OPEN-SV: Ask-Me-Anything with Riaz Karamali

Riaz Karamali invited OPEN-SV members for an Ask-Me-Anything event on a Friday morning in September. There were seven attendees who introduced themselves and asked for advice from Riaz.

Riaz told he currently deals mostly with privately held emerging growth companies -- advising their founders and executives, attending board meetings and advising them on legal issues, venture financings and exit transactions.  He has helped hundreds of companies in their licensing, venture financing, “exit” and M&A activities.

Riaz fielded questions from each attendee encompassing how to create an app-user licensing agreement, equity grants, venture funding, founder relationships and their equity distribution, metrics for a freeware/shareware, and crowd-funding among many others.

Responding to question on how to evaluate and estimate a stock grant offered by a startup as compensation, Riaz mentioned that usually private companies do not disclose complete details of ownership, but a prospective employee should definitely ask for how many shares are in the “fully diluted capitalization” as that will allow you to calculate the percentage of the company you are being offered.  However, in order to estimate how much you might receive in a hypothetical exit transaction, it is important to understand the liquidation preferences of the preferred stock, if any, as those amounts will typically be paid out in advance of any payments to Common stockholders.   To confirm what you are being told, you can ask to review the company’s certificate of incorporation which contains the details of the liquidation preferences.

Riaz provided a high-level overview of the need to incorporate and allocate shares to the founding team in a timely basis.   Often, this includes considering allocating founders stock to folks who helped minimally early on. That explicit allocation avoids possibility of someone seeking a larger share claiming to be “one of the founders” once the startup has become valuable.

Regarding crowd sourcing vs VC funding, Riaz opined that non-equity crowd funding may work better for some products and for better gains without diluting ownership. He also discussed merits of LLC vs a C corporation, and basing in the US vs abroad.

Identifying as an important part of IP, Riaz highlighted the need for  a software startup to own its code versus licensing. He stressed  the need to get “assignment” of code from any outsource providers. Responding to a question about bay area high-tech companies going after employees after they leave to found their own gig, Riaz told us that it is important to understand the actual restrictive agreements at play and the specific facts of the situation.  Investors want to know about venturing founders’ work-overlap with their former employers, so getting proper advice up front is key.

Attendees stayed after the event was officially over and had some time to mingle with host and others present. We thanked Riaz for his time and advice while handling diverse issues succinctly in such a brief period of time.

Arif Shamim
Chair, Membership Services, OPEN-SV