Translator: Jon Dujaka Reviewer: Helena Bedalli Kur isha i vogël, I adhuroja makinat. Kur mbusha 18, E humba shokun tim të ngushtë në një aksident rrugor. Kështu. Pastaj vendosa t'ia dedikoj jeten time në shpëtimin e një milion njerëzve çdo vit. Nuk e kam arritur këtë gjë, kështuqë ky është vetëm një raport mbi progresin, por jam këtu t'iu tregoj pak për makinat vetë-vozitëse. E pashë konceptin në fillim në Sfidën e Madhe DARPA ku qeveria e Sh.B.A e lëshoi një shpërblim për një makinë vetë-vozitëse që mund të navigonte në shkretëtirë. Edhe pse aty ishin njëqind skuadra, ato makina nuk shkuan askund. Kështu që ne në Stanford vendosëm që të ndërtonim një makinë vetë-vozitëse ndryshe. Ne ndërtuam trupin dhe programin. Ne e bëmë që të mësonte nga ne, dhe e lëshuam të lirë në shkretëtirë. Dhe a paimagjinueshmja ndodhi: u bë makina e parë që ishte kthyer ndonjëherë nga një Sfidë e Madhe DARPA — duke i fituar Stanford-it 2 milion dollarë. Por ende nuk kishte shpëtuar asnjë jetë. Prej asaj, puna jonë u fokusua në ndërtimin e makinave që mund të vozisin kudo ku vetëm — çdo rrugë në Kaliforni. Ne kemi vozitur 225,000 kilometra. Makinat tona kanë sensor me anë të së cilëve mund të shikojnë në mënyrë magjike çdo gjë për rreth tyre dhe të vendosin në çdo aspekt të vozitjes. Është mekanizmi perfekt i vozitjes. Kemi vozitur në qytete, si në San Francisco këtu. Kemi vozitur nga San Francisco në Los Angeles në Autostradën 1. Kemi hasur në vrapues autostrada të rënduara nga trafiku, kabina për pagesa, dhe e gjitha kjo është pa një njeri në timon; makina vozit vet. Në fakt, përderisa vozitëm 225,000 kilometra, njerëzit nuk e vërejtën. Rrugë malore, ditë dhe natë, si dhe rrugën zigzage Lombard në San Francisco. (Të qeshura) Ndonjëherë makinat tona çmenden, dhe bëjnë akrobacione të vogla. (Video) Njeri: Oh Zoti i Madh Çfarë? Njeriu i dytë: Po vozitë vetë. Sebastian Thrun: Unë nuk mund ta ringjall shokun tim Harold, por unë mund të bëj diçka për të gjithë njerëzit që kanë vdekur. A e dini se aksidentet trafikore janë shkaku numër një për vdekjen e të rinjve ? Dhe a e kuptoni se gati të gjitha këto janë pasoje e gabimeve njerëzore e jo gabimeve mekanike, prandaj mund të parandalohen nga makinat? A e kuptoni se ne mund të ndryshojmë kapacitetin e aurostradave dy ose tre herë nëse ne nuk do të mbështetëshim në precizitetin e njeriut për të qëndruar në korsi — përmirësimin e pozicionit të trupit dhe prandaj të vozisim pak më afër së bashku në korsi pak më të ngushta, dhe ti largohemi bllokimit të trafikut në autostrada ? A e kupton se ti, përdorues i TED-it, shpenzon një mesatare prej 52 minutave në ditë në trafik, duke e shpenzuar kohën tënde në udhëtimin tënd të përditshëm? Ti mund ta rifitosh këtë kohë. Kjo është katër miliard orë të shpenzuara vetëm në këtë shtet ( Kaliforni ). Dhe është 9 miliard litra benzinë të shpenzuara. Un mendoj se është një vizion këtu, një teknologji e re, dhe po shpresoj se do të vijë një kohë kur gjeneratat pasardhëse do shikojnë pas dhe do të thonë se sa qesharake ishte që njerëzit po i vozisnin makinat. Faleminderit. (Duartrokitje)
IMAGINE A WORLD WHERE YOU WAKE UP, GRAB YOUR CUP OF COFFEE, AND HOP IN YOUR CAR TO DRIVE TO WORK… EXCEPT YOU’RE NOT DOING THE DRIVING. YOU HAVE MORE TIME TO SLEEP, READ A BOOK, OR EVEN GET A PHYSICAL. THIS IS A WORLD WE ALL WANT TO LIVE IN. AND ALTHOUGH WE’RE NOT QUITE THERE YET, PEOPLE ALL OVER THE WORLD ARE WORKING ON DEVELOPING, TESTING, AND PLANNING FOR A FUTURE WITH AUTONOMOUS VEHICLES. BECAUSE, WHO DOESN’T WANT THAT EXTRA HOUR OF SLEEP? SO, HOW CLOSE ARE WE TO A SELF-DRIVING WORLD? YOU MAY HAVE SEEN SELF-DRIVING CARS ON THE NEWS, SPLASHED ACROSS THE INTERNET, OR EVEN TESTING AROUND YOUR CITY. BUT MOST OF THOSE CARS STILL HAVE A HUMAN IN THE DRIVER’S SEAT. AND THAT MEANS IT’S PROBABLY A LEVEL 2 OR 3 CAR, WHICH DEFINITELY MORE INDEPENDENT THAN THE CAR YOU MIGHT DRIVE, WHICH IS PROBABLY A LEVEL 0 OR 1, BUT IT'S STILL A FAR CRY FROM OUR DREAM RIDE, WHICH WOULD BE A LEVEL 5. OR 4. LET ME EXPLAIN. SAE INTERNATIONAL HAS DIVIDED AUTONOMY INTO FIVE STAGES. LEVEL ONE IS “DRIVER ASSISTANCE,” AND LEVEL TWO IS “PARTIAL AUTOMATION,” WHICH YOU CAN ALREADY FIND IN CARS WE DRIVE TODAY. HERE, THE CAR CAN DO SOME OF THE STEERING, BRAKING, AND ACCELERATING, BUT STILL NEEDS A DRIVER WITH HANDS ON THE WHEEL, BECAUSE LEVELS 1 AND 2 ARE STILL JUST “DRIVER SUPPORT.” So lane keeping, collision warning, even active interventions that will swerve the vehicle if you're about to get into an accident. LEVEL THREE IS “CONDITIONAL AUTOMATION,” WHICH MEANS THAT THE CAR IS PRETTY MUCH IN CONTROL, BUT REQUIRES HUMAN INTERVENTION IN AN EMERGENCY, OR WHEN PROMPTED BY THE SYSTEM. REMEMBER LEVEL THREE, BECAUSE THIS IS WHERE IT CAN GET STICKY. BUT THE ULTIMATE SELF-DRIVING CAR WOULD BE OPERATING AT LEVEL 4 OR 5, WHERE IT CAN STEER, BRAKE, ACCELERATE, MONITOR THE ROAD, RESPOND TO RANDOM EVENTS, CHOOSE TO CHANGE LANES, TURN, AND OF COURSE… USE ITS BLINKER LIKE ANY DECENT CITIZEN. THE YELLOW BRICK ROAD TOWARD SELF-DRIVING TECHNOLOGY HAS BEEN A WINDING ONE. DR. DEAN POMERLEAU HAS BEEN NAVIGATING IT FOR A LONG TIME. YOU COULD CALL HIM THE GRANDFATHER, OR AT LEAST THE COOL UNCLE, OF AUTONOMOUS VEHICLES. BACK IN 1995, DEAN AND HIS GRADUATE STUDENT MADE A PILGRIMAGE ACROSS THE COUNTRY "LOOK MA, NO HANDS”-STYLE, AFTER THEY TRICKED OUT A STYLISH MINIVAN WITH CAMERAS AND COMPUTER VISION ALGORITHMS. About 98.2% of the trip, as I recall, was hands-off, feet-off, with the system controlling the vehicle all on its own. It was a proof of concept, basically, for some of the technologies that we're seeing finally being deployed today. IN THE YEARS THAT FOLLOWED, RESEARCH TEAMS COMPETED TO DEVELOP THAT TECHNOLOGY FURTHER. IT WASN’T UNTIL 2005, AFTER SOME… CATASTROPHIC FAILURES, THAT DARPA’S GRAND CHALLENGE TO BUILD A SELF-DRIVING CAR FINALLY AWARDED FIRST PLACE TO A STANFORD TEAM, LED BY SEBASTIAN THRUN. YEAH, YOU MIGHT’VE SEEN HIM AROUND. FAST FORWARD TO 2009, WHEN HE STARTS A LITTLE PROJECT CALLED WAYMO. IN SECRET. IN 2016, WAYMO SPINS OFF FROM GOOGLE, AND IN A FEW SHORT YEARS, THE INDUSTRY’S ERUPTED, WITH ESTABLISHED TECH AND CAR COMPANIES JUST AS EAGER AS STARTUPS TO GET IN ON THE ACTION. Waymo is probably the recognized leader. GM bought Cruise Automation; Argo AI here in Pittsburgh is one leading player; BMW Mercedes, are all working on their own projects for self-driving cars. It remains to be seen whether it's a good investment or not. FOR THAT INVESTMENT TO PAY OFF, DRIVERLESS TECHNOLOGY MUST BE REFINED TO THE POINT WHERE IT’S BOTH RELIABLE AND FLEXIBLE ENOUGH TO HANDLE A COMPLEX JOURNEY. THAT MEANS SOPHISTICATED SENSORS, ROBUST COMPUTER HARDWARE, AND INTELLIGENT DECISION-MAKING SOFTWARE. TO START WITH, AUTONOMOUS VEHICLES RELY ON SOMETHING NOT ALL HUMAN DRIVERS ARE EQUIPPED WITH: A SENSE OF DIRECTION. The companies that are building these self-driving cars build their own maps. Very much like Google has its street-view cars that drive through neighborhoods and collect map data, they have another fleet with many additional sensors to drive through a city and map it in great detail –static obstacles, like telephone poles or the curbs around the road, that it should be aware of and avoid. BUT TO BE TRULY ADAPTIVE, THE CAR NEEDS TO BE ABLE TO GATHER REAL-TIME INFORMATION ABOUT A DYNAMIC, UNPREDICTABLE ENVIRONMENT. ELON MUSK THINKS WE CAN ACCOMPLISH THIS WITH CAMERAS ALONE. BUT IF YOU’VE EVER TAKEN A SELFIE IN THE CLUB, YOU KNOW THAT CAMERAS PROBABLY AREN’T GOING TO CUT IT, BECAUSE THEY STILL STRUGGLE WITH DARKNESS, DEPTH, AND REFLECTIONS. So self-driving-car companies are investigating many different sensors, for example, millimeter wave radars for long-range sensing, and short-range, often ultrasound, sensors that see things that are very close to the vehicle. LiDAR is probably the most common and most impressive technology currently being used. LiDAR is a laser-based technology that shoots a laser beam out into the environment, scans it very quickly, and detects the range to objects and other vehicles. LiDARs are both a great sensor but also a weak link; they're very expensive and break down fairly often. AND THIS HAS BEEN A MAJOR ROADBLOCK TO FULLY AUTONOMOUS ROADS. LIDAR HAS HUGE POTENTIAL, BUT IT’S JUST TOO DELICATE AT THE MOMENT, BECAUSE IT’S MADE UP OF FRAGILE, MOVING PARTS. BUT SOMETHING CALLED SOLID-STATE LIDAR, WHICH SCANS THE ENVIRONMENT USING NO MOVING PARTS COULD CHANGE ALL THAT. AND THESE SENSORS, WHILE IN THEIR INFANCY, ARE IN SUCH DEMAND THAT MANUFACTURERS LITERALLY CAN’T MAKE THEM FAST ENOUGH TO SUPPLY THE DEMANDS OF COMPANIES LIKE FORD AND BAIDU. It's much more reliable and also much cheaper