VC Demystified: What the Term Sheet Is Really Saying with Stephen Tallon

We've had examples where they've done a small raise before. They needed institutional money. But the terms that they gave to that angel investor were just so onerous that it gave the angel investor preference rights over any incoming future investor. It gave them a veto, a consent right, and a veto over raising the new money. And that angel investor used those positions to really kind of leverage a better deal for themselves. And so you don't want to put yourself in that position. You want to, if you are raising angel money, you want it to be as clean, simple, straightforward as possible so that when an incoming VC looks at it and looks at who's already involved with the company that they know they can do business with them. They're going to be able to have a straightforward, easy life here and the round isn't going to be overly complicated. Welcome to the Digital Irish Podcast, where innovation meets heritage and global impact is the name of the game. I'm Dave Byrne, your host on this journey through the stories of Irish innovators, entrepreneurs and creators who are having an incredible mark on the world stage. We are here to showcase the incredible talent that Irish visionaries bring to the world. Welcome back to the Digital Irish Podcast. We are continuing our series on demystifying venture capital and investments overall for founders and startups. So if you are a founder thinking about raising investment, you've probably spent a lot of time perfecting your pitch. But there's another side to the table that doesn't get nearly enough attention before those conversations even begin. And it's the legal side of things. And today I'm going to be joined by Stephen Tallon, a partner at McCann Fitzgerald, one of Ireland's leading law firms, where he focuses on emerging companies, venture capital and mergers and acquisitions. Stephen trained in Ireland before spending almost a decade in London at Oric, a global firm with deep roots in Silicon Valley, where he worked with some of the biggest deals across Europe and the US with companies like Stripe, Revolut, Salesforce Ventures. He since returned home to Ireland and joined Universal macann, which has built out one of the largest and most experienced emerging company and VC teams in Ireland, advising founders from pre seed all the way up to exit. So I thought, who better to talk to than Steven? Because in today's episode, we get into what investment readiness actually means from a legal standpoint, why your cap table could make or break a deal, what founders consistently get wrong before signing a term sheet. And then we also get into the logistics of a Delaware flip and what that actually involves for Irish companies. Looking at US Investment So in this episode, there's a lot of practical advice in here that I think you'll genuinely change how you think about the fundraising process. So let's get into it. So, Stephen, thank you so much for joining today on the podcast. Yeah, thanks very much for having me. It's great to be chatting to you and looking forward to the conversation, which I really hope will be a helpful one for founders and touch on a couple of important points for them. Absolutely. And before, when we were catching up about you potentially being on the episode, you know, one of the key areas that you wanted to really focus in on is almost the pre funding preparation. So I'd love to kick off from the VC side of the table. So when a VC looks at a company for the first time, what are they actually evaluating? Walk us through what investment readiness means to a vc. Sure. So the investment process from the VC side is pretty complicated. It covers off a lot of different factors and areas, whether that's assessment of the business case, looking at the team that's founding and running this company, what's the TAM look like, what are the financial financials, is it in a regulated industry, whatever that might be. And so the process very rarely focuses on the legal side of things very early on in at least in those initial conversations. But I do think there's a lot that founders can do to help themselves when speaking to VCs for the first time in terms of having their legals in order and having the house in order generally. I think we can touch on some of the specifics later on, like whether it's cap table, employment contracts, whatever it might be. But my general advice to founders is really just that. Have your house in order. Set up some kind of data room that's ideally a secure one, where you can keep and organize all of the company's important records and documents. The amount of information that you have in there will obviously depend on the size and the stage of the business, but don't let it stress you out if everything isn't perfect or there's gaps in the information. Startups are messy and VCs know that. They don't expect you to have everything buttoned up from early on. But being able to show a level of organization and commercial awareness as to what's important will really demonstrate a level of professionalism and hopefully set you apart in those initial conversations. Remembering always that VCs are having tons of these conversations with founders early on. So a little bit of kind of messiness is okay. But when I speak to offenders, they often Put a lot of attention on making sure that they've got the pitch deck down and they've got that 100% prepared for those kind of initial conversations. What else do you think needs