Information

Legal Partners

12/06/2012: by Adeo Ressi

This is a guide for law firms to partner with the Founder Institute and help form the next generation of meaningful and enduring technology companies.

Program Overview

The Founder Institute is a global network of startups and mentors that helps entrepreneurs launch meaningful and enduring technology companies. Through our four month training program, Founders launch their dream company with expert training, feedback, and support from experienced startup CEOs, while not being required to quit their day job. Our unique Bonus Pool also shares equity upside with all participants, creating local, teamwork-based ecosystems where great startups can flourish. The Founder Institute has already helped launch over 600 technology companies in over 35 cities worldwide.

The Founder Institute is designed from the ground up to be unique. We don't make 'below market' investments at a premature stage, like traditional incubators. Here are some other ways that the Institute is different:

• The Founder Institute focuses on developing the person to be successful, training them to think and act like a successful startup CEO.
• The Institute works with Founders to complete critical company-building projects that will directly benefit the resulting businesses. Each session and each assignment is carefully crafted to help a Founder avoid a failure or a problem that we have seen more advanced peers experience.
• The Institute shares equity upside from all graduating companies among participating Founders and Mentors in the program, creating a pool of shared value for everyone involved. When one of the participating companies does well, everybody benefits.
• The Institute helps Founders secure investment at market rates and under the best possible terms, instead of forcing a valuation or equity purchase at a premature stage. The Institute sets up regular meetings with investors and the public throughout the company-building process, versus one major demo day at the end of the program, like other incubators.

The driving beliefs behind the Institute are that great Founders are often overlooked by the current entrepreneurial ecosystem and that innovative startups have a dramatic positive effect on the global economy. Start-up companies consume resources intelligently, put people to work in efficient ways, and produce market driven products at lower costs. Helping smart people start new companies should, in fact, help the global economy.

 

Category Exclusive Partnership

The Founder Institute offers legal firms the opportunity to be a Category Exclusive Partner for a semester in a specific location. The Institute normally graduates between 10 and 25 companies per location, and the selected legal firm normally represents 80% to 100% of the graduating companies for all corporate matters. The majority of Graduates launch a meaningful and enduring technology company, and anywhere from a few of the Graduates to a large majority secure funding.

 

Category Exclusive Benefits

• Visibility: The Category Exclusive Partner has first-level logo placement on the website, presence in all digital invitations and logos on the PowerPoint at the beginning of each class session.
• Expertise: The sponsor gets to participate in one session on Startup Legal and Intellectual Property to demonstrate expertise and to reduce the overhead in adding new clientele.
• Access: Ability to invite up to three people to each of the sessions where they can meet top CEO Mentors and aspiring entrepreneurs, as well as benefit from the insightful content, including two special investor sessions.
• Leads: Exposure to 80% or more of the semester companies as potential new clients.
• Media: Mention in regional press releases, acknowledgement in introductory speech and at the graduation.
• Future: Right of first refusal for title sponsorship upon the renewal date.

Most importantly, knowledge that your firm is supporting an organization that has a positive impact on the local technology community and the next generation of technology leaders.

 

Category Exclusive Requests

• Fee: The average rate for a Legal Partner is $10,000 per semester, and there are two semesters per year.
• Facility: The sponsor usually provides space to hold one or more sessions from 6 PM to 10 PM. There are 15 sessions, and the sessions normally have between 25 and 50 people in them, depending on the location. A projector and internet is required.
• Catering: The sponsor normally caters the sessions with basic food and drinks, such as pizza and sodas, starting around 6 PM.
• Office Hours: The sponsor normally provides an office for the Local Director to meet with enrolled Founders before the sessions and occasionally at other scheduled times during the week.

 

Founder Offering

The Legal Partner normally offers to represent the Founder Institute companies in a fee deferral arrangement. The law firm charges the Founders a nominal set-up fee to cover some out of pocket expenses and to ensure that the Founder is serious, which is normally $1,000 in the US. Then, the Legal Partner normally defers $5,000 in additional corporate set-up work to establish the company in a standard fee deferral arrangement for the firm that does not include any equity, or points.

 

Client Intake

The Founder Institute has a win-win goal with the Legal Partner. First, we want to help your firm acquire high quality companies. Second, we want Founders in the program to work with top quality law firms with a fee deferral. The success of this win-win approach hinges on a successful client intake process.

For background, Founder Institute companies are required to incorporate a business and to issue a warrant or option for the Institute by a fixed deadline. If they miss this deadline even by a small amount, they are removed from the program immediately. The Founder Institute also requires that a certain kind of company is created, and there is no negotiation or discussion. Meanwhile, most of the Founders are doing this for the first time, so they are naturally nervous.

