Resources for insight and
inspiration
Guides
Insights
Equity Dilution Demystified: What Every Startup Founder Needs to Know
In the startup world, few concepts spark as much anxiety as equity dilution. Many founders assume dilution is always negative, but the reality is more nuanced. Equity dilution is a natural and often necessary part of growth. By understanding its mechanics, you can manage dilution strategically and build long-term value.
Decoding 409A Valuations: Navigating the Complexities of Startup Stock Valuation
In the high-stakes world of startup equity, understanding 409A valuations isn't just a compliance checkbox—it's a critical strategy that can make or break your company's financial health and employee compensation framework.
FAQs
Open allIs an MOU legally binding?
Most MOUs are not legally binding, but they can include binding provisions if clearly stated, such as confidentiality or exclusivity.
What’s the biggest risk in signing an LOI?
Overcommitting - such as granting long exclusivity or including too much detail - can lock you into unfavorable terms before negotiations are complete.
Can you walk away from an LOI?
Yes, unless you are bound by specific provisions. However, backing out without good reason may damage future relationships.
Why do investors and buyers use LOIs?
LOIs outline deal terms upfront, giving both sides confidence before investing in due diligence and full contract drafting.
Is a Letter of Intent legally binding?
Most of an LOI is non-binding, but certain provisions like confidentiality and exclusivity are enforceable.
Why do SaaS startups need a Data Processing Addendum (DPA)?
If you handle personal data, a DPA ensures compliance with GDPR, CCPA, and similar laws. Many enterprise clients require it before signing.
Who owns the customer data in a SaaS Agreement?
Usually the customer, though the provider may retain limited rights to use the data for service delivery, analytics, or improvements.
Do SaaS Agreements need Service Level Agreements (SLAs)?
Yes, especially in B2B deals. SLAs provide uptime guarantees and remedies for service failures, which are critical for enterprise customers.
What makes a SaaS Agreement different from a software license?
Traditional licenses transfer a copy of the software, while SaaS Agreements grant access to use the software as a service without ownership.
Who owns improvements made to licensed IP?
It depends on the agreement. Without clear terms, disputes often arise over whether the licensee or licensor owns enhancements.
How are royalties typically structured?
They can be flat fees, per-user charges, or revenue-based percentages. Audit rights are critical to confirm accurate reporting.
Should startups offer exclusive licenses?
Exclusivity can motivate partners but carries risk. If granted, tie exclusivity to performance obligations like sales targets or minimum royalties.
What’s the difference between licensing and selling IP?
Selling transfers ownership permanently, while licensing allows others to use your IP under defined terms while you retain ownership.
Should startups offer exclusive licenses?
Exclusivity can motivate partners but carries risk. If granted, tie exclusivity to performance obligations like sales targets or minimum royalties.
What’s the difference between licensing and selling IP?
Selling transfers ownership permanently, while licensing allows others to use your IP under defined terms while you retain ownership.