Therefore, if your startup issues 8,000,000 shares with a $0.001 par value, the minimum the founders would have to pay for those shares is $8,000.

As a practical matter, I recommend that founders shares be issued at some multiple of par value. This multiple should be a whole number greater than 1. Thus, if for some reason you have to execute a forward stock split, your startup may not have any par value issues.

The number of shares to issue at incorporation is somewhat arbitrary, but my preference is to authorize 10,000,000 shares. Now, that doesn’t mean all 10,000,000 shares will be issued to the founders. You must be careful and select an amount of authorized stock that will account for your startup’s planned issuances and the reserved stock option pool.

For example, say you authorize 10,000,000 shares. You may want to keep a reserved option pool of 1,000,000 shares, thus you would only issue 9,000,000 shares to the founders.

Of course, you could obtain the same result by authorizing 1,000,000 shares with an option pool of 100,000 and a 900,000 issuance to the founders. But for some reason, people (and when I say people I mean the developers/consultants/directors getting the stock options) like to have a larger number of stock options even if the percentage of the company would be the same. I guess 50,000 stock options sounds better than 5,000 when you are up in the club.

I finally decided to take a break this weekend. And I’m glad I did because now everything’s back to “normal.” Why am I telling you this? Well, if you are reading this, you are probably either (a) working yourself to death in your startup, or (b) about to. I think recognizing we are human and have limits is OK. So take a break every now and then.

Now that the PSA is over, I thought I’d give some updates on what is going on around here:

(1) I was mentioned in BusinessWeek a few times. This blog was called “incredibly valuable” in Hiring the Right Lawyer When Raising Capital and I provided some background on venture debt financing in How Venture Debt Financing Works and How to Get It.

(2) I’m moving my office (same building, though).

(3) I’m developing a new website for my law firm practice. It currently resides at ryanrobertslaw.com but I’m thinking of using either venturelaw.us, ventureattorney.com, or vclaw.us. What do you think?

(4) My G5 quit on me. So I went out an bought a 24″ iMac.

(5) I went to the TechCrunch/Austin Ventures Meetup a couple weeks ago in Austin.

(6) This blog now gets about 4,500 visitors per month.

More posts soon. Thanks for reading.

Coworking is a collaboration space for developers, writers, and independents. My coworking application was approved a few weeks ago, after I made the argument that a lawyer with a blog qualified as a writer and independent. Therefore, I re-arranged my schedule so that I could spend September 18th coworking. And I’m glad I did.

Here is the description about coworking provided by the Big In Japan Coworking wiki, which hosts the Dallas coworking space:

The Big in Japan Coworking space is an experiment and as a result we are not planning to charge tenants, instead we are attempting build an interesting ecosystem that is beneficial to our businesses as well as the businesses of the coworking tenents. We are attempting to help local startups that we believe have promise. The Big in Japan Coworking space is the first of its kind in Dallas, feel free to stop by to check it out!

Early Start

My coworking day started at 6 a.m. with a non-working breakfast with one of the three Big in Japan co-founders, Jason Hudgins. Jason and I ate at Denny’s on the other side of Stemmons Freeway (aka, “The 35E” for those from California like myself) from the coworking space. After settling our Denny’s debt, we arrived at the coworking space ready to cowork. Jason pointed me to a desk where I was to set up shop.

The Scene

The Big In Japan Coworking space is phenomenal. Think Chuck E. Cheese, but you are at work…and you don’t have to wear a rat costume. The open, collaborative layout complete with cable drops from the ceiling, includes about 16 coworking style desks (more on this below), conference room, bullpen area, foosball table, Wii (with rockband), conference room, and a scooter.

Why Lawyers Should Never Mess with Wires

I must have spent the first half hour of my coworking experience just trying to plug everything in. And of course I did manage to unplug a few things, including Jason’s laptop, both of our work lamps, and presumably the VOIP phones. Somewhere in this catastrophe, I managed to break the AC adaptor to my VAIO laptop so I had to make a quick trip to get my MacBook. It was going to take more than a broken AC adaptor to deprive me of the coworking experience.

