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Rocky Mountain Startup Lawyer Posts

How Colorado startups are often different from Silicon Valley startups

Published September 18, 2018 by E/N

Background reading: Not Building a Unicorn. 

The growth path you intend to take for your company dramatically impacts the legal structure you implement on Day 1.

Silicon Valley is known for serving as a magnet for entrepreneurs going after huge, billion-dollar markets, and the entire ecosystem there – including Silicon Valley startup lawyers and firms – has been built around those kinds of companies. In smaller ecosystems like Denver-Boulder, Austin, etc., there are also many firms with great “business lawyers,” but who lack the specialized knowledge of technology and venture capital that startups need.

Hiring a small business lawyer to work on a “true” startup raising angel and eventually venture capital will produce huge errors and long-term cleanup costs, due to that lawyer’s lack of knowledge of both market norms and legal precedent to work from. 

We’ve felt this “bifurcation” of the market – small business or billion-dollar unicorn path – has a huge gaping hole. What about startups for whom a $50 million or $100 million exit is a perfectly acceptable goal? “Small business” people can’t scale for them, but the unicorn ecosystem is overkill. 

The truth is that Colorado emerging tech startups usually look a whole lot more like that (successful, but deliberately not unicorns) than the kinds that Silicon Valley builds and promotes.

The fact that states like Colorado, Texas, and Washington produce a lot more successful, but non-unicorn, startups means that the legal structures of those companies often look very different from the “standard” Silicon Valley approach. This includes:

Colorado entrepreneurs need to ensure they’re getting advice that works in their particular context. That often means working with people, including lawyers, advisors, and investors, who aren’t necessarily in the same city, but also aren’t dominated by Silicon Valley’s unique way of doing things. 

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Why so many Colorado startups incorporate in Delaware

Published September 18, 2018 by E/N

Background reading: Should I incorporate in my home state or in Delaware?

Why does so much of the international business world speak English? Because it is very efficient to have a common underlying language for people in various places to communicate with. 

Delaware is the english language of national business law in America. 

The same is true with law. Regardless of what your feelings are about federalism in the United States, expecting American companies to learn and navigate 50 different states’ laws would be a nightmare. So the business community has, over time, coalesced around Delaware as a kind of uniform standard for companies with some level of cross-state scale. 

The vast majority of angel and VC-backed emerging tech startups in the U.S. are incorporated in Delaware, regardless of where they are geographically located. And for that reason, all serious startup lawyers across the U.S. know Delaware corporate law, often better than their local state law. 

There are of course other reasons why Delaware is preferred by so many companies and investors, much of which are explained in the above-linked post. But the main point for founders to understand is that scaling Colorado startups have good reasons for starting out in Delaware.

Delaware can save you money long-term.

You will hear from some Colorado lawyers that incorporating in Colorado will save you money, and that you should strongly consider it until your investors make you convert to a Delaware corp. This advice usually comes from lawyers who work with a lot of “small businesses,” who typically operate for years without ever taking on investment. Small biz works very differently from what most entrepreneurs call “startups.”

Because so much of the startup ecosystem is built on Delaware corporations, all serious startup lawyers have large sets of form documents and processes built around Delaware law. Taking advantage of those forms and processes will save you legal fees.

So, yes, you will pay a few hundred dollars more a year to state agencies if you incorporate your Colorado startup in Delaware instead of Colorado. But you will make up for it in reduced fees charged by your lawyers, who’ll be able to lean on the well-developed Delaware-based infrastructure of documents, templates, processes, etc. 

Both in the short term and long-term, Colorado founders intending to build companies looking to scale faster than a typical small business should strongly consider Delaware. 

Sidenote: See also: Not Building a Unicorn for a discussion on how, while being a “startup” means going after some amount of scale, it doesn’t have to mean a Silicon Valley-style hyper growth trajectory. 

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Introducing Rocky Mountain Startup Lawyer

Published September 18, 2018 by E/N

The purpose of this blog will be to relay curated, high-quality content on legal and financing issues to the Colorado startup community; including from top-tier tech/vc lawyers outside of Silicon Valley.

Much of the content will come from sister blogs of our firm’s lawyers, to avoid reinventing the wheel.

And where appropriate, we’ll add unique content as well.

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