises made, it might have been nothing. And so your exercise price on those options would be pennies, year and a half later, might be $150. The company might ultimately only sell for $2 a share, depending on you know, how many other, you know, follow on financings or might be so you’ve just robbed your core team members have the value of their options because you waited to exercise them. There’s this rule 409 a, it’s in the tax code, and options must be granted at fair market value. And so just promising them on a napkin that’s not granting them that is just riding on a napkin.d
Heather Pearce Campbell 33:38
If people if you’re listening, stop writing on the napkin.
Paul Swegle 33:41
Yeah, stop it with the napkins already. It’s, it’s, you know, people, you know, what kind of option is this not an option, that’s a dispute waiting to happen, right. So that’s a big one that just happens with alarming frequency. So that the flip side of that is I as I kind of talk in my book, and as I teach my law students is when you form a company, issue the founder equity promptly and do it correctly, it can be purchased equity, it can be a restricted stock that has reverse vesting, which is sort of what the VCs seem to prefer. So you have to earn it over a period of four years, and you own it. And so you get some advantages under the tax code under Section 1202 for qualified small business stock. So you’ve got a holding period of five years that has started when you grant stock to your founders right up front and just do it you know, within a week of forming an entity, and the value is zero. Because then you what you can do is you can also set up an equity plan and issue equity to key team members promptly with a very low exercise price. employees with a very low exercise price with vesting over four years are more likely to stay if they understand math, and they understand that they’ve got very effective expensive options, that could be in an exit, even not a high exit, an option that’s at three cents per share probably is worth something unless it’s a complete disaster. If you’ve waited until that option $1 50 in a big transaction, the common only, you know, is getting $160 a share. You know, instead of getting $1, you know, 55 per share, they’ve got just a few pennies. So huge differences when you do things correctly. And I think that’s far more inspiring to employees when they know that their options are worth something. So that’s, you know, those are kind of some early errors. Not having an intellectual property strategy and not thinking about, there’s four, four legs of that stool, there’s trademarks, and so you really need to protect your core trademarks. And that’s something I think of it preformation. What’s the company name? What are the product names? And can you protect them? Are they protectable? Are they arbitrary and fanciful, which are highly protectable? Or they descriptive? You know, Bob shoot, that is both descriptive and probably generic, generic candidate shoes and descriptive that it’s Bob shoes. So it’s not a very protectable trademark if another Bob wants to have a bob shoe store. You can’t stop that, Bob.
Heather Pearce Campbell 36:24
Paul Swegle 36:25
It’s like, yes. best
Heather Pearce Campbell 36:27
Paul Swegle 36:28
Yeah. How are we? Yeah. So what else wants to call it that? That’s going to be bad? It could be tough. So protecting trademarks, figuring out, you know, whatever your business is, if it’s software, are you going to use? Are you going to use copyright protection? Are you going to file? Or are you going to think of more from a patent approach? Or you can have a combination? Or are you able to use trade secret law? And if you’re using trade secret law, you have to be very careful to always protect the trade secrets, you have to be very tight if your core technology, your secrets, your secret sauce, your core innovations, our trade secrets, you have to be a guru, a master with MBAs, yes. You share a trade secret once without an NDA or with a defective NDA. I have had a client do this. When a client did. They signed an NDA in the wrong name. This was the CEO who ultimately had to be removed because he was just not a good CEO. He had discussions with a competitor who signed an NDA, he signed it in his name, as you know, whatever. And the dividual. It wasn’t his IP, he shared the IP. We tried to use tech the company and we told them, we’ll do our best. But they filed exactly the answer. We thought they would file, you shared everything with this NDA, you know, that’s not protective. And when you do that, then NDA almost becomes evidence of the fact that you really didn’t care about the trade secret. If you have an NDA that’s so bad, or it has provisions in it, that undercut your arguments. It’s like more like proof that you weren’t protecting it. You know, you don’t get it, you don’t get an A for effort. When it comes to NDA and trade secrets. It’s a very slippery slope to fail. is steep.