Fellow Coworkers

The desks at the Big in Japan coworking space are set up in quads. Two desks side-by-side and then put ‘cop-style’ against two other side-by-side desks. I sat diagonally across from Jason. Rylan Barnes, another 1/3 of the Big in Japan trio, showed up about a half hour later and sat across from me.

Creativity Abounds

The one thing I absolutely loved about the coworking environment is the creativity. The people and surroundings combine to create this “we will change the world” mentality. OK, that may be over the top, but remember that I am a lawyer and that colors, fun, and creativity are pretty much outlawed in the legal world.

And I didn’t let the creative environment go to waste when I asked Rylan and Jason an Android-inspired question: What if mobile phones could operate on 2 different operating systems, similar to how a Mac can run Windows? (Be sure to file that one between “Gore/Internet” and “McCain/Blackberry”)

What I Worked On

I spent my lawyering time reviewing and drafting documents for a couple client transactions. I obviously had to keep the client phone conversations virtually non-existent or find a secluded corner in the coworking space.

The Unanticipated 2-hour Lunch

Since we ate breakfast early at 6.a.m., the lunch place decision seemed a bit more important this day than most. My 2 fellow co-workers and I decided to head downstairs and eat lunch in one of the building’s two eating establishments. We were also joined by Brad Merritt, CEO of Whitebox. We all ate as fast as we could and made it back upstairs to the office 2 hours later. (Be sure to call ahead and place your order if you plan to eat lunch at the High Tech Bar at the Infomart.) Thankfully, Brad had a couple great startup stories to tell which made the wait time pass quicker.

The Rest of the Day
After lunch, I returned to more document drafting and review. I also managed to write a blog post about how I started my law firm. The post had been sitting in my blog as a draft for about 2 months and I finally cranked it out at the coworking space. Later in the afternoon, I got to sit in on a Big In Japan conference call (pictured to the right). I left that evening a true believer in coworking.

Background

I launched my startup 2 years ago. I refer to my law firm as a startup because I run it like one, except for the fact I can’t raise capital. The concept of bootstrapping and working in a startup wasn’t new to me–I had just left a startup company. (Long story for another day)

How did you choose your law firm’s location?

I selected my law firm’s location based on what I’ve dubbed the “Cheesecake Factory Principle.” Growing up in California, I noticed that the Cheesecake Factory always opened their restaurants in thriving business areas. Thus, I decided to open my law firm in Southlake, Texas, a suburb of Dallas and also home to a new Cheesecake Factory. I figured I would just borrow the Cheesecake Factory’s R&D on Southlake and move on to other decisions. The point is–don’t pay for or waste time on finding answers to questions that have already been answered for you by others.

What type of office do you have?

I started out in a mid-range executive suite and have since moved to one with a better location and conference room. I have intentionally avoided signing any type of long term lease (12+ months) because I feel flexibility is key in your first 2-3 years as solo. You might need 3 offices next year, or what you thought was a great location might not be that great 6 months later.

How do you market your law firm?

Before I started out, I was warned by an older attorney that I wouldn’t be able to go out on my own because I couldn’t afford the overhead expenses like yellow page advertising. Yellow pages? The last time I saw one of those books it was being torn in half by The Power Team in my high school’s auditorium. Forget about large marketing expenses and bootstrap your law firm’s marketing. If you are going to spend, do it on your business cards and website (and when I say “website” I mean blog used as a website)

How important is technology?

Use technology to your advantage. Afraid of technology? Then rethink going solo. Technology is that critical to a solo’s success. If you know how to do 2/3 of the phrases in Daft Punk’s “Technologic” you are tech savvy enough to go solo.

As lawyers, we are about 6 years behind the tech curve and that may be generous. For example, law firms are not currently interested in search engine optimization (SEO) and you can level the marketing playing field via blogs and practice area websites. For example, Wilson Sonsini Goodrich & Rosati, a fantastic law firm with a killer venture capital practice states on its website:

We have more experienced attorneys focused on representing start-up companies seeking venture capital financing than any other law firm

Well Google doesn’t think so. I googled “venture capital lawyers” and stopped looking for a Wilson Sonsini URL after the 10th page.

How did I select practice areas?