to be in order before those conversations even really get going? Sure. So it's a really good point to be thinking about as well before you go in. But again, it all depends on the size and stage of the company. So if you're a founder in a very early stage, pre seed part of the business, there'll be very little on the legal front that can be assessed in detail. But you should have things like your incorporation documents all lined up. If you have employment contracts, they're good to have in place. But it's really at that early stage, pre seed stuff. It's really about the team, the business idea and the potential of what this could become. As your company matures, it gets a little bit older, you've done more stuff. Or if you are in say a regulated industry and particularly thinking of like Fintech here with E Money, licensing and things like that, there may be more questions on the legal side for the VC to dig into. And so really knowing your stuff on that front and being able to speak authoritatively as to your area, your world is really important. And a good advisor will be able to help prep you for those questions as well and make sure that you have all of that information at your fingertips. But I think no matter the stage, one fundamental thing that we see founders struggle with or slip up on is really around knowing the cap table and the corporate structure. So investors need to know what they are investing into and they need you as the founder to be able to tell them exactly what that is. So is it a private company? Have you set one up yet? Where is that company? Is it in Ireland? Is it in the us? Who are the investors? Who are the shareholders on the cap table already? Do you have any other securities like safes? You will hear a lot of, and we can dig into any of that detail as and when you want. But are there any safes, convertible loan notes, things like that that might impact who's on the cap table? And if you aren't 100% confident and clear on that, do you think it shows doubt from the very start? And it can be the one that puts VCs a little bit uneasy or a little bit on edge. That's actually an interesting one. Thinking about how a founder should think about their cap table before going into a raise, it sounds like then being very confident, being very clear and being very organized in regards to what's there and what they're putting on the table is kind of fundamental to make sure that the conversations don't slow down or the deal is potentially even killed. Yeah, I think that's right. And a good venture lawyer advisor, whoever it might be, and maybe you can do it yourself as well, should be able to help you prepare a pro forma cap table. So you've got your cap table, which is who owns what today. But the pro forma element of that is what does this round look like and where will you end up after you close? So that's really helpful in a couple of different contexts. But going in, you can show the VC exactly who owns what, and then the pro forma element, when you get into it, the calculations for the round will give you a better sense of right at this valuation, what does that price per share mean? How many shares does that mean that the incoming investors are getting? If you have any safes, ASAs, CLNs, all these different acronyms standing on the cap table, what does their conversion look like? And then the third element of it is really, okay, well, if we do this deal after the fact, who owns what? And so you might own 80% of the business today going into those conversations. If we do this deal, the founders are going to get diluted down to, say, 60% or is it below 50% and what implications? And this is where a really good venture lawyer can come into its own and really help the founders understand the nuances of what they're getting into. If you fall below certain thresholds, what does that mean for you? How do you game plan out what the cap table looks like after you close this round? And I think that's something that sometimes gets overlooked when you're, you're just so eager to do a deal and get, get a term sheet in from a vc. I definitely want to talk about term sheets because, you know, I think that's, that's somewhere, you know, you've made a great point where I think a few founders are, especially if they're kind of cash poor at the moment and they're looking at only a couple months Runway, they're probably thinking, oh, I just need to get in a deal as soon as possible and can kind of overlook certain things on a term sheet, but kind of sticking with the structure and the cap table right now, Are there kind of early decisions that you sometimes see founders make that actually become potentially problematic later down the line as things progress? Sure. So I guess that goes to knowing who you're taking money from and who you've taken money from. So the problematic element of it comes in when, and we've seen this before, where you're trying to get money in from everywhere and anywhere because the company needs money, it needs lifeblood to keep going. And there's no point in having the best idea in the world if you can't get it off the mat. But if you are taking money from people understanding what terms you're taking it on, are there any discounts that are going to be given? Are there any kind of showstoppers for an incoming investor? So we've had examples where they've done a small raise before, they needed institutional money. But the terms that they gave to that angel investor were just so onerous that it gave the angel investor preference