Heather Pearce Campbell 38:24
Yeah, that’s a super hard bummer for people to learn about. And I think I mean, in my world, I see people like pulling documents off the internet or borrowing them from friends, right, some of these really small businesses that are trying to figure it out and scrap things together. And they often don’t realize is that creates more harm than good sometimes. Mm, depending on what it is.
Paul Swegle 38:47
Right? Yeah. A document that is really bad at it. What’s it’s supposed to do, almost becomes proof for the other side, that you didn’t intend to do it. And similarly processes. A very common theme with business people as they think if they exchanged some emails, or if they tried to include something in agreement, but it didn’t make it in but Well, that was our intent. You could see that’s what we wanted to do is like, No, no, you signed it. You propose something, they rejected it, you signed it. The fact that you propose something isn’t evidenced that well, they knew what we meant. That’s what’s evidence, what evidence of what people meant was the signed document. And it doesn’t help at all to show that in one iteration of drafts, what you wanted was crossed out, you agreed to it crossing out. It’s not like, we’re gonna save that dispute for later. Now, he resolved it. It’s over.
Heather Pearce Campbell 39:43
It’s amazing how many times you see that, that what you’ve just described about, like, well, we talked about it, and it was this way, but what actually shows up in the document is totally different. But people still sign that and I, you know, that happens all day long every day and it’s you know, you just wish you could Like backtrack people to the point that they were picking up that pen to sign that document just be like, hold off. Where’s your attorney? That was the right time right then to have somebody look this over for you. And that was why I wrote this one. Yes. I was like, everybody needs this book. And the one thing that may convince you is first of all, to get an attorney before you sign any ever, you know, anything ever again. But yes, super great book.
Paul Swegle 40:28
Yeah, that one was purely just because folks make a lot of mistakes in contracts. And that’s, that’s another sort of foundational error that companies make, is they get an important vendor, they get important, you know, strategic partners and they’re so excited. And they don’t negotiate, they don’t protect themselves, they don’t ensure that they’re going to get what we call the benefit of the bargain, what is it you think you’re paying for, they sometimes think, well, as the relationship grows, and they grow to trust us and like us? Well, they will figure it out, we’ll figure it out. And they’ll do what we want, like for the night, they’re fiduciaries, I doubt they’re gonna do what you want, they’re going to, you know, they’re going to do what they need to do as stewards of maybe the investment dollars they’ve taken in. And if they can make money from a dumb partner. That’s what they do. You know, that’s their job. You can also if you tell them, you know if you put it in someone’s hands, that they can make money from you or not perform, you tend to get money taken from you and nonperformance. That’s just how it works out.
Heather Pearce Campbell 41:39
Right. And you know, the thing I tell people all day long is like, the agreement is only as good as it is clear if it’s not in the agreement. And it’s not clear between the like, it’s just not that good. You need to ask yourself in regards to you know, whether you have an attorney or not, you need to ask yourself in regards to every single provision, is this understandable? Does it say what we mean? Because I see people all day long, make the mistake of thinking that it says a certain thing that it absolutely does not say.
