The legal side of running a company, in plain English.
Playbooks by stage, briefings and working tools on fundraising, boards, equity, hiring and growth, from the corporate attorneys at Craft Legal. Need a document? Those live on CraftDox.
What matters, stage by stage.
From the first filing to the closing dinner. Pick a stage for the decisions that matter most right then.
Start clean.
The choices you make in the first month are the hardest to undo later.
- Pick the entity and the stateA Delaware corporation if you plan to raise venture money; an LLC can make sense if you don't.
- Split founder equity, with vestingFour years with a one-year cliff is the market norm, and investors will expect it.
- File 83(b) elections within 30 daysMiss the deadline and founders can owe tax as their shares vest. There is no fix after the fact.
- Put the IP in the companyEvery founder signs an IP assignment, including for work done before the company existed.
Raise on terms you understand.
Know what each document does to your cap table before you sign it.
- SAFE, note or priced roundSAFEs are fast and simple; a priced round sets a valuation and usually brings a board seat.
- Valuation cap and discountThe cap and discount decide how much of the company early checks convert into.
- The option pool shuffleA pool created before the round dilutes you, not the new investors. Model it first.
- Get diligence-readyClean minutes, signed IP assignments and a current cap table make a round faster and cheaper.
Hire without surprises.
People decisions carry the most legal risk for a growing company.
- Employee or contractorClassification depends on how the work is done, not on what the agreement calls it.
- Offer letters and at-will employmentKeep offers short and clear, and keep promises about equity in writing.
- Equity grants and the 409AGrant options at fair market value, backed by a current independent valuation.
- Confidentiality and IPEveryone who touches the product signs a confidentiality and invention assignment agreement.
Run it like a real company.
Governance and contracts that held up at ten people need a second look at fifty.
- Board meetings that workA regular cadence, a consent agenda and minutes that record decisions, not debates.
- Customer and vendor contractsStandard paper with fallback positions saves time on every negotiation.
- Privacy and dataKnow what personal data you hold, where it goes and which laws reach it.
- Equity administrationTrack grants, exercises and the pool carefully, and keep board approvals in order.
Sell on your terms.
The best exits are prepared for long before the first conversation.
- The letter of intentPrice is only one term; structure, escrow and exclusivity matter as much.
- Diligence readinessA clean data room shortens the process and protects the price.
- Earnouts, escrows and holdbacksUnderstand how much of the price is at risk after closing, and for how long.
- Your role after closingEmployment, non-competes and retention packages are negotiated alongside the deal.
Run the numbers. Decode the terms.
Two working tools to start, with more on the way. Subscribers hear first when new ones go live.
What will I own after the round?
Change any number. Everything updates as you type.
- You own after the round
- –
- Post-money valuation
- –
- New investors own
- –
- New option pool
- –
- Everyone else today
- shares the rest
A simplified model: the new pool is created before the round (the option pool shuffle), and no SAFEs or notes convert. For illustration only, not advice.
What does that term mean?
15 terms you will see in a term sheet, in plain English.
Pre-money and post-money valuation
Pre-money is what the company is worth before the new money comes in; post-money is pre-money plus the investment. Investors' ownership is their investment divided by post-money.
Liquidation preference
On a sale, preferred investors get their money back (usually 1x) before common stockholders get anything. A 1x non-participating preference is the market standard.
Participating preferred
Investors take their preference and then also share in what's left alongside common. Less founder-friendly than non-participating, and less common today.
Anti-dilution protection
Adjusts investors' conversion price if a later round is priced lower (a down round). Broad-based weighted average is standard; full ratchet is harsh and rare.
Pro rata rights
An investor's right to buy enough of a future round to keep its ownership percentage.
Protective provisions
Decisions that need the preferred investors' approval, such as selling the company, issuing senior stock or changing the charter.
Drag-along
Requires stockholders to vote for and join a sale that the board and a set majority of investors approve, so a small holder can't block it.
Right of first refusal and co-sale
The company or investors can buy shares a founder wants to sell (first refusal), or sell alongside the founder on the same terms (co-sale).
Vesting and acceleration
Shares or options are earned over time. Single-trigger acceleration vests on a sale alone; double-trigger needs a sale and a termination, and is more common.
Option pool shuffle
When the new option pool is counted in the pre-money valuation, its dilution falls on existing holders, not the new investors. It lowers the effective pre-money.
Valuation cap
The maximum valuation at which a SAFE or note converts. A lower cap means the early investor gets more of the company.
Discount
A SAFE or note converts at a discount (often 15 to 25 percent) to the price the next round's investors pay.
Most favored nation (MFN)
If the company later issues SAFEs on better terms, an MFN holder can take those terms too.
Board composition
Who sits on the board after the round, often a mix of founder, investor and independent seats. It decides who controls major decisions.
Information rights
An investor's right to regular financial statements and, for major investors, budgets and other reports.
No match. Try another word, or ask us.
Short reads for busy executives.
Five-minute briefings on the questions CEOs bring us most. The first ones arrive in The CEO Brief.
Fundraising
- Reading your first term sheetSoon
- SAFEs after the round: what converts, and whenSoon
- Bridge rounds without the dramaSoon
Boards & governance
- Building your first boardSoon
- What directors actually owe the companySoon
- Minutes that will hold up laterSoon
Equity & compensation
- Options, RSUs and the 409ASoon
- Refreshing the option poolSoon
- Equity for advisorsSoon
Hiring & people
- Contractor or employee?Soon
- Hiring across state linesSoon
- Letting someone go wellSoon
Contracts & risk
- The five clauses to read in every contractSoon
- Limitation of liability, explainedSoon
- Insurance a growing company needsSoon
Exits & M&A
- What buyers look for in diligenceSoon
- Earnouts that actually pay outSoon
- Selling to a strategic or a sponsorSoon
Small rooms. Candid answers.
Off-the-record sessions for founders and executives with Craft Legal attorneys, on fundraising, boards and exits. Subscribers get the first invitations.
When you need more than a briefing.
Good to know.
What is CraftCEO?
A free resources site from Craft Legal for founders and C-suite executives: playbooks by stage, briefings, and tools for the legal side of running a company.
Is CraftCEO legal advice?
No. CraftCEO provides general information, not legal advice, and using it does not create an attorney-client relationship with Craft Legal. For advice on your situation, talk with one of our attorneys.
How is CraftCEO different from CraftDox?
CraftCEO explains: what to know and when. CraftDox drafts: attorney-built templates and document tools. Neither replaces advice on your specific situation.
What is The CEO Brief?
A short monthly email with one practical briefing, a term worth knowing and anything new on CraftCEO. Unsubscribe in one click.
Who writes CraftCEO?
The corporate attorneys at Craft Legal, a Portland, Oregon firm that advises founders and growing companies from formation through financing and exit.
How do I talk to an attorney?
Request an engagement at craft.legal, or call (971) 202-1080. An attorney-client relationship begins only once we both sign an engagement letter.