to manufacture, which is very important if you're going to do this at scales on thousands of vehicles. OKAY, SO SAY WE CAN BUILD A DRIVING ROBOT. THAT IS, AN ENTITY THAT CAN PERCEIVE ITS ENVIRONMENT, JUDGE, AND ACT ON THE ROAD BASED ON A COMPLEX NETWORK OF REAL-TIME DATA ANALYSIS. IN A WAY, IT’S STILL ONLY PREPARED TO DRIVE ON A MAP. TO BE ABLE TO NAVIGATE IN THE REAL WORLD, AND SHARE THE ROAD, AND THE STEERING WHEEL, WITH HUMAN DRIVERS, WE’LL NEED TO TAKE IT TO DRIVER’S ED. Some of the biggest safety concerns are involved with perception and behavior of drivers or pedestrians or cyclists. Slushy roads covered with ice and snow are very hard to cope with, and there's really been very little effort or progress in self-driving cars in these very challenging environments. TO MAKE THAT PROGRESS, WE HAVE TO STUDY HOW HUMAN DRIVERS ACTUALLY RESPOND – BOTH TO RISKY ROAD CONDITIONS, AND TO AUTONOMY ITSELF. SO TO FIND OUT MORE ABOUT THE HUMAN IN THE WHOLE EQUATION, WE HEADED TO STANFORD’S AUTOMOTIVE INNOVATION LAB. We are working together to really get a detailed understanding of the human as we move forward in designing active safety systems and automated vehicles. So, we're gonna set up this NIRS cap on her right now. It will be shining a little bit of infrared light onto her motor cortex. We'll be able to see as she's turning left, turning right, using the gas pedal and the brake pedal, all in our data streams back there. The majority of accidents that we do see do come down to human error in either recognition, decision, or performance. So when we can get to the point where the system does a better job at those three things than humans, then I think it's clear that our roads will be safer. This is X-1, our experimental test vehicle. The flexibility in steering allows us to set up all sorts of experiments. We can emulate driving on an unexpected change of friction. Going from snow to ice, for example. There are studies going on in the dynamic design lab, measuring the inputs that professional drivers make, so that we can try and understand what they're doing differently to drive right at the limits of the vehicle. We can use that to inform the way that the autonomous vehicle control algorithms are designed, so that hopefully, your autonomous vehicle will drive as well as the very best human driver. LENE’S MOST RECENT PROJECT INVESTIGATED A SCENARIO THAT MIGHT POP UP IN SOMETHING LIKE LEVEL 3 AUTONOMY, WHERE THE CAR’S BEEN ROLLING SOLO WHEN SUDDENLY, IT ENCOUNTERS SOME SCENARIO IT CAN’T MAKE SENSE OF, AND THE HUMAN DRIVER IS ASKED TO INTERVENE. What our studies of brain and behavior tell us is that it's important to consider a period of time when people's driving behavior may be significantly different if they've taken control of a vehicle after a certain amount of time out of the loop. We can see almost in real time the cognitive resources being deployed. They may have more limited cognitive resources to deal with an emergency situation under those conditions. It's potentially a quite dangerous situation if you're handing off control back and forth with the system. THOUGH IT MAY SEEM EXTREME FOR CONSUMERS TO MAKE THE JUMP FROM CRUISING AROUND IN A LEVEL 1 CAR TO HOPPING IN A FULLY AUTONOMOUS ONE, MANY RESEARCHERS AGREE THAT PARTIAL AUTONOMY SHOULD ONLY BE RESERVED FOR TESTING PURPOSES. AND UNFORTUNATELY, MOST OF THE ACCIDENTS THAT HAVE ALREADY OCCURRED HAVE PROVEN THEM RIGHT. I think the next five years or so of autonomous vehicle design is actually going to focus more on the ways in which we can implement full autonomy in a much smaller, more controlled environment, and sort of do it that way rather than necessarily going through this partial autonomy stage to get there. People are easily distractible, and that's the underlying problem that autonomous vehicles are setting out to solve. So NACTO cities believe that it needs to be really full automation to achieve the safety benefits that are the major promise behind autonomous vehicles. THE NATIONAL ASSOCIATION OF CITY TRANSPORTATION OFFICIALS REPRESENTS 68 CITIES AND 11 TRANSIT AGENCIES ACROSS NORTH AMERICA. NACTO RECENTLY CONVENED TO DISCUSS HOW THE WORLD WILL PREPARE FOR FULLY AUTONOMOUS CARS TO BECOME A REALITY. It's unrealistic to expect city governments to redesign streets to accommodate autonomous vehicles. THIS MEANS, WHEN SELF-DRIVING CARS DO HIT THE ROAD, THEY’LL NEED TO TRAVEL AT LOW SPEEDS, AND MAKE USE OF OUR EXISTING INFRASTRUCTURE. BECAUSE OVER THE PAST CENTURY, WE’VE MADE COUNTLESS COMPROMISES TO ACCOMMODATE THE SHINY NEW TECHNOLOGY OF THE TIME… THE AUTOMOBILE. BUT URBAN PLANNERS THINK WE CAN DO BETTER THIS TIME AROUND. We've seen neighborhoods cut off from opportunities, we've seen congestion, greenhouse gas emissions, pollution, decreases in public health… we risk repeating a lot of those same mistakes with autonomous vehicles. The Bblueprint for Autonomous Urbanism came about because we were seeing too many visions for driverless cars in a people-less city. The Blueprint is imagining how cities can structure their streets to prioritize walking and biking and transit and public space, to really maximize those benefits of living and being in a city, while using autonomous vehicles to help achieve those goals. THE IMAGES YOU SEE HERE ARE JUST SKETCHES AND SUGGESTIONS FOR THE FUTURE. THE REALITY IS, REGULATION FOR THESE KINDS OF VEHICLES IS PRETTY NEW – AND IT’S DIFFERENT IN EVERY STATE. BUT PLANNERS AND TRANSPORTATION OFFICIALS LARGELY AGREE ON THE NEED FOR EQUAL ACCESS, SAFETY, AND SUSTAINABILITY. It requires really thoughtful and intentional policies to make that vision and that promise a reality. SO, HUMANS ARE ADAPTABLE LEARNERS. AND WE’RE DESIGNING SYSTEMS THAT CAN WORK THAT WAY TOO. BUT ON A GRANDER SCALE, WE AS A SOCIETY HAVE TO BE WILLING TO ASSESS RISK, AND STEER IN THE RIGHT DIRECTION BEFORE WE CHANGE LANES AND CHARGE FULL SPEED AHEAD. SO… HOW CLOSE ARE WE TO A DRIVERLESS WORLD? If you look at particular geographical locations, it's already happening. Over time, I believe that those islands will grow in number and expand, and that's how you will see the expansion of fully automated vehicles on the road. I think in the next year or two we will see companies like Waymo and GM Cruise deploying maybe a few hundred of these vehicles for the general public to ride in. Probably by early 2020s, we'll see cars without drivers giving rides and then driving empty to pick up the next passenger. It'll be probably at least a decade, I would say, before you can walk into a showroom and buy a car at an affordable price that can do, say, level four or five autonomy, which means you don't have to do anything. The fact that Waymo's CEO said we're still quite a ways off makes me think that that's probably true. But in the near term, I think there are some applications, especially for transit, to use autonomous technology to achieve some of our goals. Access to affordable, convenient transportation is really important. We all have a grandparent or a friend of our grandparents who had to give up driving and lost a lot of their independence. I think it can change lives and save lives across the board as long as we take into consideration everyone across the spectrum as we as a society move forward with automated vehicles. SOUNDS LIKE AS LONG AS WE TAKE CARE OF SOME POTHOLES FIRST… WE’VE GOT A GREEN LIGHT. TO MAKE SURE YOU NEVER MISS AN EPISODE, DON'T FORGET TO SUBSCRIBE. AND FOR MORE HOW CLOSE ARE WE? CHECK OUT THIS PLAYLIST HERE. THANKS FOR WATCHING AND I'LL SEE YOU NEXT TIME ON SEEKER.