Paul Swegle 42:09
Because they want it to because that’s what they thought it meant. Yes, yeah, those are, those are challenging. And it is difficult for laypersons to think that way. And that was the goal of that book contract drafting and negotiation. It’s essentially the, you know, what I taught hundreds of business people because I want business people to be on the front lines of negotiating deals. And then I want them brought to me for sort of final near-final review. Yeah, but if they understand what to negotiate and why, and they come up with good business terms, and legalese, it’s in the ballpark, I can usually take the last two or three issues, all the indemnifications not great. Oh, we need to cap these liabilities or uncap. These liabilities, oh, we need them to have insurance. Yeah, they need greater insurance, they’re creating a product with potential liability. It’s their manufacturing, we’ve got to offload those risks on them. But if they get the thing, largely in the ballpark, they also are going to be better at holding their business partners and their vendors, feet to the fire to do the job, because they understand because they negotiated what the job is. So that was what that book was from was just hundreds of conversations with business people about how to negotiate good contracts and the mistakes to avoid. You talked about other early mistakes, and I talked a little bit about HR and onboarding. One of the key things is the Confluence between HR and intellectual property. Anytime you have a new employee, they need to sign a proprietary invention and Information Agreement, what we call a PII effect protects confidence. Hello Fresh is a company it requires him to return that it requires him to be good stewards of trade secrets. And it says anything they invent or create in the course of their employment belongs to the company in that is very important for just a variety of obvious reasons. But it’s important for nonobvious reasons too. If you go out to raise money later or sell the company in due diligence, every time the attorneys on the other side will ask for evidence that every employee ever signed those including the founders, so that the IP is airtight and they will look for very similar documents that are parallel but different as to every contractor that a company ever hired. So if you get lucky enough to the point where you’re raising 20 million and a B round, or you’re selling a company for 300 million years later, you have got to have all of those documents. And if you don’t Have them and you have to go out and get them. And you’re going to people who know you’re selling the company, the price of those documents, and there is a price goes way up. And you might not even be able to find these people. And so when I come into a company that has those kinds of problems, I have a thing called the general counsel audit that I do. And I prioritize for things that are going to be very hard to fix later. And so in my book, I have a thing the likelihood and materiality index of prioritizing corrective efforts to fix legal and regulatory what I call loose ends, mystically, I try to be too disparaging was a loose end that you don’t have any IP. Put a bow on that repackage it perhaps in so you know, going out and finding those people after the fact? Well, it’s just a million times harder and more expensive than doing it from the ground up correctly. So that’s the kind of stuff it sounds like a little nitpicky, HR onboarding. Well, you’re not really selling your company very easily, if you’ve had gaps. So that’s another one. That’s very commonly messed up. But people do seem to be getting better. people. People have talked about it enough that I think it’s become a little more aware. And people, you know, who are entrepreneurs, like, I got to protect the IP, I got to think about this every time I bring someone on board as an employee or a contractor. But it is tough to fix afterward.
Heather Pearce Campbell 46:31
Yeah, well, no irony of growing a business is one, it requires people, right, and they’re often your best asset. And your biggest problem, if you don’t set yourself up for success, right, I mean, even from the standpoint of data breaches and violations of company privacy policies, like a lot of those major problems come from inside your own team, you know, and exposures and risk and breaches, because there wasn’t enough training or people, weren’t following the policies.
Paul Swegle 46:58
Yeah, my book has 51 case studies that are meant to, you know, somewhat colorfully bring the concepts to life, take it out of a legal, boring legal vacuum and say, No, here’s what it looks like on the front lines of this stuff. Right. And I think the first one is about a call. And it really did kind of spark the tour of the talking to her and then ultimately the book. But some a lawyer call up said I got a client, they just two founders, they came together and they formed this company, and it’s selling software, it’s doing great. They’re bringing it a ton of money very quickly. And upfront, we each swore to each other, we were not subject to any non-compete, or piia, or assigned intellectual property. Turns out one of them was turns out most of the software code that had been incorporated into the successful product was probably owned by a former employer. That is one of the more unfixable mistakes, and it really comes down to in that case, just a lack of diligence by the other founder. Well, I think you were at that company for a few years, you don’t have any document I can see. You take another look, I think you have another document. Call me crazy, it might be caption to how me that go find it, because he had developed some of this code, while under that piia. Even though the company hadn’t chosen to hadn’t chosen yet to use it, it was still covered by the PA, there was just no way around it. So getting those types of documents when you have another key issue, I discuss founder compatibility, you really 13% of startups fail because of co-founder issues, you really need to know who your co-founder is.