I’m a big believer in focusing in on one or two (if both are related) areas of law. If your practice areas look like a laundry list of legal areas, you run the risk of becoming a jack of all trades, master of none. While difficult, resist the urge to cast a wide net for potential clients. The more I have reduced my areas of practice, the better the practice has done in terms of both revenue and clientele.

What would I do different?

React quicker. I saw a t-shirt at the mall recently that said “Procrastinators Unite Tomorrow.” I felt like buying one just to tack to my wall. As a solo, you can change every part of your law firm quicker than any larger firm. Use this to your advantage.

Term Sheet - August 29th
Stock Purchase Agreement - August 30th
Board Consent - August 31st
Stockholder Consent - September 1st
Amended and Restated Certificate of Incorporation - September 2nd
Investors’ Rights Agreement - September 3rd

But until then, the following are my general comments about the documents and are geared towards those readers thinking of using the Y Combinator documents on their own:

“Neutral” is all about perspective. Entrepreneurs are often worried about being taken to the cleaners by their investors. Thus neutral legal documents appeal to the startup entrepreneur. But in order for an entrepreneur to be taken to the cleaners by an investor, the investor or investor’s counsel must be sophisticated regarding these deals. That isn’t always the case. (I have experienced situations where both investor and investor’s counsel were unsophisticated about these types of financings…and no I don’t have their contact information for you.) So keep in mind that you could be giving away terms instead of getting better terms by using these documents.

Delaware corporation and not [Insert state and type of legal entity here]. There’s a reason why the documents have a Delaware corporation as the default entity. A Delaware corporation is really the only option if you want to do these types of financings and move on to venture capital. I have written a few posts about “Why Incorporate in Delaware?” and “Why a Corporation for Venture Capital?” explaining the subject. Of course, the Series AA documents aren’t for venture capital financings, but the underlying reasons for using a corporation exist in an angel round.

Read between the disclaimer’s (many) lines The lawyers at WSGR didn’t add the legal disclaimer at the top of each document just to run up Paul Graham’s legal bill. Sure, WSGR doesn’t want to get sued. But implied by WSGR not wanting to get sued is that people will take these documents and royally screw up.

And don’t think only those that do large amounts of editing to the sample documents will screw up. Legal documents must reflect the deal. You could be in a bad situation if you sell (or believe you have sold) your investor one thing and the documents reflect something different.

No legal document is dispute-proof. Don’t assume that you are immune from disputes because you used “neutral” document or “boilerplate” provisions. If I created a dispute-proof legal document, I’d be (a) the first lawyer in the history of the world to accomplish that, and therefore (b) be on my way to Boracay for a 12-month sabbatical.

And finally, I think you should take a look at this article at the Startup Company Lawyer. It is written by Yokum Taku, a partner at WSGR (the law firm that wrote the Y Combinator documents), and therefore he will have fantastic insight regarding these documents.

Next - The Y Combinator Term Sheet

The startup ecosystem in Dallas is discombobulated if not broken. “Underperforming” would be a kind word to describe Dallas relative to other startup communities. To improve the Dallas startup scene, Alex Muse of Big in Japan is taking action and starting an entrepreneur-angel investor group:

The basic idea is to form a group designed to a) generate LOCAL dealflow for angel investors, b) assist entrepreneurs in the creation of fundable startups and c) provide investment capital for startups. Instead of charging angels and entrepreneurs a fee to participate require that they instead invest their time.

If you are interested in helping organize this group I invite you to attend. At this time we are seeking a) angels with experience, b) angels without experience, c) entrepreneurs interested in helping and d) entrepreneurs interested in pitching. The idea is not to create an angel group in secret or without the input of entrepreneurs, but to instead create it by and for all parties.

The first meeting was last week and it went pretty well. We’re in the process of defining the vision (i.e., do we change the world or change one entrepreneur/angel at a time) and laying out the ground rules. In other words, the group realizes planning is essential to ensure an entrepreneur-angel improvement in Dallas.

From what I’ve experienced, Dallas investors are comfortable investing in real estate and oil & gas deals–but not in traditional startups. Maybe it’s because real estate and oil & gas deals tend to be structured as limited partnerships, and therefore the deal documents and language therein for startup investments might be too foreign for Dallas investors. Or maybe people in Dallas just know more about real estate and oil & gas.

Any thoughts on this from the Dallas crowd?