rights over any incoming future investor. It gave them a veto, a consent right and a veto over raising the new money. And that angel investor used those positions to really kind of leverage a better deal for themselves. And so you don't want to put yourself in that position. You want to, if you are raising angel money, you want it to be as clean, simple, straightforward as possible. So that when an incoming VC looks at it and looks at who's already involved with the company that they know they can do business with them, they're going to be able to have a straightforward, easy life here and the round isn't going to be overly complicated. And also, I guess it goes to the founder's commercial acumen as well. Right. So again, like the company that inspects everything to be perfect. They don't expect founders, who are particularly first time founders to really have that kind of awareness to hammer home a deal on those early stage points. But they also don't want someone who's just given away the, the family jewels at the first sign of money as well. So a little bit of commercial awareness when you're doing any early stage deals, that's actually really interesting. I mean, it's almost, it's almost those kind of decisions of like, hey, especially with those early stage angel investors, it's like if you end up kind of selling too much too early, it could actually really hamper your long term growth potential and also the potential to actually get in any additional investment to help with that growth. It's actually a really stark warning for folks to make sure that they do the due diligence early on. That's right. And the other thing to be aware of it with giving up too much dilution too early on is depending on the type of business you've Got the sector you're in, how much cash you're going to need to get this up and running into a flywheel where it's revenue generating and doesn't need or might not need any future investment. You don't want to give away too much dilution upfront because you might need to do two, three, five, six rounds of fundraising. And at every one of those points, the founders are going to get diluted. And the problem that that presents for investors is, okay, well if the founders are getting diluted at each round here, at what point are they going to have a de minimis amount of shareholding so as to no longer be financially incentivized to grow this business anymore? So you want to keep your founders with enough skin in the game and value in the business that they want to continue to drive the growth in it. And if a founder gets too heavily diluted too early on, the investors will end up doing what's called a founder re up. So that might be by way of an additional grant of options to the founder to say bring them, if they get diluted down to 1%, bring them back up to 10%. That can be extremely uncomfortable conversations to have with investors because it's poor cap table management and it's no longer just diluting the founders, you're then diluting the investors and they don't particularly like that. So going back to the term sheet itself, what is the term sheet actually doing for founders then? So if there's a first time founder on the call, why should they be paying attention to a term sheet? Like what does it actually create for them? The legal status, commitments, that kind of thing? Sure. So a term sheet, pure and simple sets out the headline terms on which the parties would do a deal. So the company, the founders and the investors, it's usually two or three pages long. I mean the good ones are, and for early stage deals it certainly should be, they can go longer. But what you want to avoid with the term sheet is setting a chapter and verse in there. That's what the lawyers and the long form documents are for. And so it should be focused on key terms only. Your venture lawyer will then take that two or three page term sheet and they'll turn it into a full set of legal docs which set out all of the key terms in much more detail. But it's important to remember in terms of its legal status that, well, the term sheet isn't legally binding. So there's no obligation if you sign a term sheet to do a deal. It is what we refer to as morally binding. So you say you're going to do a deal, you sign a piece of paper. It's kind of hard to walk away from something that you agree to in a term sheet. And so not legally binding, but morally binding. Leads me to the kind of advice that I always give to founders, is that I really encourage them to get in touch with me as soon as there's any talk of a term sheet, not after they've signed one. If it's after they've signed one that the horse is already bolted, whatever the saying might be. And there's very little that you can do at that point because of that morally binding view of the world that term sheets take. So again, if you've signed up to a term sheet and then I get involved and I say, well, that's really off market and I think we should try and push back on this or that the VC on the other side could take the view of like, okay, well, if you're going to reneg on what we agreed on that point, I'm going to renege on whatever else we agreed. So kind of everything's off the table once anything goes off. So not legally binding, but morally binding. Get involved and ask someone for advice before you've even started talking about the term sheet or drafting it. Or maybe the VC has sent you a draft term sheet and asked you to kind of consider it. Call a good venture lawyer, they'll be able to help you. And