Ignite Startup Workshop: Startup Funding Basics

This past Wednesday, October 21, the Herb Kelleher Center for Entrepreneurship (HKC) hosted our first Ignite Startup Workshop of the Fall 2020 Semester, on the topic “Startup Funding Basics”. The Center was joined by Brian Hall, attorney at Traverse Legal, PLC, as well as a Herb Kelleher Center Entrepreneur-In-Residence. This interactive workshop explored the common terms incorporated in startup funding options and the best practices for evaluating founders’ optimal investment strategy.

Brian Hall is a practicing attorney with Traverse Legal, PLC (Hall Law) and the managing partner of its Austin, Texas office. He is the founder of TraverseGC.com, a monthly fixed-fee subscription-based provider of fractional General Counsel services to companies. As a lawyer in HKC’s Entrepreneur-in-Residence program, Brian offers guidance and advice to students, faculty, and staff in all stages of business development. Brian was joined by his colleague, Stephen Aarons, who is the Lead of Corporate and Securities Practice at Traverse Legal, and focuses primarily on startup and venture funding.

Hall kicked off the workshop by asking attendees to evaluate who the general key players are in startup funding, being the entrepreneur and their team, in addition to the various different sources of funding that founders call upon as they grow their company. He also mentioned some mistakes he’s seen entrepreneurs make early on in their journey. “Entrepreneurs are characteristically very DIY, but when it comes to legal documents, that can prevent or delay you from making the leap from early-stage to growth-stage,” Hall noted.

Stephen and Brian also went into a role-play example to walk the attendees through an agreement for a startup venture to split up equity ownership. Brian played the part of a founder looking to give a hypothetical CTO a minority stake in the business. “Often in an early-stage company, you and your co founder may play the part of Directors, Officers, and stockholders as well,” said Stephen when evaluating the pros and cons of forming as a hypothetical corporation.

Hall covered a checklist of legal considerations for every founder to consider when attempting to raise money- entity formation, ownership structure, funding sources, and other practical considerations for financing like disclosures. “You probably don’t want to have personal liability for the company, in case anything were to go wrong, so it’s important to really consider your options when building the legal foundation of your company,” Hall noted.

Stephen Aarons then discussed the most common entities that founders elect for their companies, being corporations, limited liability companies, and others like partnerships, as well as the pros and cons of electing to form as each. Aarons then provided some advice on the nature of the relationship between founders, including taking on co-founders and advisors.

The third topic of discussion was on equity compensation for service providers, which is a common way for founders to financially incentivize other co-founders, consultants, and advisors. Hall also covered similar considerations for LLCs, which have different legal considerations surrounding equity vestment than corporations.

Adams ended the workshop by discussing the different structures and legal processes involved in securing initial funding. Among those covered were debt financing, equity financing, and other funding contracts that have recently become popular, such as Simple Agreements for Future Equity, or SAFE. “The SAFE is typically very friendly for entrepreneurs. They’re great for early-stage raises, and limit your personal liability, subject to the structure of your company,” said Adams. Brian Hall then closed the discussion on practical considerations surrounding how much money to raise, as well as considerations on risk and disclosure in the funding process.

To see the full recording of this Ignite Startup Workshop, visit this link. For news and information on future events like this Ignite Startup Workshop, visit the Herb Kelleher Center site here.