A successful client intake process needs to be reassuring, simple and with very limited decisions. The smoother that the client intake process goes, the more companies will become clients. Here are some specific considerations.

• Process: The normal intake process is (1) present at a Founder Institute session, answering general questions, (2) schedule a face-to-face meeting with the company, (3) provide the company with a basic engagement questionnaire before the meeting, asking for company information, current employment information and items necessary to set-up the business, (4) meet with the company and answer basic questions about the questionnaire and incorporating and (5) provide the company with an Engagement Letter after the questionnaire is returned successfully.
• Simplicity: The Legal Partner should endeavor to provide the company with as few decisions as possible to set-up the company. Historically, each decision provided to the company reduces the likelihood that they will work with the Legal Partner and increases the probability that the Founder will drop out of the program.
• Consistency: The intake process must be consistent between different companies from the Founder Institute, as the companies will talk between themselves and compare notes. If any of the recommendations, pricing packages or services differ between companies, this will reduce the likelihood of that companies will work with the Legal Partner.
• Messaging: It is very important that the message conveyed by the Legal Partner is consistent with the message of the Founder Institute itself: incorporate an approved business by the deadline or drop out. This decision is binary, and, if it is not conveyed, then the companies sometimes drop out.

Again, a successful intake process leads to a successful relationship with a Legal Partner.

 

Common Questions

• Does the Founder need to use the Legal Partner?
  No. The Institute strongly recommends that the Founders use the Legal Partner, but we do not mandate it. However, we do mandate that each company uses a professional legal firm versus an online service or discount solution provider.
• What if the company is already incorporated?
  If the company is incorporated with an acceptable legal structure, then the company only needs to issue the warrant / option with the help of a professional law firm. Otherwise, the Legal Partner needs to work with the company to transition an incorrect structure to the proper structure as part of the engagement. The Founder Institute does not accept partnership and LLC formats.
• Does the Founder Institute accept partnerships or LLC-type companies?
  No. The Founder Institute only accepts stockholder organizations, such as a Delaware C or Subchapter S corporation in the United States. There are many reasons for this, including the desire to avoid pass through taxation and the need for a common option / warrant structure.
• What if the Founder can't incorporate due to work, unemployment or visa conflicts?
  The Legal Partner should review existing employment contracts and basic visa situations to determine if a Founder is able to incorporate a business without significant ethical breaches. If a Founder cannot incorporate, then they must drop out of the program.
• Does the Founder need to be prepared to quit their day job?
  The Founder may need to quit their day job to incorporate a business, depending on the agreements that the Founder has with their employer. In such situations, the Founder must choose to quit and incorporate or drop out of the program.
• Does the Legal Partner take additional warrants / options in the company?
  The Legal Partner should not request additional warrants / options in the companies as part of the initial fee deferral agreement. The initial fee deferral should include enough deferred fees to do a basic set-up of the business. After a company has used all of the deferred fees, the Legal Partner may request warrants / options as part of a larger fee deferral arrangement.
• How do the out of pocket fees work?
  Each Founder is expected to pay all out of pocket state and federal filing fees to set-up a stockholder corporation. Normally, the Legal Partner estimates these fees and bills the Founder to initiate the relationship as part of the client engagement process. In the United States, these fees are approximately $1,000 to set-up a Delaware C corporation.
• How does the fee deferral work?
  The Legal Partner normally offers the company a fee deferral to cover the basic corporation set-up and some miscellaneous corporate work. Legal fees are deferred for 18 to 24 months using the standard fee deferral structure of the Legal Partner. The Legal Partner does not ask for any options / warrants or other equity in exchange for the deferral. In the United States, Legal Partners normally defer $5,000 in fees.
• When does the company pay the fee deferral?
  The company should pay the fee deferral back as soon as possible, normally after the first financing. If the company generates revenues, the Founder may want to set aside a certain amount of revenue per month to pay back the Legal Partner.
• What is Class F stock?
  Class F stock is a series of agreements in the United States to set-up a Delaware C corporation with Founder-friendly terms, such as protective provisions and greater degrees of control. Companies formed in the Untied States are encouraged, though not required, to use the Class F documents:
  
  http://www.founderinstitute.com/guides/91

 

Sample Session Presentation

The Legal Partner participates in one session during the semester, called "Startup Legal." A lawyer from the firm has the opportunity to give a 20 minute presentation to help Founders understand everything that they need to know about the incorporation process, reducing the amount of questions during the client intake process. Below is a sample presentation.

Incorporation and other early-stage legal issues -