Before the Money: Nine Steps Every Founder Must Take Before Seeking an Investor

In the first two articles of this series : How Startups Get Funded and How the Game Actually Works , we covered the big picture — how money moves into a company, what you give away when you take it, and the documents that govern that exchange. We touched briefly on SAFEs, term sheets, valuation, dilution, and option pools, all of which we will cover in detail in upcoming articles. In the third article, we built a glossary you can return to whenever a term feels unfamiliar.

Now we want to slow down and zoom in on something that comes before all of that.

Before you think about investors, term sheets, or valuations — there is a sequence of steps you must get right first. These steps have nothing to do with fundraising. They have everything to do with making sure your company is legally sound, your co-founder relationships are protected, and your ownership structure is clean. Investors will look at all of this during due diligence. If something is broken here, it does not just slow the deal down — it can kill it entirely.

Before you begin: a word on preparation

Before entering into any financial arrangement with anyone — even with family members or colleagues — you must fully grasp what you are agreeing to, what the anticipated path looks like, and what specifically needs to be in order before you accept a single riyal or dollar from anyone.

Read up on each of these topics. Verify that you understand every step. If something feels unclear, do not worry — this blog, and this series in particular, is designed to walk you through each one. For now though, let us focus on the nine essential steps to take before you go looking for an investor.

Note: Steps 1–2 are entrepreneurship fundamentals, not covered here. We start from step 3, assuming you already have a product and early customers.

The roadmap for doing so is below.

Now let's walk through each step

Step 3 : Engage a lawyer before anything else Founders who skip this pay for it later — a startup lawyer structures everything correctly from day one and makes sure you don't miss critical windows like the 83(b).

Step 4: Agree on equity (draft cap table) and vesting

The cap table records who owns what. At this stage, you create a draft cap table once founders align on:

• Equity split (e.g., 50/30/20)

• Vesting terms — ownership is earned over time, typically 4 years with a 1‑year cliff, often backdated to when you actually started working together

• Total authorized shares (commonly 10M or 20M)

This is alignment and planning — nothing is legally issued yet.

Note: You build the cap table before incorporation, but you formally adopt and issue shares at incorporation.

(We cover both equity splits and vesting in detail in the next article.)

Step 5 : Incorporate the company In Saudi Arabia, through the Ministry of Commerce; in the US, as a Delaware C-Corp — either way, your founding board (just co-founders for now) is set up on the same day.

Step 6: Issue founder shares with vesting

You already agreed on the equity split and vesting terms in Step 4. In Step 6, the company formally issues restricted founder shares under those agreed terms, with board approval and signed stock purchase agreements — making the ownership legally binding.

Step 7 — File the 83(b) election You have exactly 30 days from stock issuance to file this form (US only) — missing it means paying taxes on the value of your shares as they grow, not at the near-zero value of day one. Saudi Arabia does not have an equivalent election, but local tax advice is still recommended.

Step 8 : IP assignment

If you built anything before the company existed — code, designs, research, prototypes — it legally belongs to you as an individual, not to the company. An IP assignment agreement formally transfers that ownership to the company.

👉 You cannot assign IP to a company that doesn’t exist.An assignment says: “I assign all my intellectual property to [Company Name, Inc.].” If the company isn’t incorporated, there is no legal entity to receive that transfer.

Investors expect the company — not the founders personally — to clearly own 100% of its core IP. If ownership is unclear, it becomes a due diligence issue and can stop a deal.

You Have Two Options

• Option 1: Pre‑Incorporation Agreement — Before incorporating, founders sign a Founder Collaboration or Pre‑Incorporation IP Agreement stating that all IP created will belong to the future company and will be formally assigned upon incorporation, with confidentiality obligations included. This is a temporary bridge.

• Option 2 (Recommended): Incorporate First — Incorporate the company first, then have all founders sign full IP assignment agreements immediately after. This is cleaner, legally stronger, and preferred by investors.

  
  

Every person who touches the product must sign an agreement — co‑founders, employees, contractors. A text message promising equity is not an IP assignment.

If IP is never formally assigned, a departing founder could later claim ownership over part of the product — and that claim may have legal standing. Investors will uncover this during due diligence.

The “former founder problem” is common: someone contributed early, left informally, and never signed an assignment. If unresolved, it can kill a deal.

If this has already happened, fix it before fundraising. The solution is usually a documented negotiation — cash, small equity, or a signed release.

Rule of thumb: Fix it early and it’s cheap. Fix it during fundraising and it’s expensive. Leave it unfixed and the company can become uninvestable.

Step 9 : Create the option pool Model the option pool you actually need for future hires before you enter term sheet negotiations. Investors will have opinions about the size — and the percentage you agree to directly affects your ownership. Go into that conversation prepared with real numbers.

(Covered in detail in option pool article.)

You are now ready to raise

Everything in this article happens before a single investor enters the picture. Your cap table is clean. Your IP is assigned. Your vesting is documented. Your option pool is sized. Your company is properly incorporated and your 83(b) is filed.

This is what a clean company looks like to an investor.

If you can check all six boxes, your legal foundation is strong.

In the upcoming article, we will discuss cap table and vesting 

I hope you found this helpful ♡