Okay, so before we start, I wanted to introduce our speaker today. Kirsty Nathoo is the CFO and a partner at Y Combinator. And she's basically worked virtually with every company that has gone through YC. So from incorporation to fundraising to hiring to exits, Kirsty's pretty much seen it all. And today she'll talk to you about startup mechanics. >> All right, thank you. Hi, everyone. Thanks for coming in to listen to this. So as Steven said, this lecture is about startup mechanics, which is going to cover some of the the basic issues that most startups will face as they go through the early days of becoming a real company. And I'm really only talking about the basics here. There's a lot of complexity. And there's a lot of other things that happen. But this will kind of give you some ideas of the things you should know about. And some of the resources out there that there is to help you with those. I know that we're standing here in California at the moment, but a lot of this stuff will apply to any startups, no matter where they are in the world. And I'll talk a little bit throughout the session about things that are US-specific and things that are specific to the rest of the world. And this is definitely not the glamorous part of being a startup founder. You'll hear from all sorts of people throughout the rest of this course about all the glamorous things and all the other things. But these are the kind of nuts and bolts that, if you take care of in the early days, you stick with the simple, standard, basic processes, you don't try to reinvent new voting structures or anything like that, it will be enough. On the flip side, if you don't do some of these basics, then the company down the road will come into some problems that will cause a lot of time, effort, and money to get solved. And I'll bring up a few stories as we go through, of situations where that's happened. So these are the topics that we're going to cover today. So we're going to kind of go through the life cycle of a company. So we're going to start in the early days of forming, going through raising some money, hiring some people, giving out shares. Okay, so the first step in this is the formation of the company. And so formation creates a separate legal entity. And what that means is an entity that will pay its own taxes, be responsible for its own assets, for its own liabilities, sign its own contracts. Sue and be sued. And it's all independent of the owners. So you, as a founder, would be independent of the company. And in the US, this kind of company is called a C-corp, a corporation. There are other structures that's out there for entities to form. But in the case of startups who are expecting to be successful and to grow and to raise money, and so, to eventually IPO, then a C-corp is the way to go. Investors can only really invest in C-corps. There's a lot of other things that come in if you decide to go down some other route. And you may hear some advice from people who aren't necessarily in the startup world to start with a LLC or something like that, which might work in the short term. But then as you become more successful, more in need of raising money, you will have to convert to a C-corp. So it probably makes sense if you are thinking about doing a startup in that situation, to start with a C-corp. And terminology get's a little bit loose here. And I'm as guilty of this as everyone. But through the whole of this session, and when we're generally talking about this, basically the words company, C-corp, corporation, entity, startup all mean the same thing. They all mean this separate legal entity that is a C-corp. All right, the hardest point in formation though is deciding actually when to incorporate this company. Because obviously, with a separate legal entity comes a lot of admin and various other processes that have to happen around that. And it's one of those situations where you don't want to do it too soon. But you also don't want to do it too late. So too soon would probably be if you're still throwing around ideas, you're still thinking about this as a side project. You're not sure if you're going to be doing this for a long time, you don't know if you're going to be working with your cofounders. So all of those, I would suggest, that you don't Incorporate at this point. However, the flip side of that is, if you're at the stage where you are creating significant amounts of IP that you want to make sure is clearly owned, particularly if there's more than one of you creating the IP, Then that would be a situation where you would want to incorporate. Another situation is if you've built a product that you're now ready to start charging for so that you can create a separate entity that takes the money in for the products that you're charging. You want a separate bank account, you want a company account and a personal account. You don't want to intermingle those dollars. And actually, Stripe has a product called Stripe Atlas, which basically helps founders to form a company to the point where they can get a bank account and they can start accepting payments through Stripe. The other reason why you would want to incorporate is just to protect you as individuals. Because again, as I was saying, a separate entity means that all of the liabilities, and anything else that happens there, would be on the company rather than you as an individual. So if you get into the situation where that might come important, again, it's a good idea to incorporate. All right so, at YC we strongly believe that the US is the best place to incorporate a company, regardless of where the founders come from or where they are when they're actually incorporating. And the reason for this is that the vast majority of the capital that's available to startups is here in the US. And, generally, US investors struggle to invest in non-US companies. There are some exceptions and, it is possible, but generally it causes problems. And even for, when you are going through the process of incorporation, you don't actually have to be physically in the US whilst you are incorporating. So then in the US, you can incorporate your company in any of the 50 states. You don't have to, again, be physically located in that state. You don't have to be planning to do any business in that state. And actually, for startups, and for a lot of companies actually, the state that most startups will incorporate in is Delaware. And the reason being is that Delaware law is highly developed. Pretty much all lawyers who are working on corporate law in the US know Delaware law. Investors expect to see Delaware companies. Delaware law allows companies the most flexibility in terms of issuing shares and various other things. And also has the best privacy protections for you, as owners. So it makes a lot of sense to incorporate in Delaware. Because, again, this is one of these situations where there's no point trying to do something different. Just go with the herd on this. And again you can incorporate in Delaware as non US citizens. You can incorporate in Delaware when you're not physically in the US. There's no problems there. All right, so let's move on to actually how we incorporate. So, it's a two step process, and so the first part is simply faxing a couple of forms into Delaware to say, I would like to create an entity. And that takes about 24 hours for them to process and get the entity formed. Once that entity has been formed, then the second step in the process is to adopt bylaws for the company which talk about how the company's going to be governed, create a board, appoint directors to that board, appoint officers, to assign IP to the company so you, as individuals, anything you start creating is owned by the company and also to give out shares in the company, so to assign ownership in the company. The final couple of those, so assigning an IP and buying shares I'm going to talk about in a little bit more detail. The other three are very legal and complex, so I won't go into those here. But suffice it to say there is a couple of different options that you can use to do this. And the first one is to just use a lawyer. You know, a lot of companies will just hire a lawyer to do this. And that's a great option, assuming especially if you want to do something a little bit non standard in some way or you need some kind of high touch service. And it usually costs in the region of $3,000 to $5,000 plus filing fees to incorporate a company with a lawyer. There's loads of lawyers here in the valley, and most of those for startups will actually defer their fees until you raise money. So often those fees can be pushed back, and you don't have to pay those immediately. However what doesn't work with lawyers is if you have a friend or a cousin who lives in Alabama and is a real estate property lawyer and having them do the incorporation documents. Because they don't understand how startups work, they don't understand what the standard things are that startup documents include and so things can go wrong. An example of this is, we had a company that came to us in YC that we funded and they came to us as an LLC formed in Connecticut. And the reason why they'd done that is because the founders' friends who were lawyers in Connecticut told them to do that. And so when we said we were going to invest they decided that they were going to convert this at that point to a Delaware C corp and they used their Connecticut lawyers to do this, which is great. However, three funding rounds later, when the company was raising a huge amount of money, a new law firm that they'd hired here in the valley, actually discovered that that conversion had been done