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Making the leap

Part 2: The Unusual Guide to Pre-Seed


    TL;DR: 4 ways for startups to lay solid groundwork


  1. Keep your company structure simple and use Cooley Go and Goodwin’s Founder’s Workbench. These sites provide ready-made legal documents, including incorporation packages, offer letters, employment agreements, and privacy policies.

  2. Hire a reputable law firm — ideally, one that specializes in startups.

  3. If you’re founding an open-source company, be careful about your intellectual property (IP) and consult with a top-notch attorney who can help you determine how to create IP value while still incorporating open-source solutions into your products.

  4. If you’re a technical founder, delegate operations work so you can focus on building your product, recruiting the best team, and developing customers.

Step 5: Quit your job — take the plunge without regret

Build conviction in your idea

When it comes to taking the plunge and quitting your current job to pursue a startup idea full time, aspiring entrepreneurs often dwell on the question of timing. There’s a delicate balancing act between absorbing enough insight at a workplace, factoring in the timing of your co-founder, and striking while the iron is hot. The decision for many entrepreneurs often comes down to reaching a level of conviction where they simply must devote themselves to working on solving the problem.

In the beginning of your business, you don’t have to have the level of conviction that your idea will be a billion-dollar company. Instead, you should ask yourself if you’re willing to sacrifice 6–12 months of your life working on that one problem. If the answer is yes, then it’s time to quit your job.

Enterpret Co-Founder Varun Sharma made a big leap from his life in the Bay Area to India bring his startup idea to life.

“I lived in San Francisco, had an H1 visa, and was very comfortable. It was really scary to uproot my life, move to a different country, and do something that I only had a limited understanding about starting a company. The timing is never perfect. You just have to do it and believe in your ability to figure it out as you go.” 
Varun Sharma, founder of Enterpret

Leave your employer on good terms

Once you make the decision to quit your job, the next consideration is how to do it. I used a specific mental framework when I was starting AppDynamics as an engineer in my late twenties. If I really liked the problem, I would give myself six months to validate it, build a team, and get funding. I asked myself if for whatever reason, I couldn’t get investors or hire the right team, would I be able to get the same job that I had before? The answer was yes, so I quit. 

During Unusual Ventures Co-Founder John Vrionis' career as an investor, the two most common routes he’s seen founders take are:

1. Resign from job, start company, and then raise money

And

2. Raise money (at least have verbal agreement), then quit job, and then form the new company.

If you are leaving a full-time position, leave on a good note by giving ample notice and being honest about your next step. Here are a few phrasing suggestions:

“Thank you for this opportunity. It’s been amazing working with you and the team. The timing is right and I’ve decided to start my own company. Let me know how long you need me to stay on so we can make sure the team is in a good place before I leave.”
You upon leaving your full-time job

If you’re in a leadership position, be conscious of team members following you to your new venture. Especially in competitive talent markets, this can cause unwanted friction. Give at least eight weeks' notice to your employer if possible — it usually takes a while to backfill a position. By giving your employer enough notice and offering to off-board, you’re not burning any bridges. Leave on a high note by working harder in the last eight weeks than you did before.

Make sure you off-board properly to avoid any future complications. Most workplaces require their employees to sign an offer letter and PIIA (Proprietary Information and Inventions Assignment Agreement) before they start. That means you can’t encourage any of your co-workers to leave your current company and to go work anywhere else.

Non-solicit agreements are also typical. If you start working on an idea while still employed at a company, make sure you are working only on nights and weekends, and not on a company computer. People sometimes start a company based on work or research they were doing at a large company. Make sure to get pre-approval and ensure you have ownership over your intellectual property (IP) (more on this in the Legal/Ops section). 

Put aside savings 

Finally, remember that life circumstances matter. Sean Eldridge, Founder of GainLife, describes his own circumstances graduating from Harvard Business School and recruiting an early team. One of his founding team members ended up dropping out after learning he was going to become a father. Aligning upfront on the risk tolerance of each co-founder is critical.

Starting a company is a major life decision and will impact your entire family. A good rule of thumb is to put aside enough savings to get by for six to 12 months without an income. That should be enough time to validate an idea, get funding, and recruit an early team to see if the idea is viable. I suggest setting a time limit for yourself with specific traction goals (i.e., raising a Seed round within six months) and making sure you have enough savings to forego a salary for that period.

Step 6: Legal/Ops: Set the right foundation

Now for the less glamorous part of starting a company: structuring the company and getting a lawyer. We won’t blame you for skipping ahead, but TL;DR: don’t cheap out. Hire an experienced law firm that has worked with startups before and knows what they’re doing. It will save you a lot of headaches down the road. As for your company structure, keep it simple. To be clear, the following section isn’t legal advice.

