(see “cultivating a community” for more on this paradigm)  It’s an effort by a collection of firms to create a larger shared opportunity that even when divided yields them a larger benefit than if they prospected separately. Any one hunter or set of hunters can defect from the larger hunt and either hunt on their own or form a smaller hunting party, but if they would have been better off with a smaller share of a larger pie, at some point they will return…

Here is a non-technical definition from the Game Theory Dictionary

The French philosopher, Jean Jacques Rousseau, presented the following situation. Two hunters can either jointly hunt a stag (an adult deer and rather large meal) or individually hunt a rabbit (tasty, but substantially less filling). Hunting stags is quite challenging and requires mutual cooperation. If either hunts a stag alone, the chance of success is minimal. Hunting stags is most beneficial for society but requires a lot of trust among its members.

So I was very intrigued when I caught an announcement for an interesting new event that is designed to foster collaboration among entrepreneurs. It’s Anuj Singhal’s Game Club

I had a chance to talk to Anuj this afternoon and he was kind enough to drop a short note afterward:

The inaugural Game Club workshop is being held tomorrow in San Francisco from 5:00pm-10:30pm with dinner, register online for $65, full details here: http://www.thegameclub.org/events/ . Along with inspirational entrepreneur stories, the speakers will be sharing their current challenges in their present venture and inviting participants of the workshop to contribute. Topics of discussion will include hiring, fundraising, marketing, personal development and building teams, all areas of importance to bootstrappers.

Anuj hopes develop a framework for entrepreneurs to cooperate to create greater shared value. He is inspired by the “Stag Hunt” paradigm from game theory and techniques developed in the microfinance industry to foster entrepreneurship.

Startups are interesting. It’s a rather grim time in a macro-economic sense but for early stage startups it’s a pretty amazing time because the infrastructure has been built out. There is a lot of opportunity to launch companies creatively without the capital intensive needs that were there a decade or two ago.

Of course there are many situations where you have capital intensive needs and that occupies the traditional VC realm. But there is a huge and expanding area in the last decade, and the last few years in particular, where with creativity and innovative focus on areas like enterprise people can leverage very interesting business models in ways that used to be unthinkable without a lot of money.

So today is a time of expanded opportunities and many many people are venturing into startup mode. When they do there is always a desire to keep costs low on the legal side–which is a legitimate desire obviously–but I think that sometimes leads teams to ignore some strategic issues that they should focus on.

There are some distinctive elements of startups that set them apart from standard small businesses. Most of them have to do with the fact that most of the value is largely associated with intangibles like intellectual property. So when you form a startup you can have tax issues that arise from intellectual property that standard small businesses won’t see.

You have capital combined with entrepreneurial innovation. If they match at the same time you can have service income attributable to the entrepreneur unless it’s planned right. These are reasons to incorporate earlier rather than later.

Just to illustrate: if you have a new venture that you are launching as an entrepreneur and someone is going to put in 100K for 10% of the company, if you do that at the same time for the same class of stock you can have potential service income attributable to the entrepreneur or founding team, as much as 900K in that hypothetical situation.

The other major attribute of a startup is that you want some “strings” on the stock for the same reason: the value being contributed by each founder is often tied to the services they are providing going forward. So usually instead of outright stock grants you have restricted grants.  Meaning that the founders stock is subject to repurchase at the original price if the relationship with the company should terminate.

So, when people do these “insta corps” on-line they will often have a founding team and not factor these issues in as they are trying to save money. They will get the kit and issue stock and then you have a situation where founders can walk away and keep their stock instead of having to earn it.

The other thing that people tend to forget about is capturing intellectual property (IP) properly. They are working together as a founding team, they haven’t formed the company yet, and they are not focused on the fact that everyone working on the venture, in so far as they are doing things that may be generating IP, that IP does not belong to the venture it belongs to the individuals. They don’t factor in the need for an IP assignment agreement in exchange for stock in a corporation.

Related Links:

• “What is the difference between a startup and a small business?“
• Startup Law 101 Series - “Distinctive legal aspects of forming a startup business with a founding team.“
• “Silicon Valley Circa 1956, A Valley That is No More.“
• “George Grellas on Insightful vs. ‘Window Dressing’ Advisory Boards.“

George is a veteran Silicon Valley startup business lawyer who heads a boutique firm that specializes in early-stage technology startups. Since 1984, as a founders’ lawyer, George has worked with thousands of entrepreneurs in helping them with their strategic planning, entity formation, IP protection, funding, acquisitions, and the whole range of their startup legal needs involving both deals and disputes. He is the author of the Startup Law 101 Series of tutorials for founders and entrepreneurs.

George’s style is practical, direct, and down-to-earth, emphasizing a strong working knowledge of technical issues (including tax) explained in a manner that is made understandable and helpful for those new to startups as well as for seasoned entrepreneurs.

Bring your questions for George and the other entrepreneurs around the table. There will be time for your general questions and concerns as always.