Many entrepreneurs worry that someone, whether a potential partner, a VC, or a boogeyman will steal their startup idea. If you are worried about having your startup idea “jacked,” I recommend you take a deep breath and relax a bit–your startup idea isn’t worth that much.

Paul Graham, in an essay derived from a talk at Startup School 2005 had this to say about the value of your initial startup idea:

I think people believe that coming up with ideas for startups is very hard– that it must be very hard– and so they don’t try do to it. They assume ideas are like miracles: they either pop into your head or they don’t.

I also have a theory about why people think this. They overvalue ideas. They think creating a startup is just a matter of implementing some fabulous initial idea. And since a successful startup is worth millions of dollars, a good idea is therefore a million dollar idea.

If coming up with an idea for a startup equals coming up with a million dollar idea, then of course it’s going to seem hard. Too hard to bother trying. Our instincts tell us something so valuable would not be just lying around for anyone to discover.

Actually, startup ideas are not million dollar ideas, and here’s an experiment you can try to prove it: just try to sell one. Nothing evolves faster than markets. The fact that there’s no market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.

You should still take precautionary steps to protect your idea even though Paul Graham (and I) don’t assign a lot of value to your startup idea. The best way to protect your startup idea is to keep it secret. Help prevent your startup idea from being stolen by being selective with both the amount of information you reveal and to whom you reveal such information. A nondisclosure agreement will help, but any piece of paper drafted by a lawyer like myself is only a reactionary document–it only benefits you after your idea has been stolen.

The Business Association of Stanford Entrepreneurial Students and Y Combinator are co-sponsoring the 2008 Startup School at Stanford on April 19.

Are you a hacker who has thought about one day starting a startup? Have you already started it? Then you’re invited to a free, one-day startup school this April 19 at Stanford.

We’ll have a range of experts speaking on every aspect of startups, from technical details like how to incorporate, to bigger questions like how to build something that millions of people will want. Many hackers consider starting a company at some point, but are put off because the process seems mysterious. The goal of startup school is to remove that mystery.

To find out more about the 2008 Startup School, including the application to attend, visit startupschool.org.

I got lucky. I bought a suit “off the rack” and it fits me perfectly.

I purchased this suit in true emergency fashion about two years ago while in Phoenix on a business trip. I ended up not needing it (of course) and stuck it in the back of my closet when I returned home from the business trip.

Last week, I did an early spring cleaning and was certain this suit was destined for the donation pile. But I figured I should at least try it on. I’m glad I did. It felt like a good fit when I put it on and I got visual confirmation of the perfect fit after strategically using the mirrors in my bathroom. This left-for-dead emergency suit was promoted to the big leagues.

The next day, I suited up and ventured out with my new addition. And I’m happy to report the suit performed well.

So what does this mean for your startup company?

Well, let me start by repeating the first sentence of this post: I got lucky. I used and depended on something that was not customized for me, and I did not suffer because of it.

Your startup company will probably not have to worry about suits (lucky!), but it will be faced with similar “should this be customized?” decisions every day. Of course, your startup can not always have custom work done. But pick and choose wisely, because cutting corners at every turn is not advisable. And while generic products or services will sometimes work out perfectly for your startup, those instances will tend to be rare occassions.

As the economic downturn begins to spread from sub-prime borrowing to the current credit contraction (and I’m not ready to say the R-word yet), it seems unlikely that startups will be immune from an economic storm that may be felt internationally and across various asset classes. Fortunately, advances in technology mean that startups can launch with little capital, thereby reducing risk to themselves and/or their investors. But unfortunately, not all startups can be bootstrapped.

What effect do you believe the current economic downturn will have on the viability and number of startups?

“Get advisers” is a common recommendation given to a startup company entrepreneur. However, entrepreneurs should use caution when selecting advisers for his or her startup company. Your advisers may come pre-packaged with restrictive covenants that have the potential to kill your startup. One such restrictive covenant that could darken any startup’s day is an invention agreement. An invention agreement assigns all inventions produced by the employee to the employer. A watered-down invention agreement reads like this:

Mr. X agrees that any inventions, designs, improvements, and discoveries made by Mr. X during the term of Mr. X’s employment, solely or jointly with others, which are made with the employer’s equipment, supplies, facilities, trade secrets, or time, or which relate to the business of the employer or the employer’s actual or anticipated research or development, or which result from any work performed by the Mr. X for the Employer, are the exclusive property of the employer.

