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The trusted CEO of one of the startups I worked for often joked that he had "alligator arms"—meaning he was stingy, with arms too short to reach his pockets and pull money out. When it came time to incorporate our company, he chose not to work with a lawyer. Since we were so early-stage and such a long shot, he did not want to spend any of his personal money for boilerplate documents. In the end, he decided to ask some friends for their company formation documents, and did a Mad Libs-style find and replace to customize them. Lacking legal counsel, our company made some fundamentally bad decisions. For example, our company had multiple founders but our template was for a single founder, and we incorrectly stated the founder vesting terms. Embarrassingly, we also had some glaring inconsistencies in our documents, like when we wrote "two-thirds (60%)." It’s understandable; we were preoccupied with running lean, especially at the seed stage when money was in short supply. But by choosing to DIY our legal documentation, we exposed the company to a lot of future liability.

A close friend of mine also paid a price for her “alligator arms” when she was turning her Master’s thesis into a product. She already had a lawyer helping her navigate some unique international issues. Per the industry standard, the lawyer would delay their fees until a major fundraising event. Instead of playing Mad Libs with someone else's documents, she decided to use her lawyer. My friend got pretty comfortable racking up the fees. A lot of it was valuable legal advice, but the rest was just crunching boilerplate documents. Even though she founded her company with cost-conscious intentions, the strategy led to a huge chunk of the Series A funding going to deferred legal fees.

The good news for people like my former CEO and my enterprising friend is that Fidelity will let them hold onto their cash without sacrificing good document hygiene in their next venture. If their alligator arms can reach the keyboard, they can skip the risky Mad Libs and costly legal fees. We use our own product, so I know first hand that our documents are in order, backed up in a secure data room. I can't be more proud of the product we've built here at Fidelity, one that lets innovators get started on the cheap, but also responsibly.


Are you ready to tackle legal complexity for your company on a modern platform? Get started with Fidelity today.

 

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. 

Sample scenarios are for illustrative purposes only. 

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