wrong by the Connecticut lawyers, and therefore it was not valid. They'd made a very simple mistake but as a result it wasn't valid and so they had to put the funding round on hold and had to sort this out before they could raise the money. It took them six months, it involved four different law firms and it cost them half a million dollars. So the moral of the story is use valley lawyers if you're going to do this, and start with a Delaware C corp. Another option that's really great especially for young start ups when they're forming is Clerky. Clerky is a YC company and they have a platform that allows you to create all of these formation documents using a very simple interface where you plug in a bunch of details and all the forms get populated with those information, so everything is internally consistent. And they allow everything to be e-signed on their platform, and then they store it all for you. So this is a really great option if you're just going with the basics, you just want to get it done. It costs a few hundred dollars, again, plus filing fees. So it's a much more straightforward process. And when we have companies who come to us at YC who we have agreed to fund who haven't been incorporated yet, that's where we send them. We tell them to go and incorporate on Clerky. Okay, so part of the incorporation process then is assigning equity. And, this is a really important process, because one of the things that happens is, it actually creates a conversation between the founders. It's really important that you do have that discussion amongst the founders to understand how this is going to work. This can often ferret out issues early around, is one founder expecting to work on this part time? Is one founder expecting to work on this full time? It can just try and pull out some issues that might potentially become big problems down the road. And of course, the shares that you own in the company as a founder, if the company is successful, it's likely to be the most significant source of wealth creation for you. So it's important that you do actually get this right and that all founders feel its fair. Fairness is a really important idea here because you're going to be working with your co-founders for a long time. You're going to be working in a very stressful environment and if you have a situation where there's one founder who has 90% of the shares and another founder who has 10% of the shares but they're both pouring everything they have into this company to make it a success, resentment can build up. And in a stressful situation the resentment can bubble up and become worse and worse and it's the number one reason that we find co-founders break up because they just can't get to the point where this makes sense to them anymore. And actually in a lot of these situations as well, when a co-founder dispute happens around this, so much effort and time is poured into it that actually, the company struggles to survive. It struggles to turn itself around after the founders have figured this out. One of them's departed and it's all been somewhat acrimonious. So have these conversations upfront. Make sure you understand. Make sure everybody feels it's fair. And in general, we think that equity should be more or less split evenly amongst co-founders. And I'm talking about more or less, it doesn't have to be exact. But often, founders will push back on us on this. And some of the the examples that they or some of the reasons they will give to us for saying no, no I should have 70% of the equity and my co-founder should have 30% of the equity, is because I thought of the idea or I built the prototype or I closed the first 20k in sales or I started three months before my co-founder. And our responses to this is everything is ahead of you. This is the early days of the company and if you've worked there for three months. You've probably got 5, 10, 15 years of this company ahead of you if it's going to be a success. So think about forwards not backwards all the efforts are in front of you. You're going to be iterating on the products, the prototype is probably going to bear no resemblance to the final product that becomes successful. It's all ahead of you and the time commitments, again, it's 10 years, 15 years. It's a long time, so three months is just a drop in the ocean. The only one that maybe is somewhat more of an argument to have slightly more, I'm not talking about significantly more, is you might want to have one co-founder who has slightly more shares just to prevent founder deadlock. In situations. But to be honest, if you're at the point where the founders are having to vote their shares to make decisions, then there's probably something more fundamentally broken in the relationship. This is not going to solve that. So in conclusion, when you're thinking about allocating equity, think about everything that's ahead of you not everything that you've just done. So you discussed it, you will decide it's fair, you've all got more or less even stock splits. You do actually have to do some paperwork to make this actually happen. And again, this is the kind of thing that can cause problems. Again, another company that we invested in came to us already incorporated, they already had all of their shares and everything all set up. But for various reasons they actually had to incorporate a new company. And merged the old company into the new company. The shares that they got in, they basically swapped the shares in the new company for shares in the old company. Carried on, did well, raised some money. Then raised another round of money with, again, new lawyers. New lawyers always go through all the paperwork with a fine tooth comb. And the new lawyers discovered this actually in the original company. They had never papered the share purchases. So they didn't actually legally own the shares which meant that then, when they swapped them for the new shares in the new company. They didn't own the new shares in the new company, because they hadn't actually done a two way transaction. They hadn't given one thing in return for something else. And so everything they've done since as shareholders were invalid. And they didn't have part of the company. So again, cue lots of lawyers, lots of time, lots of money. And it's just not what needs to be focused on by the company. So the way that you buy your shares as founders is on a stock purchase agreement. And as I say, you exchange it usually for cash. So in the case of a formation, you usually pay a few dollars to buy your shares. And the money gets deposited from your individual bank account into the company bank account. Sometimes it's in return for IP, but that gets a little bit more complex. And then once you've bought your shares, you have ownership of the company. And this is how you record the ownership. You use a cap table. Now, this is a really basic cap table. It will get more complex as the company goes on. You'll issue shares to employees, you'll issue shares to investors. But basically the key points of this are that you're recording how many shares each of the people on the cap table are own. So in this case currently the founders, and what their ownership is. So in this example, we have three founders. They each have same number of shares, and they each have the same ownership of the company. I'll come back to this cap table so get build on it as we get through here. So one of the, Key parts of the stock purchase agreement that you will sign is as founders is that there are actually some restrictions on these shares. So you own them as of the day you buy them. But actually if a founder was going to leave then the company has the right to take some of those shares back over time. And as time progresses the number of shares that the company has the right to repurchase reduces. And that's called vesting. So to put it in the opposite way around, vesting is earning the right to permanent ownership of the shares over time. And here for startups, again, it makes sense to use the standard template, the standard process. And generally, that is four year vesting with a one year cliff. And what that means is if you look at this graph over here, we've got time along the bottom and we've got the percentage of your shares that's invested on the y axis. And so the cliff happens at 1 year. So between day 1 and day 365, all of your shares are subject to the repurchase option. But then on day 365, 25% of them are immediately released, so that's where the cliff comes in. Then, after that, each month of the year, 148 of your shares will vest. So that they're gradually