There have been instances where a startup company’s adviser is this Mr. X. And Mr. X is also a university professor subject to an invention agreement with the university. The university then tries to claim rights to the startup company’s intellectual property since Mr. X worked on the startup company’s design or application. Not good news for the startup company.So, get advisers, but be sure to ask if they are subject to any restrictive covenants like an invention agreement. If not, you may end up killing your startup.

You can begin with Part I or skip to Part II.

In Part III, we’ll continue discussing the provisions that your startup company needs to consider before leasing office space.

Your startup company may not have to negotiate each provision, but you should obtain a working knowledge of them. They will likely affect your lease sooner or later.

Repair and Maintenance. Don’t let this portion of your lease be vague–it will likely go against you in the event of a dispute. Thus, make sure the lease sets out your repair and maintenance obligations in a very specific manner. Ideally, you should have few repair and maintenance obligations, such as your own personal property and other property damage caused by your negligence or misconduct. Don’t sign a lease if the landlord insists you repair and maintain the HVAC system, foundation, walls, plumbing, or common areas. You should be able to get out of those repair and maintenance obligations pretty easily (i.e., don’t think that the landlord is “giving in” and that you have to give somewhere else).

Damage or Destruction of the Premises. Most of the time this provision gets overlooked, but it could have terrible consequences in the event the building is razed. For example, the provision may require you to reconstruct the building in the event of its damage or destruction. If you are going to sign a lease with this clause, you must make sure that your obligation is limited to both the extent of your insurance proceeds and the causes of loss that are insurable.

Assignment and Subleasing. It is preferable that your right to assign or sublease your office space is unlimited as possible. Be sure to add language that unconditionally allows you to assign or sublease to a company that is owned by–or owns–at least a majority of your company signing the lease.The landlord does have an interest in a non-related subleasee. Thus, it is prudent the landlord maintains the right to reasonably withhold consent on your assignment or sublease. It may help to remember that other tenants in the building are (hopefully) signed up to a similar clause and therefore weirdo companies won’t show up next door. Also, keep in mind that you will be responsible for rent in the event your landlord-approved subleasee bails on you.

Implied Warranties. Unlike residential real estate transactions, parties to commercial real estate transactions can usually agree to waive implied warranties designed to protect the leasee (or buyer). It depends on your state, but the main implied warranty landlords like to waive is the warranty of suitability. The best advice I can give you is to not waive any warranties.

Property Taxes. You’re already paying off the landlord’s mortgage, so some landlords get greedy and have you pay the building’s property taxes as well. Be sure that property taxes aren’t a part of the CAM or other charges you have to pay.

Landlord’s Rules and Regulations. Sometimes landlords issue building rules and regulations as an addendum to the lease. They are probably not a major concern for most leases, as they are intended to benefit all tenants. The main problem usually arises when another tenant does not adhere to the rules and regulations without any recourse by the landlord.

Dispute Resolution. Your lease should have some type of non-courtroom dispute resolution process, whether it be arbitration, mediation, or coin-flipping. Leases that provide for the courtroom and that the loser pays all costs (court fees, attorneys’ fees, etc.) are used by the landlord to preclude its tenants from suing. The landlord is banking that you won’t risk having to foot their law firm’s bill in addition to your own.

Lease Audit. If your monthly lease calculation is complex, your startup should consider having a lease audit clause. This clause should allow you to employ a “lease consultant” to physically measure the premises and assure that other costs are being properly calculated. Let’s just say I’ve never found a landlord to underestimate square footage or underbill costs. Along with the lease consultant, the clause should grant you access to the landlord’s records pertaining to your rent calculations.

This wraps up the series on how to lease office space. Good luck.

I heard about Virgin Money last week and I finally got the chance to take a look around last night. Basically, Richard Branson’s Virgin US investment firm acquired a majority stake in CircleLending, a venture that helps manage loans between family and friends.