it's much better to get them involved earlier rather than later. I do think some founders are slow to get lawyers involved, possibly for fear of incurring costs early on before they really know that they've got a deal. I guess. Can I speak for my part? I tend not to charge clients for helping them with term sheets. One, it allows them the comfort to get me involved earlier rather than later. It allows me to show them how we work at McCann Fitzgerald and where we try and add huge value by guiding them in getting those little nuances right from early on. And then, selfishly, it makes my life a lot easier if I can set a term sheet up in the right way with market standard terms that protect a founder in a fair way. Because then I can just roll that into a pretty comprehensive set of legal docs on the other side. So let's just say a founder reaches out to you. They say, I've just got this draft term sheet from a potential investor. I need you to kind of take a look over this and let me know if there's anything that I should push back on or negotiate on? Is there anything that you tend to find is things that are very malleable in regards to being able to push back on. Are there things as well that tend to be non negotiable when it comes to what's in the term sheet with potential investors? Yeah, I think it probably depends on the founder, I guess their style, personal style, the dynamics with the investor as well come into play. Do they have a pre existing relationship? Is this new? What is the market like at any given point in time? Has this been a competitive process or not? So everything in context. To give you a very high level, easy answer, yes, there are market standard terms and there are things that are always up for grabs and there's a bit of wiggle room on all of these things. Market standard is a funny term that you'll hear tossed around by people and one person's market is not another person's market. It depends whether you're doing a deal in Ireland, the uk, the us, whatever it might be. But it's a commercial negotiation, right? So kind of you can negotiate everything that you want to, but what a good venture lawyer will help you do again is try and guide you into what's reasonable, what is pretty standard, what you might look to get yourself into the position for. So to give some examples, like I've worked with founders that are coming out of big tech companies. They've got the next greatest AI business was one that popped into my head when I was thinking of examples. So they were coming out, they had an AI company, several VCs here in London, really wanted to get involved in the company. So they were able to just say no, no to all the terms that they didn't like. And they ended up with a really clean one page term sheet that kind of didn't really have much in it in way of investor protection, was very pro company, pro founder. That was fun for me because it was able to just kind of go, no, we can set the terms however we want. On the other hand of that, I've worked with founders who built great companies, but then the market just turned on them and they ran out of cash. They didn't give themselves enough Runway, they came late to the fundraising process and the investors could really just dictate their own terms in that case. And so to the point that you were touching on earlier, when do you start to have these conversations? We usually say it's best for founders if they give themselves 612 months of Runway, puts you in the best negotiating position because you're not going to be pushed for the cash. You have time to go through the process properly and not be rushed into, rushed into taking a deal that you don't particularly like. And I guess on the terms themselves, having someone in your corner that's looking out for the company, looking out for the finder and doing that horizon scanning is helpful to have. It's kind of crazy to hear that there's like a one page term sheet. Like if. It almost sounds like that timing is almost like a huge factor in what the terms may look like in regards to, like how you can negotiate timing in regards to like what's happening in the market, but also your own Runway. So it's like, hey, if you've got 12 months of Runway and the market is looking great for your business, it almost sounds like that that's the ideal spot then to be negotiating terms for the term sheet. I think. So again, whether it's negotiating a term sheet or your lease renewal on your rental flat or apartment, you want to give yourself the best chance of success. You want to have the time to consider things properly. You want to talk to the right people, get the right advice, and hopefully that all leads to an outcome that is fair on everybody. I mean, there's that saying about like negotiation. Like if you don't want one person to be absolutely winning because then it feels like the other person is going to walk away unhappy, kind of both parties need to be a little bit unhappy with the deal that you end up getting. And I think the best way to get get there is to be coming at it from as equal a negotiating platform as you can be. So we've talked about this ideal scenario of like coming to you before anything is signed. But you also mentioned that you've had founders come to you after they've signed term sheets. How difficult is that then to kind of navigate? Like, do you often like what happens in those moments? Like, are you able to kind of do any kind of renegotiation or is it a little bit of a, hey, we just have to deal with what's being dealt