kirsty

It depends on specific circumstances. If the IP in the foreign company is truly unrelated, then there are circumstances where it could make sense to just start a new company in the US. If the US company is going to use the IP, then there are lots of potential solutions and structures.

Often we see founders with foreign companies do a share exchange so the shares in the foreign company are exchanged for shares in the US company and the foreign company then becomes a subsidiary of the US company. Particularly in the case where the founders plan to go back to their home country or to hire / operate in that country.

If you get accepted into YC and have already incorporated a foreign company, then we can help you figure out what the best solution would be in your situation.

If you aren't already incorporated and you don't have to immediately, then probably best to wait to find out if you're accepted into YC before incorporating anywhere other than the US.

Agreed that 83b elections are crucial - there is very little a company can do if the form does not get filed within the 30 day window. The consequences of not filing the election can be significant for both the company and the employee.

Clerky has the 83b election form (where necessary) as part of their Hiring package so that when the employee is allocated equity and signs the documents, it is automatically completed. However it is up to the employee to mail it in since it has to be sent via mail and can't be sent electronically. The company should make sure they are chasing the employee to do this and to get a copy of the election for the company's records.

Thanks Geoff. I'm happy to answer questions on this topic. However some things are company and situation specific so can't be generalized. Also IANAL!

Safes and convertible note are both types of Convertible Securities. Ie they each convert into shares at a future date, usually at a priced round.

A convertible note is structured as debt - there is interest earned until it converts and a maturity date. There are also terms about repaying the debt.

A safe is not debt - it does not have a maturity date and interest does not accrue.

So referring to a "Safe Note" is non-sensical because there is no such thing.

Safes (and other convertible securities) convert at the cap, assuming the round valuation is higher than the cap. Where there are safes with multiple caps there are a number of methods that the lawyers use so that investors receive the correct number of shares, while solving for your point about the excess liquidation preferences.

The simplest one is that there are multiple sub classes of preferred stock ("shadow series") - eg for a Series A, there are Series A-1, Series A-2 shares that represent each cap. These classes each have their own liquidation preferences matched to the dollars put in originally. The YC-standard safe also contemplates this by referring to "safe preferred shares".

Another option is that the "extra" shares that the converting safeholders receive as a result of the difference between the conversion price and round price are given as common shares (which have no liquidation preference).

We have funded many companies where cofounders are married or cofounders are dating. The fact that they are married / dating doesn't generally impact our decision. The same things apply that we look for in any founding team - ability to get stuff done, determination, drive....

We never want there to be a situation where a founder doesn't come to an interview because of money (or any other) concerns. Contact us directly when we invite you to interview and we will do our best to help you.

YC will continue to structure our investment as we have always done - ie we use a Share Purchase Agreement to buy shares. The docs are not the same as the Series AA docs that we publish though. We buy common stock and the Seris AA docs are for investors that buy preference stock.

In the most recent batch, the YCVC investment was made using the safe documents.

Companies can incorporate wherever works for them ie Delaware. If they are actually doing business in CA then they register as a foreign entity with CA (Foreign because they incorporated in DE) so there is nothing dishonest about it.

The reasons I hear often for uneven stock splits are because one founder came up with the idea, or has been working on it for a month longer etc etc. When a company is in its absolute infancy, this seems like a logical conclusion but what about when the company is 5 years old? What we see is that even after only 3 months of YC when the founders are all working as hard as each other under stress and often the idea bears no resemblance to the original idea, that this starts to become a problem. The founder with less stock starts to feel like this is not such a good deal for him / her and it can lead to problems.

There are other reasons for uneven stock and as you mention, different levels of commitment or unequal status levels cause problems too. This is something that we would seek to understand more during the applications process when we see it and to try to make sure the founders have really thought through whether this is what they want. The key to a lot of this is open communication between the founders.

Of course, there are some situations where an uneven split does work. An example would be a founder has a mortgage and a family to support and therefore takes more salary in exchange for less stock.

We do not insist on an even split in any situation but I do always make sure that the founders think through their decision carefully.

We try to do everything through e-signatures - less chances of PDFs getting lost than bits of paper. And of course at all opportunities I tell founders to use Hellosign :-)

The only document that is wet signed is the 83(b) election that is sent to the IRS since they not sure yet about e-signatures.

When we agree to fund companies, they fall into one of three buckets: 1) not incorporated at all 2) Incorporated outside Delaware and / or as an LLC 3) Incorporated in Delaware already

Those in 1) are by far the easiest to deal with - we have a standard process to get everyone set up so that going forward there won't be any problems.

Those in 2) start to get a bit more complicated and we have to work with the founders to convert to a DE C-Corp. Sometimes that means just starting anew with a new company and sometimes, if there is too much corporate history, converting the companies. This takes up some time and depending on the original state can be costly and time-consuming. But it all works out in the end...

Those in 3) are the ones that are often the hardest! There can be problems around only some of the paperwork being completed or signed, founders don't have vesting on their stock, uneven stock splits between founders (a strong indicator of future founder breakups), needlessly complicated cap tables, not enough stock authorised for us to buy our shares - the list goes on. All this can be fixed too!

The founder that says to me "we're incorporated in Delaware so you can invest in us straightaway" is usually the one that becomes one of the most complicated companies for us to invest in.

My advice would be that if you're applying to YC, then don't incorporate unless there is a specific reason to. It is much easier and cheaper for you in the long run to use our process.

Applying to YC as a non-DE company does not reduce your chances of being interviewed or accepted. However for us to be able to invest in so many companies in such a short time frame, we do require you to convert to a DE C-Corp if we agree to fund you. I'll help you with that though, if the time comes!

Thanks Nic!

Remember that for anyone wanting to apply for funding to Y Combinator that we only invest in US corporations (registered in Delaware), which means that the parent company will need to be a US company. So if you're thinking about applying you probably should hold off on any type of incorporation in the UK, until you know whether you'll be in Mountain View over the summer!

It is common practice among listed companies to strip out stock-based compensation charges, acquisition-related charges and other non-cash charges as part of their financial information. [1] Their argument for this is generally because these charges are seen as "accounting mumbo-jumbo" by the rest of the world rather than real costs incurred in the running of the business.

I agree that stripping out marketing costs to acquire customers is harder to understand in this way and would seem to be somewhat out of the ordinary.

[1] for example ARM Holdings plc is listed on LSE and NASDAQ and shows its Q2 earnings press release with "normalised" figures quoting as being based on IFRS, adjusted for acquisition-related charges, share-based payment costs, restructuring charges, profit on disposal and impairment of available-for-sale investments and Linaro™-related charges http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M...

As an ex-Big 4 auditor, I have experience of auditing both private and public US firms. Even without Sox requirements, there are enough complications in the audit legislation to make a private company audit less than straightforward. Trying to squeeze those regulations into a start-up type company structure is what makes up the time and cost of an audit.