In typical Virgin fashion, they re-branded CircleLending into a cheekier (their adjective, not mine) version of the U.S. banking industry. However, Virgin Money is quick to point out that they are not a bank, law firm, real estate professional, tax advisor, lender, or loan broker. Virgin Money handles real estate, business, and personal loans.

So I went to Virgin Money’s US website to check out the business lending program and see how it might work for an entrepreneur seeking startup funding. There’s not a whole lot of information on the website but you are immediately directed to obtain their “Business Builder” guide.

I had a junk email address lying around, so I filled out a very short form and registered. I was then given a link to download the guide. The Business Buider guide is a 17 page PDF that attempts to walk you through the process of getting a startup or business loan from a friend or relative. The guide highlights general considerations of getting funding like how to pitch, loan terms, and the benefits of being a borrower or lender.

I would like to tell and show you more, but Virgin Money slapped a “thou shall not reproduce or redistribute” commandment on the front of the guide. And as a professional courtesy, I’ll respect the work of Virgin’s legal team. So if you want to find out more about the Business Builder guide, I guess you’ll have to download it yourself. But you wouldn’t be missing much if you didn’t.

However, I will talk about the spelling mistakes, both in the guide and in an email I received this morning from a Virgin Money representative. I’m not a card carrying member of the spelling or grammar police (and believe me this blog isn’t intended to be Strunk & White compliant), but witnessing such obvious spelling errors gives me the feeling this whole thing was put together too quickly. So maybe it’s a good thing they don’t draft any documents for you.

Thus, for the entrepreneur seeking startup funding, Virgin Money is a waste. You still have to find an investor, obtain the legal documents, and (hopefully) seek various professional advice. All you get from Virgin Money is help managing the repayment of the loan.

I think the name is somewhat misleading and don’t see any real value using Virgin Money. Of course, a 3rd party can help facilitate a loan agreement, but keep in mind Virgin Money isn’t going to solve any problems between you and your friend or relative if things turn bad.

Sun Tzu is generally credited for coming up with the phrase, “Keep your friends close, and your enemies closer.” He obviously never launched a startup and got shafted by a co-founder.

Entrepreneurs often believe their startup company faces legal threats from only external sources. And that’s a big mistake. Instead of worrying solely about some 3rd-party stealing your business idea or a “slip and fall,” your startup company’s top legal priority should be the reduction of its internal legal threats: co-founder disputes.

You can start by examining every aspect of the co-founder relationship. Your startup company could be ultimately doomed by a co-founder dispute, as even small disagreements can systematically erode the core of your company. Therefore, at the earliest time possible, sit down with your co-founder(s) and talk about issues like:

• the goals each of you have for the startup;
• the goals each of you have for yourself;
• duties, job descriptions, and hour commitments;
• who pays for what;
• who gets paid first and why;
• what happens if one of you wants out;
• what happens if one of you wants to sell the company, raise capital, or end it;
• what happens if one of you gets disabled or dies;
• what happens if things take longer than expected;
• whether launching other startups, i.e. “moonlighting,” is ok; and
• how small, medium, and large decisions will be handled.

This is not an exhaustive list of topics and by no means whatsoever will their discussion be easy. If it is easy and everything sails through without a hitch, someone’s holding back and you’ve all wasted your time. And for the love of high-speed internet and all things Web 2.0, do not think being friends or relatives reduces the need for these difficult/awkward conversations. In fact, if your co-founder is a friend or relative, that should trigger even more issues and discussions. Because now you have more to lose than just a company and your (or someone else’s) money.

After you have discussed everything that needs to be discussed, DOCUMENT-DOCUMENT-DOCUMENT. Make sure your startup company documents reflect all of your discussions. Don’t leave anything out just because you and your co-founders already talked about it. Take nothing for granted because memories will inevitably differ.

Once you have discussed and properly documented your co-founder relationships and thereby protected your startup company’s core, then you can focus on external legal threats.

This article is part II in a series about leasing office space.

In part I, we discussed how a tenant’s representative can help–and hurt–your office space search.

In part II, we’ll discuss some provisions to consider negotiating before your startup company signs a commercial office space lease. The following list is in no particular order and you don’t have to negotiate every item.

