31 registration, and information rights, ensuring they aren’t overshadowed by subsequent, larger-scale investors. This approach helps maintain investor confidence and secures their ongoing support.” What should startups have in place or have prepared? Strong founders’ agreement EBN’s Roy adds: “Although not a must in certain cases, a well drafted founders’ agreement is good to have. Agreements with prominent design partners are always good to have. Common mistakes that should be avoided, incorporating the company or signing a founder’s agreements during employment with the current employer; working in the new venture and developing the new product while still employed and with the resources of the current employer; promising excessive number of options to people that assist in the early days.” Dr. Ayal at Goldfarb, Gross, Seligman adds: ”Before approaching investors, founders should negotiate and enter into a founders’ agreement and share repurchase agreements, to ensure that the founders’ involvement in the company is secured and that all intellectual property developed by them is owned by the company, and to align expectations between the founders. Founders’ agreements and share repurchase agreements raise certain issues which also appear in financing transaction documents, and should be discussed and agreed upon between the founders before approaching investors to avoid misalignment and problematic dynamics between the founders during the negotiations with investors. “One of the most common mistakes made by early-stage startups is the lack of 83(b) election for the founders, especially if the start-up is incorporated in the US. Lack of 83(b) election may have an adverse effect on the founders from a tax perspective upon an “exit” event. In addition, founders should ensure no IP contamination regarding existing/ former employers or third parties with whom the founders or the start-up engage.” Matthew at Fox Rothschild: “Starting off with a foundation of rights for the founders and key employees that shows a sophisticated team is at the table put the company in a good starting place. If the founding team already has IP assignments and equity grant documents with vesting to protect the equity in case a founder leaves, that shows they are acting with the company’s best interest in mind.”
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