being released so that by the end of the four years, 100% of the shares are vested. So basically, depending on where you are on the time period of this, if you were to leave the company, you would be able to calculate how many shares you would keep as a founder. And how many shares would be repurchased by the company. And the documents are written in such a way that the shares that get repurchased by the company are purchased at the price that was originally paid for them. So there's no gain or anything built into that. The reason why we have vesting is there's actually a number of different reasons. So the first one is because it provides protection to any remaining founders. So if you think of an example where you are working on a company where there's three of you in total, so you and two co-founders. Now let's assume that one of your co-founders, and you don't have vesting. Let's assume one of your co-founders leaves in six months. But the remaining two founders carry on working on this company, put a huge amount of effort in, build up a successful company over the next five to ten years. Meanwhile, the ex-founder is sitting on a beach, drinking cocktails. Doing all these things that people have time to do. How do you feel? You're not going to feel massively happy that this person has the same amount of value, and you're creating all this value for them. And then think about if your company gets acquired. Let's say your company is acquired for $500 million. Without vesting, that ex-cofounder would get the same amount of money as the two remaining founders. Which again, is not going to make you feel that great. So it protects for most situations. If there had been vesting and that founder had left after six months, then they would have had no shares in there. And the remaining founders who put in all the effort over the next five to ten years would have seen all of the value creation. Somewhat linked to that is the concept of having skin in the game. So this creates an incentive to actually work hard on the company because you need to be there for a long time to actually keep all your shares. And this is something again that investors care deeply about. Because they don't want to put in a bunch of money into a company when really they're investing in the founders. Because they're the people who are going to actually make this happen. But the founders turn around after a month and say, yeah, we're out. We're going to get some new people in to run the company. So it protects the investors as well. And finally, the final reason is that it sets an example to future employees. And as we'll see in a little while, you would expect employees to having vesting. And so it's very unfair to say to your employees you must have vesting, but I don't as a founder. So it suggests a good way to be, we all have the same situation here. Okay, final point on vesting. And this is an important one when you come around to do your paperwork. There is one piece of paper as part of the incorporation process called an 83b election. And basically, I'm not going to go into a huge amount of details, but basically if you Don't sign it. Then you're taxed on the increase in value in your shares every time your shares vest. So if you think about, that graph is after the past year, and then every month over the next three years. So this can create huge personal tax liabilities. And it can also, it also creates company tax liabilities. So this is a bad thing. So the way to solve this is to file your 83B election, and basically then you don't have this taxation over the vesting period. It’s the one thing in incorporation that cannot be fixed if you don't do it. So you have to file it with the IRS within 30 days. And it's best to retain proof of mailing, so that you can actually show that you did that. If you get down the line in an acquisition or when you're doing funding round, it will get asked for, that proof will get asked for that you signed it. And we have seen deals fall apart over this, both funding rounds and acquisition deals, because the investor or the acquirer has been spooked by the potential liabilities on the company, and they just don't want to go there. And they walk away from the deal. So the way to solve this, is follow the instructions, either when you're dealing with lawyers or when you're dealing with Clerky. They will give you instructions about how to complete the form. They will give you instructions about where to send it, how to do it. Just follow those instructions, and all will be fine. All right, let's move on to fundraising. So you've now got a company that can actually raise some money. And this is probably something that you'll hear a lot about over the course of the rest of this course. So I'm not going to talk here about the strategy around pricing, or valuation, or how you talk to investors. I'm talking more about the sort of nuts and bolts that happen behind the scenes. In very simple terms, you can either raise money on a priced round, or you can also raise money on a non-priced round, which are also known as convertible rounds. So in a priced round, the shares are sold for a specific price at the time of that round. And in a non-priced or convertible round, the investor gives money now, but the shares are given in the future. And the ordering for this, usually in the US, and usually in the valley is that startups will first raise money on a unpriced round to raise a little bit of money. And then a couple of years later, they'll hopefully raise money on a price strand. The rest of the world hasn't quite caught up to this idea of unpriced rounds. So generally, we see when companies are coming us from around the world, and they actually raise money immediately on priced rounds. So let's go through an example of a priced round, and you can see how this works. So other say, the valuation of the rounds sets the price that the investor will pay to buy a share. So let's work through this, and with an example. So let's assume we have the same companies before. Our founders have 9 million shares, and they've done really well, and they're going to raise $2 million at an $8 million valuation. Now, that $8 million valuation is premoney, is the terminology. So that basically means before the investor puts any money in, the valuation of the company is 8 million. And so the way that you calculate the price for the shares that the investor will buy, is you just divide the 8 million valuation by the premoney shares, so the 9 million shares, which gives a price of 89 cents. And so then they will be able to buy 2.25 million shares for that $2 million. The post money valuation at this point is $10 million. Because it was the $8 million valuation before the investor brought money in, and now this $2 million sitting in the bank account as well. So it's increased the value of the company up by 2 million, so the post money is 10 million. And just you'll hear those terminologies just to get them straight in your mind. So now, this is what the cap table looks like. So we still have our three founders, they still own 3 million shares each. But we've now created a new class of shares which have been sold to the investor. And now, the investor owns 20% of the company. Each of the founders have been reduced from 33% of the company to 26% of the company. Now, this makes it all sound really simple and actually, it's not. There's various other complexities in here that I'm not going to talk about. And there's a lot of documents that are involved in here with a lot of things that need to be negotiated. So if a company is doing a priced round, then you would need to use a lawyer, you need to hire a lawyer to help you with all of that. And they'd be able to talk you through the whole process. So moving on to the unpriced rounds, and for most of companies who raised money now out here in the Bay Area, is they will use an instrument called a SAFE, which stands for Simple Agreement for Future Equity. And the simple is really important because it's actually is simple. It's only a few pages long, so it's easy to understand. We also have this documents on the White Combinator websites and really great primer, this explains a lot more about them. So you can look at that for some more details. And basically what it's saying is the investor is giving the company money now in return for the right to receive shares in a future round. But the investor's giving the money now, and so they don't want to receive shares in a future round at the price of the future round. Because when they invest now, they're probably investing at a much riskier stage, it's a much earlier startup. And so they want some kind of bonus or deal to reflect that. And so the way that, that's built in is, the safe includes what's called an valuation cap. And what this cap does, is it sets a valuation upper bound for the calculation of working out the price for the shares. So again, as an example, we'll use our same company. 