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:
- More LLCs – See More Tech Startups are LLCs.
- Less “standardized” legal structures – See Standardization v. Flexibility.
- More skepticism of extremely company-friendly investment terms – SAFEs v. Convertible Notes outside of Silicon Valley.
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.Leave a Comment