Audio narration courtesy of our friends at Ad-Auris.
Hello friends of Musaic!
We recently went through the process of setting up Musaic as a legal entity and learned a ton about the basics of the literal “founding” part of being founders. While a lot of what we ran into are probably common knowledge within the startup community, we did discover a few surprises especially with regards to international matters. Thus, we wanted to give you a quick overview of our process as well as some of the tools we used along the way. We hope this information will be helpful for prospective founders down the road.
Some relevant context before we dive in:
“Musaic, Inc.” is now registered as a Delaware public benefit corporation (PBC).
Both founders are US citizens currently living in Germany.
We have not been paid by any of the service providers to mention them here.
Since we are registering our company in the US as non-residents, an early question we had to answer was how to receive mail. We needed to provide a working, physical address to complete the basic formation paperwork, so we started looking around for providers in this space. We discovered Virtual Post Mail, and all I can say is that I wish I had this during my year of backpacking around the world! We are currently on the $20 per month “starter” plan, which means that each month we get:
Intake of 25 pieces of mail
Scans of 10 pieces of mail of our choosing
Online & physical storage of the mail we’ve received and scanned
Someone to forward any of the physical mail to us if needed
The subscription also includes registered agent services for businesses, which we will likely use starting 2022. We got a usable address immediately after signing up, but in order to properly authorize them to receive mail on our behalf, we needed to fill out, sign, and notarize a form 1583 from the USPS, which leads to the next point…
As expats living in Germany, we thought we needed to go to the US Consulate to meet with a US-accredited notary. We were getting ready for a nice drive to Frankfurt until a friend told us about Notarize. I was super impressed with this service because all we had to do was upload a PDF of the signed document, pay $25, and then chat with a certified notary over video. Within 20 minutes, everything was done, saving us the pain of making an appointment with the consulate as well as a trip to Frankfurt. Well done!
We used Clerky for the basic formation paperwork. If all of my friends working at Stripe are wondering why we didn’t use Atlas, it’s because Atlas didn’t support the paperwork for creating a public benefit corporation (PBC). We really want Musaic to be about balancing successful financial outcomes with even greater public good, so we decided to use Clerky for their built-in PBC support.
As a part of the formation process, it’s important for founders to file their 83b election along with proof of payment for purchasing their shares. This is where PayPal came in handy. As long as you have an address and an EIN for your company, you can set up a PayPal business account, transfer money into it, and use the transaction as proof that you paid your business for your founder shares. In my opinion, this is slightly faster than getting a proper bank account setup first because it’s not always clear how long the bank’s underwriting process could take. Since the 83b election is one of the few extremely time sensitive documents in this process, we wanted to get it done ASAP so we can move on.
Speaking of bank accounts, Clerky comes with three banking partners that they recommend, but for some reason these providers didn’t get back to us. We wanted to get our banking done ASAP so that we can receive our initial investment, and after waiting a week we decided to ask our friends at XX for advice. They suggested going with Brex and what a great idea that was! I had known about Brex as a credit card provider, but I was super happy to learn that their cash account can replace a more traditional banking provider. Using their online tools, within hours we had a bank account ready to go.
Paying Remote Workers
An interesting thing about starting a US company while abroad is that the founders ourselves are remote workers for our company. Thus, we had to figure out how we pay ourselves when the time comes, as well as how we hire freelancers and/or employees when we’re ready to grow. The labor regulations, social safety nets, taxes, etc are all area-specific, and we wondered if we needed to create some sort of branch or subsidiary entity in Germany in order to legally operate. We asked around about this and a friend recommended us to check out Remote. Their customer service is amazing - they explained the basics of “employer of record (EoR)” as well as the tradeoffs between delegating only payroll vs. EoR completely. They even have a special discount for early stage startups! Using services such as Remote, we can hire and pay people (read: ourselves) without creating any additional legal entities or worrying about the local regulations.
Terms of Service
At this stage in our existence we figured we should probably start to get more serious about our terms of service. Some of our lawyer friends recommended checking out the document generator from Cooley GO as a starting point, sort of like an MVP to help get a startup up and running. We did use this tool to generate a document, but given the potentially litigious nature of working in the music industry we decided to hire a lawyer and draft something a bit more adapted to our business. Regardless, I think this is a tool worth looking at for anyone starting out.
If you’re a founder looking to raise some early capital in the US, chances are you will run into SAFEs. You can read up on how they work in more detail on YC’s website, but in my opinion some of the biggest benefits of using SAFEs are:
They enable founders to delay conversations about valuation until the business is more mature.
They help decouple transactions across multiple investors rather than forcing all early investors to align on and participate in proper rounds.
They clarify what % of the company each investor will get for their money. (Ehh, well, sort of…)
It’s true that SAFEs allow you to make deals that sound simple such as $50K for 1%, but it’s crucial for founders to keep in mind that the actual ownership any investor will get highly depends on the terms of the safe (i.e., valuation cap, discount rate, pre- or post-money, etc) as well as what valuation is attached to the the first priced round in the future.
Does this all sound like jargon to you? Yeah, it does to me too. I didn’t fully understand how all of the pieces fit together until I played with a dilution calculator such as this one from Safe Genie. With SAFEs, the math gets especially complex when multiple SAFEs are issued over time with varying terms. I recommend playing around with some scenarios on the calculator so that you get a feel for how much dilution you will face as a founder to avoid any surprises down the road.
YC Startup School
Although Y Combinator probably doesn’t need the shoutout from us, we did want to specifically call out their Startup School. Aside from having access to a community of founders as well as free, educational content, the Startup School offers significant discounts on tools that all startups need. All you have to do to qualify for these discounts is submit a few weekly updates and attend some group sessions, and it can save you thousands of dollars on services ranging from Clerky, to Stripe, AWS, Google Cloud Platform, Brex, Retool, etc.
As an aside, the YC application process itself is also hugely valuable. Although we didn’t get into the W21 batch, we did apply and interview. As a part of filling out the application and preparing for the interview, we were forced to think about some very important parts of our business that likely would have gotten neglected otherwise. We also got to meet many amazing people in their network and received tons of feedback on our idea, pitch, etc. Regardless of whether the YC batch program is right for you, we highly recommend joining the Startup School as well as filling out an application even if you don’t submit it.
That’s all for now! We’re still super early in our journey but wanted to share what little experience we have while it’s hot off the press. Feel free to reach out if you have any feedback and/or questions.
Don’t be a stranger,
Nico & Patrick, Founders
p.s., the information provided above is our own story, and we hope it could be helpful to other founders down the road. Please consult a lawyer or accountant for actual legal and/or financial advice. :)