5 Contracts Every Startup Founder Needs Before Raising Money
Investors will ask for these before writing a check. Get them wrong and you could lose control of your company, your IP, or your co-founder relationship.
Why investors check your legal hygiene first
Before writing a check, every serious investor will ask: do you have a co-founder agreement? Is all IP assigned to the company? Are employee agreements in place? If the answer is no, they’ll either walk away or require you to fix it before closing — at your expense and on their timeline.
Getting these right early costs almost nothing. Fixing them later costs thousands in legal fees and potentially millions in lost equity or IP disputes.
1. Co-Founder Agreement
This is the prenup for your business. It covers: equity split and vesting schedule (4-year vest, 1-year cliff is standard), roles and responsibilities, decision-making authority, what happens if a founder leaves (including IP they take vs. leave), salary and compensation, and non-compete/non-solicitation terms.
Without one, every disagreement becomes an existential threat to the company.
Watch out: A co-founder who leaves after 6 months could walk away with 50% of the company if there is no vesting schedule. Always vest founder equity.
2. IP Assignment Agreement
All intellectual property must be owned by the company, not the founders personally. This includes code, designs, business plans, customer lists, and any work created before incorporation that relates to the business.
Investors will not fund a company that doesn’t own its own IP. Period.
3. NDA (for conversations, not investors)
Use NDAs with: potential hires, contractors, and business partners who will see proprietary information.
Do NOT ask investors to sign NDAs. Most will refuse, and asking signals inexperience. Instead, share information in stages — general pitch first, detailed financials only after a term sheet.
Pro tip: Never ask investors to sign an NDA. It signals inexperience and most VCs will refuse. Share information in stages instead.
4. SAFE or Convertible Note
These are the two standard instruments for early-stage fundraising. A SAFE (Simple Agreement for Future Equity) is simpler — no interest, no maturity date. A convertible note is debt that converts to equity.
Both defer valuation to a future priced round. Key terms: valuation cap (maximum price for conversion), discount rate (typically 15–20%), and pro-rata rights (ability to invest in future rounds).
5. Employment/Contractor Agreements
Every person working for the company needs a signed agreement with: IP assignment (everything they create belongs to the company), confidentiality obligations, and (for employees) invention carve-outs required by state law.
A single contractor without an IP assignment clause could claim ownership of core product code.
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