Lesson: Incorporating Your Venture with Augie Rakow

Step #6 Fundamentals: Tips and reminders

In order to incorporate a company you don't need to be a citizen. You don't need to be in the U.S. But in order to get a U.S. visa you may need certain requirements. You may need to either have the company, or be a stockholder in the company, or be on the board of the company or not be on the board. Some visas require you not to control the company that is sponsoring your visa. So there's various questions people have about presence in the United States, citizenship and residency and visas with incorporating. But those questions all come up to get the visa. It's not to incorporate. You don't need to be a citizen or have a visa or anything or even be in the United State to incorporate.

Typically, the early stage investor is typically investing when the price isn't very high. When you can buy a lot of the company for not very much money. A million dollars might get you 50% of the company early on. A later stage investment like right before a company goes public, $1 million is only going to get you a very small percentage. So in that way an early stage investor has good rights.

But the early stage investor gets diluted too, so the early stage investor might invest a million dollars and get 50% of the company but then two years later the company raises money for more people, sells more shares, and then your 50% gets diluted. It kind of goes down. And then also usually the later stage investors have a liquidation preference that's senior to the early stage investors. So the later stage investors might have a $30 million liquidation preference that gets satisfied first and then the early stage investor has a $10 million liquidation preference that just gets satisfied from whatever is left over after that and on down. So in some ways that later people are better off.

Most good investors are investing because they think that you have a great business. And they think that if they put their money into your company, it's going to become more valuable. If you don't convince them of that fundamental thing, then all the other stuff doesn't really matter. So it's kind of like, you don't buy a car because you like the color. First you make the decision that you want a car, and then what kind of color do you want, right? You don't go, I don't want a car but if it's blue, I'll buy one. So those features, the rights that we're talking about, are really more like the color of the car. They're bells and whistles. But the real driver is do you have a kick ass business that has a product or service that everybody wants and people are going to pay for.