Businesses, like marriages, are based on relationships that can thrive or whither, serial entrepreneur Mel Baiada said at the Entrepreneurs Pre-Nup workshop offered by the Entrepreneurial Law Clinic on April 22 as part of Philly Tech Week.
"Businesses are really about relationships," said Baiada, whose insights stem both from starting and financing ventures. "It's much easier to have these conversations early on. It's good to understand what each other's motivations are."
The workshop, held at the Quorum, was designed to give more than 100 participants concrete tips for drafting agreements that help avoid business-sinking disputes, said Steve Rosard, director of the clinic.
Seasoned attorneys Jeffrey Bodle of Morgan Lewis, Chris McDemus of Baer Crossey and Chris Miller of Pepper Hamilton offered their own perspectives, after students enrolled in the clinic outlined components of agreements that can help entrepreneurs avoid nasty surprises.
Matthew Leaper, a 3L, noted that founders, consultants and employees have distinctly different stakes and expectations in start-up businesses, while his classmate, Bobby Schena described specific ways to prepare for the possibility that some founders could morph into "underachievers," "fighters" or "quitters."
Drafting an agreement that defines or assigns each party's stake in the intellectual property is essential, Schena said, noting that the IP is "the most valuable asset you have."
Investors will be wary if clear agreements are not in place that define relationships and expectations clearly, 3L Brett Donner said.
A founders' agreement serves as a critical starting point, even when some issues are up in the air, 3L Taylor Ocasio said, adding that "it doesn't have to be final or comprehensive."
The students and expert attorneys explored different approaches to apportioning equity, to preventing deadlocks among decision-makers and protecting the enterprise from founders lured to work for competitors.
Underlying any such agreement, is the need "to work toward the company's best interests, not the individual's," Miller said.
The best approaches tend to treat founders as equals, except in cases of "significant disparities" in the length of time or effort invested in the venture, Bodle said.
The challenges of negotiating agreements provide an important test early in a venture, McDemus said.
"If you can't figure it out now, maybe you're not such a good team," McDemus said.
The workshop was co-sponsored by Biz Equity, Structured Growth Capital, and the Quorum.