to us? No, certainly, it's certainly not a, it's not the latter. You can always have the conversation. And what we'll do in that situation is I'll kind of get the term sheet, I'll go through it, I'll flag up what maybe off piste or off market or what, what I think could present an issue down the line, and then I'll have a chat with the founder and kind of explain all of that to them explain what we would have done had we been involved from early on. But look, this is the position we find ourselves in. You then make it, you have a practical commercial discussion at that point on what do we really care about, what can we live with, what can we push back on, or what do we want to potentially burn the political capital of having the conversation on again? So if something is fairly fundamental, I think it's incumbent upon me as an advisor to tell a founder, look, I think you're really going to set yourself up for failure here if you go down the line with that, maybe go back to the investor and say, look, can we have another conversation about this particular term? I think that's usually an advisable way to do it, rather than just have a, a lawyer plow ahead, prepare deal documents that don't correspond with the term sheet and the deal that you've done. Because there's a very different reception to a conversation from a founder calling up a VC on a principle to principal basis and saying, look, I know we said this in the term sheet, but we've gotten advice now and could we maybe look at doing it this way versus a lawyer sending another lawyer a set of draft documents with no commercial discussions in the background that don't correspond with the term sheet, because the term sheet is the starting point. So what the lawyer on the other side will do is say, well, like this isn't in line with the term sheet, so not agreed. And it might just set the negotiation or the reception of that change up in the wrong way. So I always think it's, it's worth to just kind of hold your hands up, have that conversation up the front, but you need the advice to be able to do that. And that's where I think we can kind of help out. Ideally, if we're involved from the start of a process, fundraising process, we can really help founders shape what that process looks like, work through the pitch the data room, do it in a structured way, and then make sure the right terms are in the term sheet before it gets signed. And then you don't have the heartache of all these problems. But that's in an ideal world that I'd love to live in, but it doesn't work like that every single day. So, yeah, there are ways to kind of navigate an already signed term sheet largely as well. Most of it is fine, to be honest. There's just, there's a couple of key nuance points that you're better off picking up in a term sheet and setting yourself up in the right direction rather than trying to unpick it after the fact. And is that to do with things like dilution or you know, like liquidation preferences, valuation mechanics? Like, is there anything in particular that you try to keep an eye out for on behalf of the founders? Yeah, it's a really good point to get into the detail a little bit more. Founders are usually pretty across the valuation point. It's purely commercial. It's how much are we saying this business is worth today? And from there it kind of depends on how much detail the founders want to get into understanding the rest of what's in there. Some just want to hands off, let the lawyers do what's market and go forward. But others like to get into the detail. And so there's usually a few that I pay particular attention to because I think they are salient and particularly relevant for founders. So the first one tends to be on the consent rights. So this is a set of things that the company cannot do without investor approval. They tend to be broken into two different buckets. One is say investor majority consent matters and one is investor director consent matters. The difference between the two is one's a shareholder vote, generally dealing with economic matters. So investor majority, if you want to sell the company, wind it up by another company. All of those kind of like big economic decisions that could go to the value of their shares. That's a consent right matter. More operational, day to day bigger decisions like hiring employees at a C suite level, taking out a significant level of debt for the company, things like that, they might want investor director consent. So say they've got someone sitting on the board, they want to be involved in that decision as well. And those consent rights are absolutely fine standards. But there are ways in which you can set up the thresholds which more fairly reflect the kind of cap table of the company and the operation so that you don't get stuck at any point. So like one of the keys that I try to set up for that, who gets to approve those votes, is that you never let any one party have a named veto or unilateral ability to block the company doing something. If it's going to be a majority, you need more than one person. So looking at the term sheet, looking at the pro forma cap table that I mentioned earlier as well, and using those two things in tandem to talk about like, okay, it's fair that they have a consent over this, but what's the appropriate threshold that we want to set there? That's one thing that we can build into the term sheet, the flip side of that, and sometimes we can get this with early stage, if you get in there early enough and kind of institute