Heather Pearce Campbell 48:57
So true on that point. And you know, whether it’s starting a business or even in the world of folks that I serve, there’s a lot of joint venture projects that are not like a whole new business, but a kind of a more of a temporary, you know, a time-limited project where people go in together. As an AI, it’s actually one of the things I sell on my web website is I have a joint venture preparation guide. And I tell people, the whole value like yes, there’s an 18 page like sample template for you to look at a talk with the other person about taking to an attorney, whatever value is in the guide, and it is all about like, what conversations Do you need to be having with this potential JV partner to figure out should you be doing business together? Should you do you have the same mindset around how you’re going to deal with problems? How are you going to troubleshoot? Right? And it’s, I agree so often, people are just mismatched, and there’s no way to fix that.
Paul Swegle 49:53
Yeah, they may both agree with the idea, but they might not agree how to take it to market how to find it. are we bringing in third party money? Right? How much of it? Are we selling to others? And maybe, you know, most importantly, what’s the end game? Is this a lifestyle company we’ll have for 15 years? Are we trying to sell this within five to nine years? Hmm. And sometimes that’s the thing. And that’s, that really is difficult to reconcile once you’ve started, you almost really have to talk about the, you know, one or the other buying the other out. That’s right. That’s right. Rarely is accounted for either, it just becomes a negotiation.
Heather Pearce Campbell 50:33
Yes. Well, and I joke with people, I say, you know, if you’re going into any kind of joint venture or business building scenario, like you better plan for the divorce before you start, it’s just what you have to do. And people don’t like to think of it that way. But you have to anticipate, like all the ways, I mean, first of all, what your goals are for the business, but all the ways that it could take a different route? And what are you going to do with it in that instance, because people have very different ideas I’ve seen firsthand, you know, in people that I’ve supported with local businesses, what happens when one partner wants out or wants to sell and the other one sees it as a long term business, it’s terrible. It results in all kinds of fights.
Paul Swegle 51:10
Yeah, with, with LLC, you have one set of sort of ways to document that. Usually, there’s some sort of buyout arrangement in an operating agreement. With corporations, it’s a little bit more governed by, you know, rights of first refusal, and restrictions on transfer, so you can’t transfer your shares. And if you want to, you have to either transfer them to the company at some low price is predetermined, or if the company doesn’t want them to your co-founder. But with corporations, I tend to see that that ability to initiate a divorce is generally pretty locked down. But it does sort of raising the issue, for example, free riding, if want, both founders are going to work full time, up front. And then one founder walks away, after a year or two, because maybe financial pressures, which is the common one, it usually isn’t a falling out, it’s usually financial pressures, is that person going to freeride and get to keep their shares. This is one reason that VCs like to see co-founders have restricted stock that reverses that silver, you know, for years. But even after four years, someone can get 30% a company and then theoretically walk away. So it’s a little bit difficult to fix. co founder compatibility issues, once you’re locked in, it is really far better to know. This is a startup that’s going to go through a series of financings, we probably won’t be able to sell it for between seven and nine years, might build it to go IPO. And then we know it’s built on a solid foundation would be a very strong acquisition target as well. But when you’re on that same page, it’s either this or it’s a lifestyle company. And do we have a ping pong table? Or do we not? Do we show up even at these days, we’re ever going to show up at an office or not? That’s gonna be another big question that people need to get their brains around. Because financially, if you don’t need to have an office, some of the biggest issues I see financially for companies is paying for commercial space. It’s an issue right now for so many companies are locked into leases, the carrying costs of that not being used, not being used, no force measure way out. pandemics are generally excluded. I don’t know there’s a lot of cases I’m kind of following through friends, you know, is an impossibility is it forced me Sure. If the government says people can’t even go into an office?
Heather Pearce Campbell 53:47
Well, that’s the thing is that even if the the you know, COVID-19 itself is not force majeure, what happens once you get government regulation in that, that is potentially the force majeure event. Right?
Paul Swegle 53:59
Right. Exactly. So yeah, you know, those aren’t going to be things that founders always foresee. But just generally, what’s you know, what’s our approach to Office face? You know, are we gonna have other locations? Are we going to be nowadays I think, are we going to be 50%? remote? How are we going to do that? Very important questions. You don’t want to not address right upfront. And if you go online, and you search, co-founder compatibility questions, there are great resources slicing the pie is one about divvying up the equity. That’s a really good one. And this others like, Oh, you know, 40 questions founders should ask before, you know, working together, so a lot of questions. It tends to hit all the important ones.
