pdshrader

Just want to say thank you for this! I used similar settings from Lampasas, TX (about 90 miles from Austin) and the photos came out great! Hope your part of Austin cleared up in time for you to catch some!

What a lovely story and well-explained!

This "third way" is only really possible if you're strategically aligned with the "one round" investors you have. It's easy to point to a few companies that have gotten buy-in from their investors and generated a multiple of 100x returns, but for the vast majority of companies that raise one round, their investors are still going to push for "swing for the fences" returns - which usually means recommending raising more money.

Consider:

- Venture capitalists are generally funded with a 2% management fee and a 20% carry. AKA their limited partners (investors in the VC fund) are looking for returns over 10 years that are better than an index fund, even burdened by those extra fees. In other words, they've only achieved the most modest of success if they have a 3X overall average return, and are incentivized by the carry to aim for much much higher returns.

- VCs only make money if they can sell the shares. I.e. there's an M&A event, an IPO, or a secondary market.

- Even without a majority share, VCs generally get "preferred share" rights, which include the ability to force a company to have a public offering/sell itself (These are called "registration rights" in the Investor Rights' Agreement). Granted these haven't been used frequently in the last decade and a half, but it's a potential hammer that VCs can wave if a founding team/management decide to try to just run a company as a smaller profitable enterprise.

Startup lawyer here (but not your lawyer). This is good advice (ask a lawyer you trust for a referral in the right legal specialty).

More particularly for this question, while the state bar can be okay for referrals, you probably want someone who has worked in labor & employment law, or someone familiar with equity agreements if equity/stock is a meaningful component of the comp (look for a "startup lawyer" or "emerging companies lawyer"). Both of those will be familiar enough with the IP issues and general contract provisions. You'd probably only want an IP specialist if you're specifically licensing prior inventions (or you have IP-heavy side projects that you want to exclude).

Good luck!

Thanks for sharing this - not a conversation anyone wants to have, but there's a surprising lack of "good example" resources for those who have done this well.

(Hijacking top comment for visibility)

Why/how is Robinhood now showing how far along I am compared to my friends on the waitlist? I dont believe I ever enabled any social sharing, and Robinhood's access to my contacts is shut off.

I do not feel comfortable sharing (and especially not broadcasting!) my financial decisions with people I am connected to on social media. This is pretty upsetting to me.

Lawyer here, but not your lawyer. We're just talking about generalized nonspecific hypotheticals here.

You aren't required to incorporate at all (but in many cases it's the best course for mitigating risk). People start businesses all the time without forming a separate entity. However, in the eyes of the law, that means that you and your business are one and the same. So if the business does a Bad Thing, you as an individual are responsible for all of the consequences of such Bad Thing. Similarly with taxes, all of the business' income gets attributed to you as an individual. Most people don't want these two things to happen, so they form an entity. You can go without, but it comes with significant risk, and you may end up forfeiting favorable tax treatment as a result.

These same issues get more complicated as soon as you involve others. Talk to your accountant. And consider what your risks are and how much your business is going to make. Find legal assistance for small businesses, or talk to a business lawyer as soon as you can.

What do you mean by "allow access to financing"? A fair number of founders maintain their stock ownership through an entity like an LLC. This could be for all sorts of reasons (tax planning, separating assets/liability). I would expect a potential investor (or their lawyers) to ask for the reasoning behind the structure, but assuming it's a relatively simple answer, that would be unlikely to have any major effect on the investment decision.

And on top of that, when you eventually do realize you want to change the domicile to Delaware, you find out that California corporations don't allow direct conversions into Delaware corporations, so you have to pay lawyers an extra couple thousand dollars to prepare merger documents to move the entity to Delaware.

Lawyer, but not your lawyer.

I agree that comprehensive catalogues matter more for music, but I think we're missing another area where Netflix and Spotify are similar (and where Spotify may arguably be better than Netflix): acting as a recommendation engine.

Netflix has been able to track exactly what types of movies consumers are into so that it can deliver more in the same vein. Originally, it would send consumers to other movies it licensed. Now, as a producer, it can direct consumers towards its own flow of productions.

Spotify's recommendation engine has long been a draw for many users. I believe Spotify is setting itself up to be able to increasingly direct users into its own Spotify-flow of artists and musicians. The recent change to playlist mechanics (so that playlists autoplay "recommended similar songs" once completed) will make this even easier.

Having a huge catalog is important, but controlling the flow of what's popular may trump the back catalog in the long run.

edit: Spotify is not as far along in the process as Netflix, obviously, and the entrenched nature of the music business doesn't help, especially with the market practice of locking artists into 7-year exclusive contracts. I believe it will go in the same direction - it's just going to take a little longer.

Private venture-backed companies sell stock in the form of "preferred stock", which comes with certain rights like liquidation preferences (they get their money back first) and protective provisions (i.e. "SpaceX can't do Y without getting our permission first"). Preferred stock is "convertible" into common stock because, upon an IPO or other exit, it's generally desirable for those early investor special rights to go away, as they won't make sense anymore. Liquidation preferences would be obsolete, and the veto rights in protective provisions don't usually belong in a public company.

- Source: venture lawyer, but not your lawyer