In this post 2011 hackNY Fellow Cole Diamond describes the hackNY Summer Series lecture by Steven Baglio.
Steven Baglio brought an interesting perspective to the Summer Series Lectures with his legal acumen and wealth of experience. Although lectures from venture capitalists in the realm of start-up fund-raising provide crucial information for the fiscal survival of a fledgling company, legal statutes governing the start-up community are just as – if not more – pertinent. Take Napster, for example. Although Napster created a file-sharing revolution and drew millions of users to its platform, Napster eventually disintegrated because Sean Parker et al. flagrantly overlooked the glaring legal limitations. Clearly, legal restraints have a pivotal place in the world of start-ups. To that end, Baglio pointed out remedies for some of the most common legal dangers that often arise in the early stages of start-up fund-raising. One such common pitfall Baglio described is the non-committal co-founder. To illustrate this problem area, let’s say three starry-eyed Zuckerberg hopefuls sign paperwork issuing a three-way split of their new private company stock. One of the co-founders bails six months later because he found a better opportunity at a different company. Should he still have a 33% equity cut in the company? Of course not. Baglio described that a vesting strategy in which equity is doled out over a period of time can be used to counteract the risks of premature co-founder departure.
Perhaps the most heated topic covered during the lecture was the infamous “Non-disclosure agreement.” Any and every technologist caught in the frenzied mob of “entrepreneurs” and business-types gunning to implement their ideas has had experience with the dreaded document. Since technical co-founders can be hard to come-by but seemingly everyone has an idea for “the next facebook,” engineers and tech-savvy folk are needlessly swamped with proposals to work on such grandiose ideas in exchange for equity in non-existent companies. Due to the fact that the product itself can only be implemented through the talent of the developer and not the proposer, the visionaries are essentially helpless. What is to stop the engineer from stealing the idea, implementing it him or herself and then solely reaping all the rewards? When it comes to idea theft, the NDA comes to the rescue of the computer illiterate. Although a not entirely foolproof method, the NDA legally binds the developer from neither disclosing nor stealing an idea presented in confidence. However, this notion too sparked a debate amongst the fellows because it is often the implementation and execution of an idea rather than the idea itself that composes the true value of a start-up.
As per usual with the HackNY Summer Series lectures, Baglio concluded his lecture in answering open-ended questions posed by the fellows. All in all, Baglio provided an interesting and different perspective into the oft-overlooked but incredibly salient sphere of start-up law.