Heather Pearce Campbell 54:44
That’s right now, it’s really important. And on this point, I’m curious what advice you give to co-founders around like aside from addressing financial contribution, right. I think a lot of times when I see partnerships fall apart, it’s because or Small businesses, anytime you bring more than one person together, his people think, Oh, it’s gonna be the equal contribution of time and effort or whatever. How do you address the contribution side with folks that you support? Because I see that being a big sticking point for people, once they get started.
Paul Swegle 55:16
It really is. And, again, going to these outside resources can really take some of the emotional baggage out of these difficult conversations. If you look at it logically, it’s hard to see situations where 50/50 is the right answer, right? It’s mathematically speaking, it’s essentially impossible, right? But the contributions were 5050. That’s, you know, like asking for a lightning strike, you know, level of probability. I think it’s okay, if the contributions might be 40/60 ish, but you agree 50/50, because you really enjoy working with each other. And that 40 is super important. It’s the engineering, it’s the fundraising. So you look at roles and responsibilities, you look at the likely day to day inputs, and commitment, you look at outside commitments, what are those going to look like? Because those will definitely have an impact. And you look at financial commitments, you look at some people, some physicians just have more risk, you know, CEOs kind of a risky job, compared to the head of marketing. I mean, and you have to raise money, for example, when you’re raising money, that’s a risky job, that that involves a federal securities laws in the state securities laws if you’re safely away from the front lines of that your exposure is pretty low. So I look at all of that stuff. And I urge people if they think it’s 5050, just go through that slicing pie, you know, there were some other really good ones that might still be out there. Just you know, you can score there’s there are platforms where you can score contributions that will kick out an equity calculation. And I think you can find it still. It’s not it’s slicing pie will come up to but calculating founder equity. If you Google that, I think you’ll still find some cheap calculators out there. And they’ll ask all those awkward questions. And then the founders aren’t forced to ask them, or act like, Oh, that’s not a fair question. Well, it’s obviously a fair question, because you know, a million people have been through this calculator, and it’s still asking the same questions. So I think it’s probably fair, objectively speaking, I didn’t make the machine I didn’t come up with these questions. So offloading that emotionally charged set of questions, I think is a very good idea. If it comes up 50/60 at least you do it knowingly, and making maybe you can maybe give a higher salary instead of higher equity to make up for the difference.
Heather Pearce Campbell 57:54
No, I like that. I there’s a quote. And I wish I remembered the exact quote, but it’s basically around, you know, success being the result of accurate thinking. And I think this process that we’re talking about is helping people get to more accurate thinking before they go down this path, right. So I love that the tools that you reference and the process you talk about. So we’ve got a few minutes left, and I want to make sure because I loved the concept that we chatted briefly about this concept of just in time finance, and I wanted to share that because I think it’s really important for people that are getting financing and building businesses to understand this. Yeah, sure.
