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Startup Compensation Strategy: Best Practices and Pitfalls for Founders
When your startup is strapped for cash and focused on growth, compensation can feel like a puzzle. But how you pay yourself and your team sends a signal - to investors, regulators, and employees. Done wrong, it can cause legal headaches, tax issues, and cultural tension. Here's how to navigate early-stage compensation the smart way.
Legal Essentials: Employment Law Fundamentals for Startup Founders
When you’re building a startup, employment law may not be your first priority - but it should be close to the top of your list. Mistakes in hiring, classifying, compensating, or terminating employees can trigger lawsuits, fines, and reputational damage. Here’s a practical guide to the employment law issues every founder should get right from day one.
Terms of Service: Why Your Startup Needs Them—Now
If you run a website, app, or platform, your Terms of Service (TOS) are more than just boilerplate - they’re your shield. They limit your liability, set ground rules for users, and give you power to enforce your policies. Skip this, and you open the door to chaos.
FAQs
Open allInvestors who feel informed and engaged are more likely to participate in follow-on rounds and make introductions to new investors.
Investor relations cover all investors, while board management focuses on directors who have governance authority. Both require structured communication.
Monthly or quarterly is standard. The key is consistency and clarity.
They don’t change the headline valuation but impact founder dilution and investor returns. This makes it critical to understand the full term sheet, not just the valuation number.
Traction is one of the strongest drivers. Revenue, user growth, and customer engagement make valuations more defensible.
Not always. An inflated valuation can create problems in later rounds if you can’t meet growth expectations, leading to down rounds.
It depends on your stage. Early-stage investors rely more on methods like Berkus and Scorecard, while later-stage investors lean on DCF and comps.
Send a thank-you email, provide requested info, and share milestone updates. Respectful persistence is better than silence.
No. Experienced investors expect risks. Addressing them openly with mitigation strategies shows maturity and builds trust.
Most initial meetings run 30–45 minutes. Your pitch should take 10–15 minutes, leaving the rest for questions.
A pitch deck, a one-pager, and your cap table are usually enough. Financial models and product demos are useful for follow-ups.
By documenting approvals, following bylaws, and keeping communication open with both the board and shareholders. A decision matrix can help prevent disputes.
No. The board of directors has ultimate authority over major corporate decisions. Founders who ignore board approval requirements risk invalidating decisions and breaching fiduciary duties. The best approach is collaboration and transparency with the board.
Protective provisions are special rights negotiated by investors - usually preferred shareholders - that give them veto power over key corporate actions like mergers or issuing new stock.
Investors typically negotiate board seats at the Series A stage or later, once institutional capital is involved.
Not necessarily. Many founders keep advisors in an informal capacity or through an advisory agreement rather than granting them board seats.
Most early-stage boards start with 3 members, expanding to 5 or 7 as the company grows.
If you incorporate as a C-corporation, yes. An LLC may not require one, but corporations legally must have a board.