In this post, I will go over what I learned in the first two lectures of YC Startup School.
Week 1:
Lecture 1: Intro to the Course
Lecture 2: Startup Legal Mechanics
Lecture 1: Intro to the Course
How to be successful in the course?
First, you need to get the story of your startup right. You need to tell yourself a good story to make sure you dont quit. Keep going. You need to be an interesting story. Something human. Something that matters.
A great story is a story about the future you are trying to create. Tell the story that resonates with yourselves as a team. This will keep you going during difficult times.
How to build your story?
Start with one sentence. Create your vertebrae captures what it is and hope that they will remember.
Create a 2 min demo day like pitch.
Work with cofounders to make and tell that story in a way that is compelling and believable and memorable. Make the story very easy to understand.
Early adopters
How do you know you’re on the right path? Early adopters use your product obsessively. There is intense usage per user.
Talk to the Press
Founders need to recruit people, sell the product, and talk to the press with infectious enthusiasm and ambitious, while not gradiouse, vision that grows over time.
Pick An Idea That Matters for the Future
How do you pick something to work on? Pick something that matters for the future of humanity. When you are successful, what do you imagine the impact being on the world? How will this evolve into something people care about?
You need to have a confident, definite view of the future. Be relatively sure of it in the face of a lot of doubt. Have faith!
What are the chances?
Chances are huge if it works. However, failure is the likely conclusion. This will attract a lot of people, but you need to be attracting optimists. People who believe the world will become better with each iteration.
Favorite thing to hear at YC
The favorite thing to hear at YC from a team is we will figure it out.. You must have a bias towards action in a startup. Move very quickly. You never have as much time as you want. So, you need to act with less certainty.
Blessing of Inexperience
There is a blessing of inexperience here at play. The best startups are the ones that no one said they could do it, but with no money, high potential persons, and no experience, they pulled it off.
Momentum
Startups live and die by their own momentum. Keep up the pace. Make sure you as a founder do not lose track of this.
Competitive Advantage
What is your long term competitive advantage? You need to know an answer to this, as well as a strategy to protect your competitive advantage.
Distribution Strategy
You need one. How will you get users? You need a sensible plan. This will be discussed in detail in the next coming lectures.
Traits of Great Founders
Frugality, focus, obsession, and love of their startups.
Getting to Yes
Startups live and die on yes. Get to yes as soon as you can and iterate. What makes one yes versus one no? You need to know how to get to yes as quickly as possible.
Update Your Story
Keep everyone up to date on your story regularly.
Metrics
It is also important to have a measure on which you can rely for success and failure. Future lectures will cover metrics for products.
Airbnb Metric: Revenue
Founders kept a revenue chart on their bathroom mirror as a reminder of their metrics.
Launch
Launch earlier than you think you should. As soon as you can satisfy one user, then you should be able to launch.
Lecture 2: Startup Legal Mechanics
Reference: [SUS lecture 2014][http://startupclass.samaltman.com/courses/lec18/]
How to start? Where to incorporate?
Incorporate in delaware. The process is really easy and service is fast and efficient.
Use an online platform specifically gearwd towards startups. [clerky][http://www.clerky.com/] and [stripe atlas][https://stripe.com/atlas#].
Have post incorporating documents.
Form a board. Appoint officers. Adopt bylaws.
Open a corporate bank account.
What do I need to do post incorporation?
Issue stock. 2 or more allocation = execution. The equity split is important.
Purchase stocking equals cash and intellectual property. Use time-based vesting. Restricted stock purchase agreement. Typical vesting is 4 years.
Keep a cap table. There are onlune platform that will keep track of stock. Use them.
Post incorporation: employment
Founders are paid employees of the company. It’s a good idea to pay yourself minimum wage.
Are employment agreements necessary?
Employment agreements are not necessary. it is at will at default. can complicate things. is only necessary if employee will have a severance package. everyone has signed a ciiia protects the companies trade secrets gets owned by the company.
What to avoid doing legally when starting up?
Avoid unpaid employees.
Act like a real company.
Use the corporate bank account. Put money in it. Use it for all company expenses. Company can reimburse you later, but you need to document everything carefully.
What are the maintenance steps for the corporation?
Delaware has an annual tax. It is minor for startups. Corp tax return needs to be filed with the IRS. You still have to file the return, even if you made no money. Use an online payroll service for payroll.
Where do I keep all these important documents?
Find a good place to store all the founders agreements. Shared dropbox folder works. Have signed and dated versions. Every blank signed by everyone necessary. This will aid in due diligence later and they are required.
What are the common mistakes and problems?
This is different for every startup.
Basic general advice: Do it sooner rather than later.
Have a correct repository for intellectual property.
You can’t raise real money without incorporation. Can’t enter into contracts, if not a corporation.
Solo founders need to vest as well to be attract to investors. Founders need to understand every provision of company stock. This is a big problem with fundraising. Read the 5 page SAFE.
All people who work for company need to pay with money. Paper this relationship with consultant work product.
Get an option plan for employees. Adopt a stock incentive plan. This is a 15-20 page document. Read it. The company can issue restricted or stock options. 409a valuation document required. These will also have vesting. Don’t wait too long to get this.
83b election when you buy stock. allow you to be taxed a special way. no income tax. paying same amount. starts from the day that you have bought the stock. pay attention to that. never forget your 83b. Save that election form and keep the form in shared dropbox to have it forever.
Registering a trademark can wait not a need to have in early days of startup.
How much equity shoukd you save for employees?
10-20% to be very generous with your employees.
Can create stock formation. Wait until farther along to do this.
REMINDER: It is illegal to have unpaid interns and employees. Give people college credtis potentially, but this takes effort. You can hire them to be contractor and employees.
non profits are completely different.
What not to do: How to find people to work with?
Work wih people you trust and know. Find out whether you can actually build something.
Don’t ever work with a stranger. Need help and build small things with themselves.
What not to do (continued)
When you are raising significant capital, then get a lawyer. When issuing stock to employees, then need a lawyer.
patents - are useful. your tech matters. There is overall less protection for software.
advisory board is a non Silicon Valley thing. It might be useful maybe for life sciences companies. Advisors are investors who want stock for free. It is easier to have consultants who get stocks.
What if it’s not working out with who you are working with?
If its not working out, cut your losses quick and solve that probkem asap. Don’t let it fester. Usually best to end the startup relationship and try to preserve the friendship.
More tips
Terms of service. Privacy policy. These are worth spending money on lawyers to develop. All major law firms have privacy policy and terms of services. It is required in CA.
GDPR will affect international business — privacy policy and terms of use will not cover gdpr.
How can stay healthy in a startup?
Exercise and sleep and maintain your relationships outside of it. It’s a marathon, not a sprint.
When do you need a lawyer?
When you sell stocks, to the stockholders in raising moneys is a thing. need a lawyer. Terms of service. Privacy policy. Otherwise, DIY.
Coming soon in Part 3:
The next post will cover:
Week 2: Building Product Finding Product Market Fit - Case Study
Week 3: How to Get Users and Grow How to Measure Your Product