Invest in top-notch legal counsel

Startups often make the costly mistake of going cheap with their early legal counsel. Our COO Ryan Thompson recommends going with an experienced law firm that specializes in startups to avoid later headaches. When it comes to paying for a more experienced lawyer upfront, he says, “You can either pay the farmer now or the doctor later.”

Get a top-tier lawyer who knows startups. These firms aren’t making their money on incorporating companies and getting you out of the garage. They make money when you get acquired or go public. In line with that business model, they often defer payment until after companies fundraise. For them, they’re making an investment and building a relationship with the startup. One major benefit of going with a larger law firm is that they have the documents already, such as IP agreements, stock options, etc. that are all fully vetted and up-to-date. As Ryan explains, “You’re paying the hourly rate for the law firm’s IP. It’s all the stuff that they’ve learned doing this thousands of times.”

With more startups going remote, remember that offer letters and IP assignments are specific to the state where that employee is working. That means it’s important to have a law firm that has worked in the location you’re hiring (e.g., Washington state). If there's anything you take away from this section, it should be the importance of investing in excellent legal counsel, rather than cutting corners.

Make sure your IP is clean

Many founders begin to work on their idea while still employed elsewhere. Most companies require employees to sign over the IP for any work completed on company time and equipment. You need to ensure that all the work you do on your idea is yours, not your employer’s. The best way to approach this is to maintain a clear separation between your work and the work you do for your employer — e.g., work on your idea on weekends on your own laptop. 


When you finally start your own company, ensure all the existing IP gets assigned to the company. You, your co-founders, and other employees should own stock, but the company should own all the ideas. Everyone, including contractors, needs to sign confidentiality agreements and assign their IP to your company. A top-tier law firm will help you do this the right way. 

Finally, open-source companies need to be especially careful when it comes to their IP. The GPL (General Public License) is viral, which means if your company uses GPL-licensed code (and distributes the product), you’re essentially open-sourcing the entire project. If you are founding an open-source company, make sure you consult with a top-notch attorney who can help you determine how to create IP value while still incorporating open-source solutions into your products.


Find the right visa option for employees

A big consideration for immigrant founders and their early employees is visa status. If your employees are currently on an H1B visa, you’ll have to transfer their visa to your company, make sure it’s up-to-date and valid. It’s best to start planning early since it takes time to collect the necessary documents and find the right visa option. For further guidance on immigration issues, we recommend EIG.

Set up your company structure

When it comes to structuring your company’s stock options, we recommend standard vesting and a standard company structure. As Ryan puts it, “A lot of companies over rotate and it quickly gets too complicated.”

Carta, an Unusual portfolio company, can be a helpful tool for making sure your stock options and cap table are up-to-date. The goal is to avoid a situation where you believe you’re granting stock options, when in reality, you aren’t because the process hasn’t been properly documented. Improperly issuing stock options can complicate things down the line when investors complete due diligence during an exit or financing. It’s critical that the cap table and equity grants are properly tracked from the formation of the company. 

Pro tip: Cooley Go has a library of ready-to-go legal docs for founders, including incorporation packages, offer letters, employment agreements, privacy policies, etc. Goodwin’s Founder’s Workbench is also a great resource.


Get the right tools in place 

One mistake most first-time founders will admit they made in the early days is wasting valuable cycles handling the administration that comes with running a business. I recommend that founders spend as little time on operations as possible, so you can focus on the important things: building your product, recruiting the best team, and developing customers.

It’s comical in hindsight, but some people actually tried to discourage me from starting a company because I didn’t have a finance and accounting background. In reality, you can outsource most of these functions to experts. Intelligently delegating and automating processes wherever possible can help save you valuable time so you can focus on what matters most: building a product that users love.


For more detailed info on the pros and cons of each, check out this list of recommended vendors that AptEdge Co-Founder Aakrit Prasad created based on his experience setting up his company.

Step 7: Prepare for the (bumpy) road ahead

Build a culture of innovation from the start

One of the most important parts of building an enduring company is setting the right culture from the start. As a leader, it’s your job to create the right norms and processes that will shape the company moving forward. With the numerous competing priorities we outlined above, founders often put this off until later, but the resounding advice we heard from founders reflecting on their own learnings is that it’s critical to create an intentional culture from the very beginning. 

Setting an intentional culture at the Pre-Seed Stage begins with writing down your organizational values and creating a common knowledge base for the whole company. For instance, Abhi Sharma and Leila Golchehreh of Relyance created a “company mission control” that helps keep their whole team aligned throughout the chaos of the Seed Stage. 

Pro tip: Learn how RideReport open-sourced their employee guide.

Rishi Bhargava, Co-Founder of Demisto, emphasizes the importance of building a positive culture in the earliest days.

