Michael Hool, a startup lawyer with 28 years of experience, walks entrepreneurs through the legal and operational mistakes that slow down fundraising and due diligence. He shares specific pitfalls founders hit and how to avoid them before they cost you time and money.
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Well, so it's my pleasure to be here. Thank you for having me out. Vivek and Chase have heard me talk before, so they can kind of keep me honest. The stuff that I'm going to talk about today in this talk is a little different probably from some of the other talks, a lot different from some of the other talks, where it's not really inspirational. So if you were hoping that a lawyer would inspire you, sorry. But the things that we're going to talk about hopefully will be helpful because the goal is really to— they asked me to talk about mistakes, common mistakes that you guys would be making as you're starting your venture. So a lot of this is just based on my own experience working with hundreds and hundreds of startups in various you know, roles, I guess. And hopefully, even though this is— some of these things are going to be kind of in your future or out there and they're not things that are pressing on you right now, what I would hope is that some of the things that we talk about, when you're actually, you know, at that point or you recognize yourself, hey, I'm in this environment, And, you know, Houle told me not to do this stupid thing that I'm about to do. So it should set up some red flags, and you at least step back and consider things and maybe adjust how you're doing things to avoid mistakes. The other thing I would say is that you guys are entrepreneurs and you're passionate, and hopefully all of these things that I'm going to talk about, they're not really what I would call existential threats that are going to destroy your business. The one thing to keep in mind is I'll identify mistakes and I'll give you as many anecdotes as possible of real life, how I've experienced this with clients or investments that I've made or entrepreneurs that I've just worked with and advised. But the point is they're just hurdles. If you find yourself messed up, then all of these things for the most part can be fixed. There are only a couple in here, and when we get to those, I'll point to those where you really, really have to be careful about these because they could destroy your business. But for the most part, all of these mistakes, the main thing about them is they can slow you down significantly. The one thing you want to do as an entrepreneur When you're trying to raise money, when you're trying to get a customer, you're trying to bring on some really important team members, people onto your board, whatever. You really don't want to have problems that will slow things down or create hiccups because in today's world everybody's busy. You're courting that one significant investor, for example. And if they are doing their due diligence, typically it's going to be their lawyer. Doing some due diligence, checking on some things that you've done in your history. It'll cause a delay at a minimum. So what you want to do is think of these things in advance and try to smooth, you know, grease the skids as best you can so that when someone is hot and ready to do a deal with you, there's not going to be a delay. And then suddenly a delay, you lose momentum. Weeks go by. It's hard to reach each other. Other opportunities pop up for that investor. It's these little things that if they're hiccups or if they're problems in your company, even though they can't— they don't typically kill your company, you could lose significant opportunity just because of the delay. That's the primary thing I wanted to let you know. Let me give you a little context. Do I just push the arrows, I guess? Yeah. I'll give you a little background, a little more about what I do and my firm. My firm— so basically my work with entrepreneurs and startups has come in 2 capacities. One is my firm, which is the logo at the bottom. We're really focused. Okay? So all we do is work with serial entrepreneurs. For the most part, that's our sweet spot. After doing this for 28 years now, some number of them become successful, become investors. Once you have the entrepreneurial gene, I think you're born with it, it manifests itself over and over again. Even if you've been wildly successful, you can't stop. That's my experience. They tend to come alongside and help people like you make investments. Typically, they don't start new companies themselves because it just takes so much work. But they'll come alongside and they'll work and invest with a lot of different startups that are interesting to them. That's kind of our client base. We also work with probably 10 to 15 first-time startups at any given time. We don't do much more than that just because it's too much. How do you find them? difficult given the numbers and if we're trying to stay focused. We work with investors and entrepreneurs from very large transactions to very small bootstrap startups. I was just meeting this morning with a client of mine out here in San Francisco. They just hit $700,000 in revenue. They're all excited. We're making plans for a $3 million fundraise. That's just pure bootstrapping, a little bit of friends and family money to get them where they're at. Other transactions, I did a transaction with the Army Research Labs where they funded $180 million to create flexible display screens. Anything in between. We work a lot with a few institutions as well. Universities, healthcare systems, and some corporate. So on the institution side, and I'm really trying to focus on startup activity, probably like 50 or so spinouts where technology is being transferred out of these institutions. And then probably at least that many on the entrepreneur side. So working with the entrepreneurs, you folks, when you're trying to bring technology out of companies or institutions. We do a lot of that. Also, because money is a big issue for most of our clients at some point, we're very active around capital formation. In Phoenix, where my office is, we formed 3 different angel groups over the years. One is the most active in our hometown, Phoenix, now. We work with a lot of— 3 right now— accelerators, incubators, where we advise them and everything from them making an investment. In most cases, these are associated with an investment. It's not just services. We do a lot of that. That's kind of a background on the legal. The top logo, it's kind of new for me. It's new branding. Over the years through a family limited partnership, we've made a lot of— right now we have about 14 active investments and probably in the 20s when you count sidecar funds where they have a lot of different investors. Along the way I've invested and I've looked at a lot of companies. I've had probably like 6 or 7 total. By the way, did you guys know bankruptcy is an exit? I've had 6 exits. No, they were 6 bad investments where they really didn't go anywhere, 2 that were very successful, which is a very good ratio really. And of the ones that are active right now, you know, it's all across the board. There's probably at least half of them that, you know, wondering what's going to happen. Maybe they'll make it, maybe they won't. And then there's some right at the top that are looking extremely promising and interesting things are happening. It's across the board, from chemical processing company, medical device, digital media platform, marketplace, medical analytics, software, SaaS. It really is industry agnostic. That gives you as much background as I think I can give you about the The main thing is I've seen and worked with a lot of companies, so these are all coming from real-life experiences. Just to kind of do a sanity check before I got here, I took a look on the internet just to see what the bloggers are saying about startup mistakes. They cover probably like most of— I looked at like 20 different bloggers and they cover about 6 or 7 of the 10. Yeah. In some fashion. So there's a few that are kind of unique to my experience, but for the most part, these are common mistakes, okay?