Rent. Of course you’ll want to negotiate rent. Your tenant representative is better equipped than your lawyer to provide you with information about the market value of your commercial office space. Just remember that your tenant representative gets paid MORE if you pay MORE over the course of the lease (see “Term” below). Sometimes it’s better to negotiate harder on non-rent items because they can really limit your downside…which can be more beneficial than trying to squeeze out extra savings on rent. (See “Personal guarantee” below)

Term. Commercial landlords hope (and pray) you will sign a 5-year lease. It’s like going to a car dealership for a used sedan and coming out with a brand new H2. It’s just too much and you will be on the hook for more than you need, or worse, more than you can afford. Try negotiating that initial term down from 5 years to 3 years with a couple of 1-year options at your sole discretion. (Note: Your tenant representative will not be happy with this because his or her commission will likely be reduced if you sign up for a shorter guaranteed term.) Entrepreneurs often make the mistake of viewing their lease as a monthly rent obligation instead of a total rent obligation. For example, a $2,500 per month lease is really a $150,000 contract if your term is 5 years. The same monthly lease yields a $90,000 total obligation with a 3-year term. Go for the shorter term. It will provide your company flexibility and reduce its future lease obligations. A reduced initial term can also solve a huge problem caused by having to personally guarantee the lease.

Personal guarantee. When landlords pay for a large amount of tenant improvements, personal guarantees of the lease are commonly requested…and usually required. And sometimes landlords will require personal guarantees even if they provide minimal tenant improvements. But a landlord may be willing to let the personal guarantee burn off after a certain period (before the initial term ends).Unfortunately, most startup companies get suckered into the “standard” 5-year commercial lease and a 5-year personal guarantee. And since most startup companies do not make it past the 3-year mark, you can see why the personal guarantee is potentially a huge liability and thus a huge issue. For that reason, I recommend that your startup company NOT sign any lease where your personal guarantee extends beyond 2 or 3 years.

Renewal Options. The option to renew should be yours and yours alone….or else you really don’t have an option and your company will be forced to re-negotiate with your landlord. Remember that the landlord would rather have you continue to lease the office space instead of searching for a new tenant. Even so, landlords will often try to jack up the rent after the initial term. They hope that your company would rather pay much higher rent than move. Thus, set out the option period’s rent ahead of time, and at a reasonable figure, so your company can make plans to either vacate or remain at the premises when your initial term ends.

Early Termination/Buyout. Your business skyrockets. Your business tanks. In either event, your company now needs to get out of the office space lease. The quickest, cleanest, and best way to accomplish this is through the use of an early termination provision. Basically, your startup company would pay a predetermined lump sum to the landlord to walk away from the office space lease. If the lump sum isn’t completely astronomical, it can be a valuable provision for you…or at least limit your downside.

Late Charges. Just make sure you have a grace period for paying your rent late, as you’ll be busy and inevitably forget to pay the rent by the 1st of the month. Anything over 3 days is great and 5 days is optimal. Also make sure that the late fee isn’t so large that it ends up feeling like a penalty. Late charges should promote on-time rent payments rather than being a windfall for your landlord.

Holding Over. If you remain in the office space after your initial term without executing a new lease or option term, you are a “holdover tenant.” A typical holdover provision might call for “consequential damages” to be paid from the tenant to the landlord. Try to eliminate these damages or at least set a cap on them. (Even better, don’t be a holdover tenant.)

Security Deposit. A landlord has a legitimate interest in getting a security deposit since most startup companies have zero net worth. Often, startup companies are expected to pay large security deposits. A landlord may be willing to forego a security deposit (or at least reduce the amoutn of the security deposit) if the office space is in low demand. Try and negotiate that the security deposit will earn interest which belongs to your startup company or that the amount of the security deposit declines over the life of the lease. Otherwise, you are giving the landlord an interest-free loan.

Option for additional space. If your statup company needs more space and you want to stay in the building (or go to another property of the landlord), your landlord will likely be willing to let you out of your current lease without penalty. But just to be safe, consider inserting this provision into your office space lease. You want to avoid giving your landlord any leverage over your startup company, even in situations where the landlord will benefit from such a move. So get it in writing.