“Founders should live the culture they want to create. At Demisto, we truly believed in discipline, family, and having fun. All the founders from day one had set boundaries, like evening time for family. This does not mean that we did not work crazy hours but we did at our convenience. As the team grew, we noticed that new people we hired embodied the same value. People always took breaks in evenings for working out and hanging out with colleagues or family. The environment at work was always pleasant with a ping-pong table buzzing and people joking around. Happy employees always deliver 100%.”
— Rishi Bhargava, co-founder of Demisto

Your mission and culture should be reflected in the people you hire, keep, and promote. “Culture isn’t what you preach but rather what you tolerate and reward,” John says. To build the culture you want, you need true believers and “doers” who will roll up their sleeves and help breathe life into the organization. At Nextdoor, that meant every early employee was addressing support tickets and hand-drawing people’s neighborhood boundaries. In the earliest stages, there’s a real focus on doing unscalable things because that’s where the real learning and innovation comes from.

Note: If you do make a mistake in hiring early on and it’s not working out with an employee for whatever reason, be transparent. Develop a process for letting people go if needed so you don’t cause resentment within the organization. 

Expect the low lows and high highs of being a founder

Working for startups can be a wild ride. Elizabeth Lawler, co-founder of Appland, describes the extremes as “party hats and razor blades,” where one second, you’re dying — another, you’re winning! Being transparent and aligned on the processes and what teammates can expect of one another can help make the ride a little less bumpy.

“You are going to run into hurdles. There’s a lot of high highs and a lot of low lows. Whether it’s something happening with your software or a competitor, you can get depressed. You can have really bad days. If you have a strong team, you can at least grab a beer and have those moments to get through it together. It’s important to create bonds for those low times.”
— Elizabeth Lawler, co-founder of Appland

I believe there are two critical skills you’ll need for the journey ahead: inspiring people and selling. You need to learn how to scale beyond yourself and that’s the skill that every founder needs to learn quite fast.

Building a business is all about understanding the market and the customer’s pain. Ask yourself, "Why would someone buy from you?" It’s a lot of rejection at the early stage and founders need to get used to that pain. If you pitch 10 recruits, investors, or customers, seven to eight will flat-out reject you. Remember that not everyone will embrace what you’re building. As a founder, you need to learn how to build resilience, sell through it, and find the right fit.

In reflecting on their startup journeys so far — and questioning whether the ups and downs are worth it — the founders we spoke with left little ambiguity. What do they wish they had known if they were going through it again the first time? It’s not all rosy, but it’s worth it.

“The reason to start a company is to satisfy the burning desire to solve a problem and make a big impact. Startups are an incredible driver for innovation and creation in society. It’s very fulfilling to build something from scratch and impact hundreds, maybe thousands, of people’s lives.”

Sarah Leary, co-founder of Nextdoor and an Unusal Ventures partner, echoed a similar sentiment and reflected on an experience of traveling to Houston and hearing from people about how Nextdoor helped them get through Hurricane Harvey. "Starting a company is not something you do solely for the financial reward," she said. "If you’re not committed, you will tap out and it will limit the success of the company. You also need to consider the real risk of embarking on this journey and it not turning out to be the next big thing. If you've weighed these risks, you’re now at a point where you’re living in the moment and ready for the road ahead.”

“Starting a company is the ultimate team experience. It will test you emotionally and intellectually, but if you can go out and create not just a product that didn’t exist before, but an organization, team, and community, it’s worth doing. It’s the ultimate test of your capabilities and there’s no greater satisfaction."
— Sarah Leary, co-founder of Nextdoor

Are you a founder? Get in touch

At Unusual Ventures, our core mission is to be a team of specialists dedicated to helping founders at the beginning of their journeys in a way no other investor group ever has. If you are a pre-seed founder even considering starting something in the future, we'd love to talk to you. Please reach out to Sarah Leary sarah@unusual.vc (Consumer) or John Vrionis john@unusual.vc (Enterprise).


If you are a Pre-Seed founder, please subscribe to our newsletter.


For more early-stage company building advice from Team Unusual, follow us on LinkedIn and Twitter.


Onward!  

Acknowledgments

Thank you to all who collaborated on this piece by sharing their experiences or feedback. It takes a village! Special thanks to:

  1. Jared Parker
  2. Alexandra Rossi
  3. Abhi Sharma
  4. Leila Golchehreh
  5. Amira Polack
  6. Matt Wells
  7. Connor Lim
  8. Elizabeth Lawler
  9. Sean Eldridge
  10. DJ Sampath
  11. Prakash Linga
  12. Nolan Wright
  13. Rohit Mittal
  14. Aakrit Prasad
  15. Kohsuke Kawaguchi
  16. Varun Sharma
  17. Max Nussenbaum
  18. Justus Myers
  19. Louis Pereira
  20. Joey DeBruin
  21. Patrick Rivera
  22. Tuan Pham
  23. Ryan Thompson
  24. Shannon Bradshaw
  25. Francois Le Nguyen
Written by
Jyoti Bansal
Co-Founder & Entrepreneur Partner
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