Paul Swegle 58:33
So in the book, I have a few concepts just in time finance and keep it simple kiss are a couple of the key ones, just in time finance, means raise the right amount of money at the right intervals. And related to that is the idea, you know, on the right terms from the right people, right. So that’s probably on page one of the book or something. And I have that very prominently featured, it’s very right upfront, this is important. Yeah. And so if you raise too much money from third parties, early on, when your valuation is low, you give away a lot of the company. So I see. And this is a really hard mistake to recover from if you give 20% of the company away for $50,000. Because you didn’t want to take out a home equity line or you didn’t want to try to at least use 20 grand of credit card debt and get to an interval where you had a higher valuation. And maybe you could give away 10% for $100,000. Right in just a few months. With $20,000. You can probably get to that kind of valuation. Once you have a prototype, some software coded some beta testers get to some key metrics of success before you raise money. So bootstrapping you know using your own money. is an important first step, to avoid raising money too early when the valuation is too low. On the flip side of that, running out of money is also not just in time finance that’s financed too late. you’ve run out of money, you’re a burning smoldering pile of ruin. Yeah. And, and, you know, and it might smell good to a vulture, like, hey, there’s a bolt of a burning smoldering pile of Ruin, suit down there and pick it up the whole thing for 10 grand. So that’s the opposite side of that, don’t raise money too early, don’t raise money too late, you should always, you should always have a set of milestones at which you intend to raise the next tranche of money. And you should know roughly how long that money is going to last and what next milestones it’s going to achieve for you what you’re going to achieve with that, that money. And then maybe what the next tranche of money will support for the next milestones. So that’s how really well structured and really well thought out startups think we’re going to bootstrap, you know, 40, to 50, grand, you know, home lines of credit and credit cards, we’re going to get a prototype, then we’re going to bring in an angel investor, and you know, for $100,000, we’re going to do a convertible note, and maybe look at a 20% discount, maybe we’re going to do some common stock, which is a little bit rarer, but maybe that 100,000 is is going to get, you know, somewhere between five and 10% of the company, and then that’s going to fund to, you know, that might be a pre-seed round. And then there might be a seed round, that once the seed money has produced a working product, and maybe the first customer, then you can raise another, you know, maybe half a million to a million dollars in a seed round or more, right, seed rounds now go up to like $5 million. But I tend to think of them locally, at least in medium-sized cities and smaller cities. So between 500,000, maybe $2 million, hmm. So you’re just constantly raising money at the valuation is higher, so you don’t have to give away as much as a company. But then you always have to think, at least eight months before that money is going to run out, you’re on the next fundraising cycle. And it takes a lot of effort. And it’s very challenging. And one of the things I talked about in the book is this idea of from the beginning, having a strategy of networking with potential funders of your company, and having a list, maybe at big of folks that invest in your area, and having the top 20 be the most likely. And maybe within that top 20, the top five, who are the first top-five, that you might not be raising money, but at least you go out and you and you and you form a relationship, I understand you invest in this area, we’re not ready to raise money right now. But we just wanted to get on your radar. And we wanted to talk to you about our growth market strategy, or our product-market fit that we’re thinking, you know, is gonna is going to come to fruition. And we’d like your feedback. So you go to people when you don’t want money, and you ask for feedback. If you go to, you know, if you ask for feedback, sometimes you get money, if you ask for money, sometimes you just get feedback. So it’s always good to start out developing relationships, and working up an ecosystem of potential investors through all these trenches. And another important thing is to find other co-founders who’ve worked with investors in the space to get warm introductions. And all of that takes months and years even. And so you want to start cultivating those relationships because fundraising is super hard. And people without networks rarely succeed at unless you have a brilliant product, you can’t raise money without a network. So as a founder, you know, I always tell founders, you really need to get good at networking with potential investors and telling your story. And it’s different phases of development.
Heather Pearce Campbell 1:04:04
Yeah, well, that’s such a jam. I mean, I think just in business building generally the power of knowing other people, I mean, whether it’s going after money, whether it’s going after feedback, like the benefits and the ways that all of this information can support our paths and help us become better decision-makers. It’s, you know, you just can’t put a value on that. So that I mean, was worth the whole conversation itself. Yeah, it’s a job. I mean, and I think that there’s real power in that and nurturing the network and being very actively involved in just talking about business and being out there, you know, the importance of sharing your story.
Paul Swegle 1:04:43
You know, one of the things that I described in the book about finding investors I think, is very important because most people just don’t even know where to start. Yep. But there are actually two very good resources. One’s called crunch base and one’s called pitch book. They’re both very good, I think pitch book. Might be a little more expensive Crunchbase interest-only almost always runs a one-week free trial. Now as soon as this gets published, maybe they’ll stop. But I don’t think so. Because it’s a great resource. And I, you know, I’m happy paying for it. But what you for one week, you can get all you can get a really good start on a whole list of angel investors, VCs, who invest in the space, and what amounts and what frequency and you can find out all about the age of their funds is a new fund with lots of money. There’s an old fund that’s not doing any current investing, get all kinds of details, you can find out who the principles are. And you can start developing that list and start reaching out to those people. And constantly refining that list with new information from geek wire and the other sources. TechCrunch other sources of data about your face your potential investors, but it’s not impossible to find that information. And every VC and Angel firm or Association Angel group, all have public websites, and they talk about who they invest in, what size checks they write, and who to reach out to. It’s always best to have a warm introduction in but if all you got is a cold email, it’s really well thought out. It works.
