Just want to say thank you for this! I used similar settings from Lampasas, TX (about 90 miles from Austin) and the photos came out great! Hope your part of Austin cleared up in time for you to catch some!
This "third way" is only really possible if you're strategically aligned with the "one round" investors you have. It's easy to point to a few companies that have gotten buy-in from their investors and generated a multiple of 100x returns, but for the vast majority of companies that raise one round, their investors are still going to push for "swing for the fences" returns - which usually means recommending raising more money.
Consider:
- Venture capitalists are generally funded with a 2% management fee and a 20% carry. AKA their limited partners (investors in the VC fund) are looking for returns over 10 years that are better than an index fund, even burdened by those extra fees. In other words, they've only achieved the most modest of success if they have a 3X overall average return, and are incentivized by the carry to aim for much much higher returns.
- VCs only make money if they can sell the shares. I.e. there's an M&A event, an IPO, or a secondary market.
- Even without a majority share, VCs generally get "preferred share" rights, which include the ability to force a company to have a public offering/sell itself (These are called "registration rights" in the Investor Rights' Agreement). Granted these haven't been used frequently in the last decade and a half, but it's a potential hammer that VCs can wave if a founding team/management decide to try to just run a company as a smaller profitable enterprise.
On the last point, that is why it is CRITICAL that you do not give your investors the right to demand registration based on the mere lapse of time. In most rounds I do, I get investors to agree that demand registration only arises after an IPO. It looks like a small point. But it is essential if you want to keep your options open (which is really what the Saastr article is about).
I'm going to guess that the typical VC model of 2% and 20%, only hockey-stick mega-exits, is generic, milked to death, and alpha eliminated. Early Silicon Valley VC got its huge returns being innovative from the typical Wall St. NYC banking firms, at a time when early software projects needed capital for servers and big offices. Now, it's a standardized banking apparatus and the software co. landscape has changed. VC itself will get disrupted by the smarter financiers taking advantage of the alpha here, filling the gap by making more, smarter % return allocations into overlooked software co's that don't need $200m for a software co. in a remote-work cloud infra world.
Startup lawyer here (but not your lawyer). This is good advice (ask a lawyer you trust for a referral in the right legal specialty).
More particularly for this question, while the state bar can be okay for referrals, you probably want someone who has worked in labor & employment law, or someone familiar with equity agreements if equity/stock is a meaningful component of the comp (look for a "startup lawyer" or "emerging companies lawyer"). Both of those will be familiar enough with the IP issues and general contract provisions. You'd probably only want an IP specialist if you're specifically licensing prior inventions (or you have IP-heavy side projects that you want to exclude).
Thanks for sharing this - not a conversation anyone wants to have, but there's a surprising lack of "good example" resources for those who have done this well.
For those who are interested in this type of subject matter, I can highly recommend Eric Goldman's blog (the primary source for this article), at https://blog.ericgoldman.org/
Goldman was one of the first "internet lawyers" in Silicon Valley in the 90s, and his blog is a treasure trove of interesting recent court cases on marketing and the internet.
I was curious about the details of this, so I looked it up.
There's a 15% excise tax statewide in CA. It used to be a straight 15% on top of the sale price, but now it's calculated based on the average market price for an arm's length transaction.[1][2] This is usually calculated based on the wholesale price plus a markup of 60%.[3]
On top of that, there's (normal) sales tax applied to the whole purchase, including the excise tax amount.[2] In California, that means a statewide sales tax of 7.25%, plus county and sometimes city sales taxes that can add on an extra 0-3.25%.[4]
In places with very little additional county and city sales taxes, e.g. Newport Beach[5], that means paying 15% excise plus 7.75% sales tax, for an effective total retail tax rate of 23.9125%.
In places with higher county and city sales taxes, e.g. Santa Monica [6] that means paying 15% excise plus 10.25% sales tax, for an effective total retail tax rate of 26.7875%.
San Francisco is on the lower end of the middle of the pack with a sales tax of 8.5% [7], so that means the effective total retail tax rate is 24.775%.
Of course, there are other cultivation taxes, use taxes, special local marijuana excise taxes and other permitting costs that apply to cultivators and distributors and retailers that may get passed along to customers[8][9][10], so you could say that "total taxes" are closer to 40%. But most retail buyers are paying about 24-28% on top of retail list price in sales + excise taxes.
Note: Prop 64 made it so most medical cannabis sales aren't subject to sales tax, so medical users only have to pay the 15% excise tax. [8]
Why/how is Robinhood now showing how far along I am compared to my friends on the waitlist? I dont believe I ever enabled any social sharing, and Robinhood's access to my contacts is shut off.
I do not feel comfortable sharing (and especially not broadcasting!) my financial decisions with people I am connected to on social media. This is pretty upsetting to me.
California startup lawyer here, but not your lawyer. This is not legal advice. There's some misinformation here, so I'll clarify:
- California won't enforce noncompetes, except for a very limited set of circumstances (i.e. selling your business and then starting a competing business).[1]
- If you live and work in California, then you get the benefits of California law (including the noncompete law above), no matter what your employment agreement says. UNLESS you were represented by a lawyer during negotiations and you agreed to a different state's laws. NOTE: This section only applies to employment agreements entered into AFTER Jan 1, 2017.[2]
If your employer tries to pull a fast one and says you are subject to another state's laws, then you can invalidate that clause, and you can get your attorney's fees paid by the employer if you have to litigate it. [2]
[1] CA Business & Professions Code Section 16600-16602.5 Link here: https://leginfo.legislature.ca.gov/faces/codes_displaySectio.... Note: once you get to get to Section 16603, there are some super weird laws prohibiting bundling horror comic books. Aren't laws fun?
Lawyer here, but not your lawyer. We're just talking about generalized nonspecific hypotheticals here.
You aren't required to incorporate at all (but in many cases it's the best course for mitigating risk). People start businesses all the time without forming a separate entity. However, in the eyes of the law, that means that you and your business are one and the same. So if the business does a Bad Thing, you as an individual are responsible for all of the consequences of such Bad Thing. Similarly with taxes, all of the business' income gets attributed to you as an individual. Most people don't want these two things to happen, so they form an entity. You can go without, but it comes with significant risk, and you may end up forfeiting favorable tax treatment as a result.
These same issues get more complicated as soon as you involve others. Talk to your accountant. And consider what your risks are and how much your business is going to make. Find legal assistance for small businesses, or talk to a business lawyer as soon as you can.