it into the documents, is the investors always look for their consent rights. But sometimes people don't think about the founder consent rights as well. Because in the start, in the early stages of this business, the founders are the majority shareholders, so they don't have to think as if they're a minority shareholder. But again, as we were talking about over those subsequent rounds, founders get diluted and diluted and diluted and they will find themselves, if this goes, that goes further down the line in a minority shareholder position. Sometimes we look to institute a founder consent regime that sits alongside the investor consent regime. VC is not going to offer that up to you in the first instance. So you've really got to be thinking ahead about it and putting it in there. It's a fairly fundamental term, so you'd want it in there in the term sheet. They might say no, but where we've been successful at getting it in, it's proven down the line to be a really helpful and effective way of protecting the founders through dilutive rounds. I mean, that's just a prime example there of why it's important to reach out to somebody like you in the early stages to help with that kind of negotiation and make sure that those protections are in place. Yeah, and look, that's what we do as well. And we do this all day, every day. And I was lucky enough to have 10 years of experience here in London working with one of the busiest VC law firms across Europe in the US and so I've done hundreds of these deals. Whereas a lot of the time the founders are coming to this, they might be first time founders, having literally never done it before. And you're not expected, you don't know what you don't know and you need to ask people and you need to work with people who have the experience of doing it. And I'm not naive to think that I know everything as well and I certainly don't know what these founders know about their businesses. So it really is a two way street to think and a dialogue in terms of working with anybody in this world. You have to understand what you're good at, you have to understand your limitations and ask for help and advice whenever you need it. And it can really pay dividends down the line. So I just want to ask because one of the things that you said earlier was that you often do this term sheet analysis and kind of support for free to Kind of help set up the, the founder and the business for success further down the line. So like, you know what happens after the term sheet is sorted? Like what kind of support are you then offering post assigning of that term sheet? Like what, what is kind of like the next like step for you and the business that you're working with? Yeah. So we want to be there as the long term legal partner for all of these companies and founders that we're working with. We don't want to just do the term sheet and wave goodbye. We don't want to just do the fundraising and wave goodbye. What we really like to do is go on that growth journey with founders and these high growth companies and you really come into the kind of the Macapa Charlie, the ecosystem as it were, of all of the other experts and advice that we can give around the firm. And it was one of the things that attracted me to the firm is that strength and depth across the board. So you will transact in terms of a fundraising, a corporate process maybe every 12 to 18 months. But we don't want to just wave goodbye at the end of a transaction and say, okay, we'll see you in another 12 to 18 months when you're doing your next fundraising. It's there for when you want to hire your first employee or you have your first big commercial contract that comes in and you don't know where to start, or there's a bit of IP litigation or dispute that comes up, or you need tax advice, or you're growing and you're expanding outside of the borders of Ireland into say the us it's really being there as that kind of legal partner through the whole growth journey that that is what we like to do and we understand the growth and the life cycle that these companies go on. And at the early stages, I mean you're, you're cash constrained and you have to be applying all your resources in the best way possible. And so we don't want to starve the business with huge legal costs early on. We want to do things that are right and proper and appropriate for the size and stage of the business to really kind of one set it up in the right direction so that it has the best chance for success, but also be involved early enough that we understand the founder, the business so that when it gets to those later stage transactions, your series C, D, E, M and a transaction, whatever it might be, we've been involved through the whole process and it makes it so much easier for us to answer diligence questions, give the background to different issues that cropped up along the journey of the company. And so it really the viewpoint and it's something that I really enjoy about the job and working with founders is going on that journey for the long run. So one area that I would love to kind of dive into with you is the fact that a lot of Irish founders that we speak to are looking at U.S. investment. And I imagine that there is a lot of work on your side to help make sure that whether they are companies that are Irish or, you know, you've worked a lot in the UK on this as well, but making sure that US investors feel comfortable with investing in a business where the founder is not from the US themselves. So I'd love to kind of ask