9 million shares for the founders, but this time in April of this year, they raise $400,000 on SAFEs with a $4 million cap. And then fast forward some time, we're going to the future, December 2017, they raise a $2 million round, that's an 8 million premoney valuation. So this time, there's actually two calculations that need to happen, because there's the SAFE conversion price and there's the priced round price. And you can see here that the SAFE conversion price uses the $4 million cap as the valuation. Whereas, the round price uses the $8 million valuation, even though all these shares are being actually given at the same time. And so as a result, the SAFE holder here has a price per share of half the series A investors, the price round investors. So that means that actually for their money, because they came in early, they're getting twice as many shares as somebody who was putting in the same amount of money in the priced round. So that's how they get their sort of bonus in all of this. So again, the cap table, by the time we get to the December priced round, the cap table looks like this. So now, we also have the SAFE Investor in there on the cap table. And they own the same class of shares. Yes, question. >> Does a discount on the SAFE only kick in if the money raised is below the cap? >> So most SAFEs are on a cap. There is a separate kind of safe that has a discount. So are you asking does the cap kick in if the valuation of the round is lower than the cap? >> So both of those aren't applied in the same safe usually? >> Generally not. So generally you wouldn't have a cap and a discount because that's kind of cherry picking for the investor. So you would try very hard to avoid that situation. In the situation where you had a $4 million cap, but your round was at $3 million for instance, everybody would just convert to the $3 million route. Okay, so again we have the founders are now owning less of the company because they've sold some of the company to their investors >> Could you talk a little bit about why safe is preferred sometimes sort of 10% [INAUDIBLE]. >> Yes, so the benefits of a safe over priced round is that it's a lot simpler, so you can just sign one safe immediately and get the money, it doesn't require lawyers >> And I'll come and do a few more details. But basically it's simple. And that's the important thing. Okay, so let's talk about dilution and then we'll talk a little bit more about that. So the idea is this is the early stage of your company. If you think about your company as a pie. Where the size of the pie is the value of the company. In the early days, you have a massive slice of a very small pie. And then as the company grows, the size of the pie grows but your slice becomes smaller. Because you're giving away or you're selling parts of the company. But the important thing here is that actually your wealth and all of this is the area of your pie, the area of your slice rather. So the thing to bear in mind is that dilution is inevitable. It's going to happen. But the important thing is is that you're still creating wealth for yourself and for your investors, because that's how they make money as well. But it's just very important to actually consider dilution as your going through. One thing that we see founders make mistake early on is that they sell too much of the company early on to very low valuation. And really in the early days of a company, you're still trying to figure out what products you're building. You're still trying to figure out what you're going to do. So what do you need to spend the money on? Well, mostly money when you spend you money when you've raised is on hiring. But if you're at that stage, you probably don't want to hire. So why raise more money than you need if you can wait six months or a year, and rate at a higher valuation. So just something to bear in mind, as a way to not sell too much of the company in the early days. Okay, so in terms of the logistics as I was saying, price round is complex, as SAFE is simple. Again, with SAFEs you can use Clerky. They have a fundraising product as well, so they have the standard YC templates built into their system. So you can just plug in the investor details, plug in the amount of money, send it off to your investor to be signed, they get the bank wire details as well so they can send the money to the company. Which is also an important point you do actually want the money back from the investors. Is very easy to say, we've got investors in and it's great our first question is. Have you got the money in the bank and to fund the sale, no because some excuse, you got to keep working on your investors until the money is in the bank. The other thing that's a slightly, just a minor point here. Is because, you're selling equity in the company. The company, will need to complete a board consent for part of this even with a safe. And, that's a legal document with a specific form. And it's not enough just for the founders to [INAUDIBLE] each other and say, we're doing this right. And again Clerky will help you with that or if you're using lawyers to do any of this they'll with it as well. So it's just something to bear in mind. All right, so now you've raised some money, what are you going to do with that money? Well probably you're going to spend most of that money on hiring. And again, hiring is a complex area. It's governed by a lot of laws and regulations. And I'm no specialist. Don't expect you as founders to be specialists. The important thing is that you understand the basics and that you understand that there are people out there who could help you with all of this. Okay, so the first part of this is deciding if you're going to hire somebody, what role they're going to be. So in the US, again, you can hire somebody either as a contractor or as an employee. And they have slightly different characteristics and slightly different results in terms of how you pay them. So in both places, a contractor and an employee will assign the IP that they create to the company. So a contractor will sign a consulting agreement, an employee will sign an IP assignment agreement. But then for the contractor, there's some requirement for them. So generally, they set their own work hours, they work on a specific project with an end goal that's very defined, they use their own equipment and they're not really involved in any day to day running of the company. So an example of this would be, you hire a designer to design your website, and it's a month long project and they deliver you a website. And you say great this is just what we need. And off they go onto their next project. On the other hand, employees will be tend to use company equipment, so the company generally will provide them with a laptop. They will usually be working company hours and in and the company location. Of course, with startups that gets a little bit gray. There's more supervision. They have less autonomy over their decisions about how they actually do their work. And importantly for the US, for an employee to work in the US, they need to have work authorization whereas a contractor you could hire remotely and they wouldn't need work authorization. So for contractors, if you decide that you are hiring a contractor, then you would agree in the contract how you would actually pay them, and usually that how the time on milestone based. So, milestone based would be in our example, the web designer may be you provide 25% of the fees up front and you provide the other 75% of the fees when the designer provides the final design for the website. It's really straightforward for the company to pay them because they don't have to worry about any taxes being withheld or anything else like that. So you just pay the contractor and then at the end of the year, the company will create a form that's called a form 1099. Which you send to the contractor so that they can include the income in their personal tax returns, and also the company sends one to the IRS. Obviously, that's the US regulation, so you have a company that's not in the US, then you wouldn't need to file a 1099. And generally if you're working with a contractor who's not in the US, you wouldn't need to file a 1099 either, but things get