Relocation. Sometimes I’ll find a lease where the landlord wants the right to require the tenant to relocate to another office in the landlord’s building. Obviously, this has negative consequences for the tenant. If you are willing to keep this provision in the lease, make sure that you will be fully compensated for the economic damages you will suffer from the relocation (moving, advertising, printing, tenant-improvements, loss of business, etc.).

Common Area Maintenance (CAM). Typically found in retail leases but sometimes found in office space leases, CAM charges are paid by the tenant for the shared areas of the building or development. Your tenant representative should be able to give you a good idea if the quoted CAM charges are too high. I recommend getting these charges capped so that you aren’t surprised at a later date. Additionally, be sure that the landlord spells out exactly what expenses they are including in CAM charges. Sometimes landlords can be sneaky.

Permitted Uses. Avoid any language that restricts the permitted use of your commercial office space. Such a clause may restrict your future business activities in addition to limiting the amount of prospective assignees and subleasees.

Tenant Improvement Allowance. A tenant improvement allowance is a common concession by the landlord. Basically, the landlord will give the tenant a credit for $X, usually based on the office space’s square footage, to prepare the office space for the tenant’s use. Sometimes all the office space needs is new carpet and paint (which, by the way, you shouldn’t have to negotiate for). Be sure that your tenant improvement allowance will be enough to cover your expected buildout costs. Other issues that you should address are: (a) whether or not the Americans with Disabilities Act of 1990 (ADA) will impose construction requirements that you’ll have to fund, (b) whether you are entitled to a cash rebate for any buildout that falls short of the allowance, and (c) if the landlord will handle the build-out for you, that the landlord will use competitive bidding.

Insurance. Most leases require the tenant to maintain liabiity and casualty insurance. And I strongly recommend all tenants meet with a commercial insurance agent and discuss their insurance needs, whether or not the lease calls for insurance. Lease obligations cocnerning liability and casualty insurance should probably not be the subject of significant negotations. Just make sure, via your attorney and insurance agent, that the insurance and amounts are customary in such a setting and that any use of your insurance proceeds are contingent on the landlord’s use of his or her insurance proceeds to restore the building.

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This list will continue in part III of How to Avoid Being Ripped Off When You Lease Office Space.

Lawyers and their law firms are increasingly making fixed fee or “project pricing” available to their clients. This is especially true for startup company clients, as they typically have well-defined legal issues and needs. There are 3 main reasons why your startup company should have a fixed fee arrangement with your law firm instead of being charged by the hour:

1. Ability to Predict (and Budget) Your Legal Expenses with Greater Accuracy. There are a lot of unknowns when launching a startup and fixed fee pricing eliminates the uncertainty of how much your startup legal expenses will be. No surprise bills mean a more accurate cash flow forecast.

2. Paying for Product Rather than Time. One of the main shortfalls of the “billable hour” is that it makes clients feel like they are paying for a lawyer’s time instead of a lawyer’s work product. Also, the billable hour makes clients very suspicious about their lawyer “padding” the bill.I like fixed free pricing because it allows me to represent a client without having to worry about or defend my actions, as the client focuses on the product rather than the clock. For example, when I call a client under a fixed fee arrangement, they know I am calling for a pretty good reason since I am not getting paid any extra for it.A recent real-world example is that a company with 2 partners hired me to draft a joint venture agreement. When I showed them the draft, one partner accused me of padding the legal bill because I included a bunch of “excess language” in the agreement. This partner did not remember our fixed fee arrangement. (Theoretically, any “excess language” I’m drafting for them hurts my bottom line.) I reminded this particular partner of our billing arrangement and we moved forward.

3. You won’t stop short. When the meter starts to run high, clients tend to stop using their lawyer. Of course, the client needs to manage cash flow. But sometimes a client can disadvantage their company by not going all the way with their legal representation. (I am, of course, assuming the lawyer is not padding the bill.)Imagine you are building a bridge but stop the process after 75% completion. Well, you theoretically spent 75% of the costs to get you across the body of water. Now you are out those costs, but still can’t get across.Thus, there are situations when you will not receive a dollar for dollar benefit unless you complete your project. Legal representation is one of those situations, but it may not be as obvious as if you were building a bridge. A fixed fee arrangement ensures that you don’t fall into that trap.