you about, like, what does making a US investor comfortable look like? What does it require? Is it mainly a structural thing, how the business is presented? What are the things that, you know, founders who are looking at US investment should be thinking about? Yeah, I. In my experience, there's no fundamental difference between a US investor, European investor. I mean, they're all looking for the next big thing and the next great company to get involved with. Now, within that, you've got different people, cultures, personalities to deal with and you never know what they're coming to the table with. So no one investor is the same. But a lot of the times, in my experience, I find US investors will say, this is a grace company, business, whatever it is, but I only invest in US companies. And the kind of the knee jerk from the company is, oh, God, I need to be a US company in order to get this investment. Sometimes that might be absolutely the case, though. I've done a lot of work with founders who have been accepted into Y Combinator and want to go over, take part in one of those cohorts. Yc, because it invests in just so many companies, has a rule that it invests in Delaware Top coats and that's it. So if you're a founder and you want to be nyc, you need to flip over to Delaware. And it's possibly an overused phrase, but the Delaware flip is what they talk about with that, outside of a strict requirement of, no, this is, we only do that, we only invest into Delaware Top cos. A lot of US investors might say that they only invest in US companies, but if you really kind of scratch at that a little bit and say, well, why is that? Have you done any deals anywhere else in the world and what is it that you need? They will start to talk about, oh, well, we need A liquidation preference. And we need information rights and we need board seats, we need consent rights. We can do all of that in an Irish company as well. And so the documentation, the investor protections, the rights that go into the document documentation are all pretty much the same whether you're doing a deal in the uk, in Europe, in Ireland, in the us. But what's different is maybe the phraseology or the terms that they might not be as familiar with. So it's kind of easy for them to say, oh, I only invest in US top cos. But if you challenge it a little bit and are able to work with someone who can give you the kind of vocabulary to work through that with them and say, okay, well you usually get those rights in your IRA investor rights agreement, your charter, your voting agreement. You'll get all of them in an Irish context, but they're just in a subscription agreement and a shareholders agreement and a constitution. A lot of the times that can give them the comfort that they need to invest outside of the shores of the US and it's something that we're working with, the Irish Venture Capital association with the IBCA on is this kind of crib sheet idea of a read between from US deal terms, what document they're in in the US to where you will find them in an Irish context. The idea behind that is really hopefully to make it easier for US investors to do deals on this side of the Atlantic. But failing that, if there's an absolute requirement and you need to flip to the US then that's a well worn path as well. So let's just say if they do need to flip to the US walk us through what like flipping to doing a Delaware flip actually involves for an Irish company. Like what does the process look like? What are some of the implications founders need to plan for? Like how do you kind of support them through all of that? The process is relatively straightforward from a corporate perspective. Now, straightforward does not mean quick and easy, but it's done by what's called a share for share exchange. So the structure that you've got if you're an Irish company is the shareholders own shares in an Irish company. In order to do a Delaware flip or US flip, you will incorporate a new company in Delaware that has no shareholders in it and the three parties being the new US Company, the Irish company and the shareholders in the Irish company will enter into a share for share exchange agreement whereby the Irish shareholders agree to transfer all of their shares in the Irish company to the US Company in exchange for the US Company issuing them an equal number or proportion of stock in the US Company. And so what happens in that transaction is the Irish company flips underneath to become a wholly owned subsidiary of the U.S. company and the Irish shareholders flip on top to become stockholders in the U.S. company. And so then you end up going from being an Irish company to being a US company with an Irish subsidiary and the shareholders not being in the Irish company, but rather being in the us that's the process for doing it. When you do it has a big, big impact on. On how straightforward or difficult that process is. So we've done flips for those founders going over to yc. It might be one or two founders. They haven't done anything. They set the company up last week. That is like ideal music to my ears if I'm going to do a flip. Because they haven't had long enough to complicate anything. So that's a really straightforward. Fits nicely into that scenario that I said. If you roll on a couple years, the Irish company has been operating, it's maybe taken investment from around the world or Irish investors in an EWIS scheme or whatever it might be, then moving that around gets a little bit more complicated. So you are then getting