a little bit more complex there, so take advice. On the flip side, paying employees is more complex for the company. So, the company pays their employees, but the company withholds tax on the employees' behalf and pays it over to various agencies, so IRS, to state agencies, and sometimes to city agencies as well. So, there's a lot of calculations in there. It gets very complex very fast if you have employees all over in different states. And it's more of a headache for the company. But the IRS prefer it because they get their tax every time the employee gets paid. And then so what happens at the end of the year is the company provides a form W2 to each of the employees and then the employee uses that to show how much tax has already been withheld on their behalf. And how much income they have. So, this is a situation where you should absolutely not be the person calculating all of this. You should use a payroll service provider. It's totally worth the money. It's not very expensive, and they basically take all of this hassle away from you. And the company that a lot of YC startups use, who is a YC company themselves, is Gusto. And they just deal with all of this for you. It just makes life a lot easier. The other thing to bear in mind is that under California law, in particular, but other laws as well, employees are required to be paid minimum wage. So, you can't have somebody working for you for free and expecting them to be producing work for the company. So, do just bear in mind that when you are hiring people, you do need to pay them. The other part of a startup employee's compensation package is made up of equity. And usually this is, again, the part that is the way that they possibly create more wealth for themselves. It's really important that startup founders do give employees equity, because it helps to incentivize everybody to work towards the same thing, which is creating a successful company. And often in the early days, for employees they're being paid below market rate, still above minimum wage, but below market rate. And so, giving them stock in the company is a way to compensate them for that reduction in cash that they're potentially seeing. So, it increases their upside. And it's really important that you are generous with shares, particularly in the early days. Because the people who are going to be employee number one, two, three, are going to be with you for a long time, they're going to be working really hard in the same way tat the founders are. They're going to be setting how the company goes forward, they're going to be doing a lot of stuff. And so, it's important that they are motivated in the same way. And as a rule of thumb, you can think about giving maybe 10% of the company to the first ten employees, but obviously on a sliding scale, so employee one gets more than employee two, who gets more than employee three, etc. And the reason why it's not that much of a gamble to be generous is that all of these will have vesting, all of these employees will have vesting on their shares. So, if something doesn't actually work out and you have to fire the employee, which when you're hiring people, generally, startups make a lot of mistakes and have to fire a lot of people. You're not going to be too burnt by that, because the vesting means that the company has the right to repurchase their shares. The way that companies usually structure this is they create a stock plan, which is, again, another bunch of legal documents which need to be signed and kept. And they, again, can be done on Clerky or you can use a lawyer to do those for you. And you can either issue shares or you can issue options from that stock plan. And usually what you tend to find is that employees are issued options, which means that they have the option to pay to buy shares in the future, but the price is set now. And so, what this means that's good for the employees is they don't have to pay the cash immediately. They can actually exercise their options in the future when the company is looking like it's successful or even in conjunction with an acquisition or something, so they don't even end up any way in out of pocket. And there are some tax consequences to that which, it's too much detail to go into now. But there's a lot of resources online about options, about how to issue options, about the pros and cons of them. So, if you're interested, there's lots out there. Finally, the other thing on this is, it's really important to communicate to your employees what they're getting in terms of equity. So, first of all you need to be clear to yourself what they're getting. Which means that you need to understand the number of shares they're getting and what that represents in terms of percentage of the company. Because if you only give them one and not the other, it gets very confusing because you can say, you have x percent of the company. But what that does mean, x percent of what? Whereas if you say, you have a 100,000 shares, well, what does that mean? Is that a lot of the company or is that a small amount of the company? So clear in your head, and then be clear with the employee about what's going on. All right, final topic is just a couple of reminders about things that you have to do to be a legitimate company. So, it's important that you keep all of these documents that we're talking about in a safe place. You're going to need them at stressful times. You're going to need them during acquisitions. You're going to need them during fundraising due diligence. You're going to need them so many times, that if you don't have them all stored in signed format, it's just going to make your life really hard. So, keep all your documents in a safe place just assign one of the cofounders to be responsible for this. You should make sure you know your key metrics in the company, which again, is going to be covered in a lot more details through out the course. But it's the kind of thing, that again, you just want to have on the top of your head immediately. And also, you should make sure that the money that you're spending, that the investors have given to you, is being spent sensibly. Spend money on things that will increase the chances of the company being a success. These investors have trusted you with their money to try to multiply their money. They haven't given you their money to go off to Vegas, which happened to one of our companies a few years ago. Where one of the founders took quite a lot of company money, went to Vegas, had a great time according to Facebook. And the founders and investors found out, and that founder got fired. And actually, he could have faced criminal charges as well. They decided not to press charges, but just bear in mind that this is the company's money and that's what it should be used for. Okay, so in conclusion, that was a really fast run through of some of the basics. Don't expect you to be experts in any of this. Don't expect you to have all of this figured out. But it's just important that you know that there are some things that you need to do. And these items up here are sort of the really key takeaways for this, to just bear in mind as you go forward with your companies. Okay, I think we have a couple of minutes for questions if there are any. >> For the employee. Shares, what's generous for, like the first five employees? When you say the word generous? >> Well so, you know, it depends, because it depends on the kind of hires that you're giving. So if your first hire is going to be a Software Engineer. That's going to be very different if your first hire is a community manager, say. I mean, for the first 10 is usually somewhere around 10%, maybe for the first 5, you want to be somewhere in the sort of 7 to 8 mark, but it really varies. And part of this is you have to think ahead. So you don't want to be giving employee number one 30% of the company, and then employee number two 20% of the company, because you're going to run out of company to give them. So it's part of planning ahead for your hiring needs. >> How much transparency should there be inside the company of the cap table, and how should that change as you grow in employees? >> Yeah I mean in the early days, where it's just the founders, there should be 100% transparency. Everybody should know everything. Generally as the company grows, it becomes slightly less. You wouldn't share a line by line table to your employees, for insistence. But obviously, this transparency is saying you have this number of shares and the total number of and the total number of shares is this, is going to give them the information that