Heather Pearce Campbell 1:06:16
Yeah, that’s right. No, that’s awesome. That’s great, great advice. So Paul, I’m gonna share is for people listening. First of all, huge gratitude to you, Paul, there’s so much good stuff in here that you’ve covered your book, which I’ve read, you know, not all of it, but several chapters have already and I just got it a couple days ago. It is such a resource. I mean, to attorneys in this space to entrepreneurs and people who are thinking about going the startup route. It’s just phenomenal. Yes, I’m going to share this and the link to your other book as well on contracts in the show notes. So for folks listening, you can find those at legalwebsitewarrior.com/podcast, look for Paul’s episode. And, Paul, I’d also like to include whatever contact information you have there, I mean, I’ll share whatever links you want me to share. But what do you like to connect with people? If you had somebody who wanted to reach out or somebody who is thinking about a startup, and you know, maybe they would have the opportunity to work with you, I know you’re very busy serving a whole bunch of other startups. But where do you like for people to connect?
Paul Swegle 1:07:19
Well, I always like to hear from entrepreneurs. Even if I don’t have time, I like to make sure that they get sorted out and referred out to other folks that I have confidence in. So yeah, entrepreneurs or even fellow attorneys can reach out to me in two different places. Probably most easy is firstname.lastname@example.org. So that’s email@example.com. And the book publishing company in sort of seminar production companies called business law seminar group, and that you can reach at firstname.lastname@example.org.
Heather Pearce Campbell 1:07:55
Awesome. Well, congratulations. I mean, not only on your latest book, but just on your success and the way that you share your message. I’m so happy to know you. I’m grateful to have you as a resource in my network. And I really appreciate you coming on here today and sharing your wisdom with us. Any final thoughts you want to leave the listeners with before we sign off?
Paul Swegle 1:08:20
Final thoughts for the listeners? Um, gosh, I guess maybe the one important things to throw out there is that idea of keep it simple. Yes. You know, when you’re working with angel investors, or you’re working with, you know, friends and family investors, stick to the most conventional instruments in financing. You know, sort of key terms as possible. anything weird, we’ll come back to haunt you.
Heather Pearce Campbell 1:08:57
And you’ve never seen anything weird out there. Right?
Paul Swegle 1:08:59
It’s all I see. When people haven’t talked to a lawyer. They promised the they agreed to all kinds of weird terms. There are very basic terms for bringing in investments on convertible notes or common stock or what are called safes. Keep it simple, nothing exotic, nothing extreme. Like, you know what I, you know, two two x liquidation preference may not sound that bad, but one x is the standard. So as soon as you agree to two x, you sort of have a problem. I have seen several companies fail because they took in a million dollars at a two x liquidation preference. No one wants to come in on top of that, if it’s like a note or something, you know, it’s just hard to negotiate that. So if they do come on top of it, they’re going to demand a two x liquidation preference. So keep it simple. Don’t get caught up into harsh or complex terms with your initial investments. It’s really hard to fix that later.
Heather Pearce Campbell 1:10:00
Yeah, no, absolutely. And on the note of not being able to fix things later, I would add, get the help before you do the thing, right? Yes, all day long get the help beforehand versus what it’ll cost you later to fix it if it even can be fixed. And get Paul’s book because it’ll serve you so well. Paul, thank you. So great to see you today. Have a fabulous weekend, and I look forward to being in touch.
Paul Swegle 1:10:25
Thank you for having me on, Heather. It’s been an honor. I’ll see you slightly already. Bye bye.
Heather Pearce Campbell 1:10:33
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