into the world of one, dealing with just more people, right? The cap table gets bigger. It's not just two founders who can make a decision and go, you've got a bank of shareholders who all need to be communicated with. And we always say do that earlier rather than later because you need everybody to sign these documents. Some people might be uncertain about whether they're comfortable. You've got the flip of the US investor problem. They might be comfortable investing into an Irish company, but they don't know what the implications of being shareholders in a US company might be. So you've got to talk them around that, get them comfortable. You might have tax considerations that you have to look into as well. So is the flip of shares at disposal for, say, CGT purposes or is there stamp duty attaching to it? And this is where I will hold my hands up and say, I'm not a tax lawyer, but we do have an excellent tax team here at McCamphon Sherald and they get into the nitty gritty of all of those details. But again, if you flip earlier, when it's pretty straightforward and the company hasn't been around that long, that's relatively straightforward and simple. The longer you go, like anything, it gets more complicated. I imagine that the tax lawyer has to deal with a lot of the implications, not just Things that are kind of anticipated. But I imagine that there's things like stamp duty on share transfers and exit tax exposure and all of that that they need to walk the founder through as well. Yeah, that's absolutely it. And I think, particularly for US Investors, they will. So there's no. There's no stamp duty or transfer taxes in the U.S. so they, they just say, well, flip over to Delaware. And they don't think about it, because transferring shares in the US Company doesn't come with the same implications of transferring shares in an Irish company. But transferring shares in an Irish company comes with stamp duty, which is payable at 1% of the value of the shares. And so what you don't want to find yourself in is the position where you flip to the US and you have what's called a dry tax charge. So you have to pay the stamp duty, but there's no new money coming in to pay it. And if you don't pay it within a set window, then you start to incur penalties. And all of this stuff can be absolutely foreseen and advised on if you get the right people looking at it early rather than later. So it's just like the term sheet. Please don't come to us saying, oh, we've done a flip six months ago, and should we have done this, that and the other. Always, always ask the question sooner rather than later. I feel like that the whole episode, the moral of this whole episode should be, don't act without getting advice first. Yeah, maybe. We worked on a tool before that was a kind of. It was around when GDPR was coming in, and it was like what you needed to do to be GDPR compliant. And you kind of ticked through all the boxes. And it was all very good, but the kind of flowchart always led back to call your lawyer no matter which way it went. That was where you ended up. So after hearing all of this, let's just say that there's a founder listening who is like, right, I'm at the point where I'm starting to have these conversations. I need to reach out to somebody. How can they get in touch with you or with somebody at McCann Fitzgerald? Well, first off, we always love to hear from interesting people. I used to work with a guy who said, we're boring corporate lawyers, but we get to live vicariously through the exciting people we work with. So always interested to hear from people, no matter what you're doing. So our website is there. McCann Fitzgerald, one of the leading firms in Ireland. My email's pretty readily available online, LinkedIn, phone call, any which way that you want to get in touch. Fantastic stuff. Well, Steven, I can't thank you enough for taking out the time. I feel like that this was such useful, practical advice for founders. But really, again, to summarize, at the end of the day, it really comes down to if you are having these conversations and you're ready to kind of make a deal with investor, just make sure to have the right team take a look at things in advance to make sure that you're protected and to make sure that you can kind of set yourself up for success in the future. So I think that's such a huge, valuable lesson. And thank you for taking us through all of that with us today. Not at all. Thank you very much for the time. And that is it for today's episode. A massive thank you to Stephen Tallon from McCann Fitzgerald. If you if there's one thing you take away from this conversation, it's the best time to bring in legal advice is before you think you need it. Whether it's the term sheet, the cap table, or thinking about a Delaware flip, the founders who come out of these processes in the strongest positions are the ones who ask the right questions early. If you want to get in touch with Stephen, you can find him on LinkedIn or through the McCann Fitzgerald website. And if you found this episode useful, please share with a founder who's in the middle of a raise or gearing up for one. That's the kind of thing that will help continue growing the digital Irish community. A massive thank you to you as well the listener. Please like and subscribe to us wherever you listen to your podcast. Please also share a review that also amplifies our podcast as well. We'll be back soon with more conversations on demystifying investment very soon. Until then, slan GE folder.