they need. Because they only really care about themselves. They don't care. Well, actually, that's not true, is it but. >> [LAUGH] >> They should only care about themselves. They shouldn't care about what the person next to them is getting. But you wouldn't share that information. >> For organizations that may have a faster path to profitability, and a longer path to exit, is it still best practice to give up equity instead of doing things like profit sharing? >> I mean, if you're looking at a startup, you know, the sort of general start up idea of hockey stick growth, and most of the value is created by equity. It's a good idea to generally compensate people through equity. If you're looking at more of something that's kind of more of a lifestyle business. Which can be a great business for two or three founders who don't take outside money and create a business that's very profitable from the start. Then yes, maybe doing some kind of profit share or some kind of very generous bonus scheme or something like is a better answer. But usually that's not the case for startups. Usually they're not profitable for a long time. >> How did they insert things different if you have more of non-for-profit or social good based company that's main prerogative isn't necessarily becoming the biggest x in some field? >> So nonprofits are very different, because there isn't this idea of owning shares and things, so that's a whole different idea. And there's also rules around how much you can pay employees in non-profits. On the social good companies, it kind of depends on what sort of a company it is? You know again, you need to decide in a way of, what's your mentality, and is your mentality still to be like a start-up? Even though you going to do some something that gives back, you can still have a startup mentality in that. And so you probably still want to go down that path though of having equity and having that conversation in that way. And you can still fund raise as well, as a social good kind of company. It's a little bit harder, but you can still do it. >> So let's say you granted those 10% for the first 10 employees and then you are going through another round of funding. Do you dilute only the founders or also those first employees? >> No, so generally, well this gets a little bit complex, but the simple answer is that subsequent rounds of fundraising will dilute all existing shareholders in proportion to their existing holding. It's a little bit more complex than that, but that's the general. >> Yes, so you need to make sure those employees will know you might be giving them shares now that represents 1% of the company. But by the time it gets to an exit, it might represent 0.01% of the company. But in that respect, they probably have been given more later on, and this idea of the pie being much bigger. So even, you know, 1% of the company that's worth zero is still worth much less than 0.1% of a company that's worth $100 million. >> Just the salient differences between preferred shares and the common shares. >> Yeah, so investors get preferred shares and as the title suggests they have some preferences. And I'm not a lawyer, I'm a finance person, so I can do this in a very top level explanation. But basically, they have a bunch of rights that common holders don't have. So they have things like liquidation preferences, which means that, when the company exits, they're first in line to get their proceeds, to get the amount of the money that they invested back, before anybody else does. So if, for example, if investors invested $2 million into a company, and then it got sold, but the cash was, and sorry. They invested $2 million into the company and they earned 20%, but the cash that came out of an exit further down the road was only $2 million. They would see all their money before any of the common holders, ie the founders, would see theirs. So that's one and there's various other different protections that they have in there. That's probably the key role in the financial basis. But then there's voting rights, there's rights to first refusal. There's lots of different things and that's why it's a much more complex negotiation because you have to negotiate all of these rights within there. >> Is there any specific [INAUDIBLE] where you see it's really successful on the [INAUDIBLE] setup? And you don't have to say the company, but who you think? There's like a specific motto that you think works really well for companies and schools? >> That's a great question. I think the companies that do this well are the ones that are transparent. And the ones that sit down with their employees and really talk through what these things mean and what options are and how vesting works. Here's a scenario where some companies will have, if the company exits for this much money, what does this mean to you? Whereas if the company exits for this much money how will you see? And so, they've done all of these calculations and they really make sure that employees understand. And I think that's a really good practice to have. And what that means, what that needs first, is the founders need to understand it, which is actually surprisingly not common. [LAUGH] Often, I have a lot of conversations with founders where they don't understand this stuff. They can't even explain it to their employees, so understanding it yourself and then being very clear with the employees, and being organized as well. >> You said you gave say 10% to the first ten employees, what's- >> This is not just a rule of thumb. >> Sure [CROSSTALK] >> Everyone's fixating on it. >> My next question, the next rule of thumb is, after dilution, roughly how much of the company do you think, on average, those first employees would end up owning as an acquisition? >> I mean, it really varies because it depends when in the life cycle of the company it gets acquired, it depends how many fund raising rounds there's been. It depends how many more employees there've been after them. So there's a lot of different variables there. I mean, the first money that companies raise will be the most dilutive. So if an employee comes in, and there's already been three rounds of money. Then they're probably not going to be diluted as much as if they were the first employee and then they have to go through all of that dilution. But it's hard to give a number. >> So could you throw some light on how at one shares in Facebook were diluted? [INAUDIBLE] >> No, [LAUGH] I don't know enough of the details, [LAUGH] sorry. >> Do safe notes usually convert to or into common equity? >> So safes not safe notes. They convert usually into preference shares, because again, the investors want all of the rights and privileges that come with those preferred shares. There are some circumstances where they might convert into a combination of preferred and common, but that's less usual. >> Have you seen any different types of vesting schedules for companies that are on longer term timeline where the cliff might be longer than a year, and the total time might be more than four years? >> I sometimes see companies push it out to five years. And also, sometimes companies don't have the cliff at all and they just do monthly vesting over the period. But the longer the time line, it's a harder sell for the employees, and so you've got to be mindful of that. But on the flip side, what usually happens is, you know if you've had an employee who's been with you for four years, then they've been fairly diluted. Because there's going to be funding rounds, there's going to be subsequent employees, so you would actually give them a new stock grant on top of the one they already have. Which would then have new vesting from the date that you granted it from them. So then they'd have another four year period there, so that's kind of how you get along, how you get through the long time period. Okay, last question? >> Have you seen any situation where somebody can trade a common share for a preferred share or the other way around? Or is that common? >> So there wouldn't really be a case where you would trade common shares for preferred shares. There is a mechanic in the fundraising, in the sort of priced round documents, this allows preferred shares to be converted into common in various different circumstances. But that's usually around exits and calculation of proceeds and things like that. Or are you trying to get at founder's preferred shares? >> No, I think you just answered it. >> Okay, all right. I think we've run out of time. So thank you very much for listening everyone, and enjoy the rest of the course. >> [APPLAUSE]