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⚖️ Attended EstBAN Red flags in startup legal aspects webinar

· 3 min read
  • check statistics. check what are the avg rounds. wether offer is ok or not
  • term sheets usually are not binding
    • teams not understanding what they are signing is dangerous.
      • for example liquidation preference with 3x = everything goes to investors
      • new investors can be more control/agressive than older ones
  • Due Diligence - don't hide anything. Otherwise later on you can be liable for that
  • Convertibles / SAFEs. Difference. 95% are done on convertible loans in Estonia
    • Convertible loan = loan. In balance sheet it goes under obligation.
      • Section usually has maturity date if its converting or repayment.
      • Pre-money formula
    • With SAFE you usually need to repay. In some cases can be booked under equity.
      • Post-money formulas
    • Use same templates for different rounds
      • Ex. Startup Estonia.
  • Warranties - need to notify investors in case of internal issues (hiring/employees)
  • Reverse vesting - ability to buy-out one of the not efficient founders. Vesting provisions.
  • Non-competition. Protection against founder competing
  • Roles for investors/leadership
    • Management board member = super power to manage company
    • Supervisory board member = controlling body. Controls management, some veto rights
    • Observer = no voting rights. Tool for investors to get information.
  • Management Board Member Service Agreement - more flexible. No non-competition payments. Employment Contract does.
  • Liquidation preference - in EU. Investors 1x liquidation preference is ok.
  • Anti-dilution protection. In case of down-rounds, investors get more.

  • Copyright protects software. In most jurisdiction exists by default, no need of explicit registration.
    • economic rights
    • moral rights (Europe included)
  • Trademarks distinguish your work from others. Registered. Specific to territories & goods/services categories.
  • Inventions - can be protected via patents. Specific to territories. Must be globally new. Possible to spoil it by showing in a trade show market. 6 month grace time.
    • processes
    • mechanisms
    • materials
  • Designs - external appearance of produceable goods. UX. Registration/territory based
  • Trade secrets - labeled info as confidential. NDAs in staff agreements. Encryption. Enforcing clean desk policies. Must be proveable that it was attempted.

Options​

  • long term motivator
  • not regulated in Estonia well
  • usually 3-5 years long, tied to tax benefits
    • in Estonia if >3y
    • early excercise = taxed like salary

QA​

  • what kind of data in term sheets can be
  • what kind of red flags
    • must have revenue
    • test runs
    • pilot projects
    • IP
    • equity can be dealt with / fixed
  • options can be complex if employees are remote as taxation is different in other countries

About Trinity​

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