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The Venture Alley

A blog about business and legal issues important to entrepreneurs, startups, venture capitalists and angel investors.

What Exactly Do You Mean By “Reseller” Agreement?

Posted in For Entrepreneurs and Companies, IP/Privacy/Social Media, Startups

A useful note from our colleague Sanjay Beri, originally posted at Technology’s Legal Edge.

I was recently reminded that the term “reseller” agreement can often mean different things to different people.  Misunderstandings about these types of relationships creates the potential for miscommunication and wasted time drafting the wrong terms.

A client recently asked me for a form of reseller agreement to engage resellers to help distribute the client’s software based product.  “You know, just grab something off the shelf that will work” went the common refrain.  As I talked to the client about the type of arrangement he was seeking, however, it became clear that the client was still in the process of making a number of business decisions that would greatly impact pulling the right “form” or, more likely, drafting the right terms.  Given this discussion, I thought it might be useful to impart a few high level questions that I found useful in guiding the conversation.  For ease, I’ll simply refer to my client from the conversation above as the “licensor” and the ultimate user of the product as the “end customer”:

(i) What type of relationship will the reseller have with the end customer (for example, will the reseller be entering a negotiation with the end customer or merely be passing through terms dictated by the licensor)?

(ii) Will the licensor need a direct contractual relationship with the end customer or need rights to prevent the end customer from taking particular actions with respect to the licensor’s product?

(iii) Will the reseller be modifying or bundling licensor’s product in any way for redistribution?

(iv) Will the reseller or licensor have direct support obligations with the end customer?

Having precise discussions and clarity around these points is crucial for both the lawyer and the client.  By having these basic discussions, the parties can save lots of drafting time, and unintended delays in ensuring that the terms provided match up with the business objectives of the client.

FTC ANNOUNCES ANNUAL REVISIONS TO HSR ACT THRESHOLDS

Posted in For Entrepreneurs and Companies, For Investors and Fund Managers, IPOs & M&A, News and Recent Events

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com

From our colleagues Paolo Morante, Steven E. Levitsky, and Laura Kam

In accordance with the 2000 amendments to the HSR Act, the Federal Trade Commission has announced its annual revision to the jurisdictional thresholds under the Act. The new thresholds will go into effect 30 days after publication in the Federal Register, which is expected in the next few business days.

Under the new thresholds, no transaction will be reportable unless, as a result of it, the acquiring person will hold voting securities, assets, or noncorporate interests of the acquired person valued above $76.3 million.

Find out more.

New student data privacy laws: top points for school contractors and K-12 education sites, apps and online services

Posted in For Entrepreneurs and Companies, IP/Privacy/Social Media, Uncategorized

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com

From our colleagues, Michelle J. Anderson and Jim Halpert, originally published as a Data Protection, Privacy and Security Alert (US)

According to the Data Quality Campaign, 36 states considered 110 student data privacy bills in 2014, and 20 states enacted 28 such bills into law.  At least eight of these new laws may have significant implications for businesses that provide services involving student data to schools, and most of these laws have already taken effect.

IMPLICATIONS FOR VENDORS: Some of the new state student privacy laws specifically require that contracts with vendors include clauses that address the requirements of the new state law.  In most cases, the new state law will be directly applicable to vendors whether or not the contract warns them of the new requirements.

IMPLICATIONS FOR OPERATORS OF K-12 EDUCATIONAL WEBSITES, ONLINE SERVICES AND MOBILE APPS: In addition to new vendor contractor requirements , K-12 educational websites, online services and apps will be subject to various requirements regardless of whether they have a contract with a school.

See the full article (Data Protection, Privacy and Security Alert (US)) for information on steps to take and things to watch out for.

Franchise tax due by March 1 (a Sunday!) for Delaware corporations: two methods of calculation, two vastly different results

Posted in For Entrepreneurs and Companies, News and Recent Events, Startups

pic-trent.jpgCONTRIBUTED BY
Trent Dykes
trent.dykes@dlapiper.com

Just a reminder to those who have Delaware corporations, your annual report and franchise tax payment are both due by March 1 (which falls on a Sunday this year so plan accordingly). At this point, you have likely already received from Delaware your notification of annual report and franchise tax due, which is sent to a corporation’s registered agent in December or January of each year. Delaware requires these reports to be filed electronically.

As you will notice, there are two methods that you can use to calculate the amount of Delaware franchise tax due for your corporation (i.e., the “Authorized Shares Method” and the “Assumed Par Value Capital Method”), which result in vastly different amounts due. The default payment amount listed on your notification is set by Delaware using the Authorized Shares Method, which method will almost always result in a much high amount due for startups with limited assets. The minimum franchise tax is $175 (increased from $75 on July 1, 2014) and the maximum franchise tax is $180,000.

Franchise taxes are generally due in arrears for the prior calendar year. However, note that Delaware requires corporations owing $5,000 or more for the prior year to make estimated payments for the current (going-forward) year’s franchise tax with 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1.

Here are some examples showing how the different methods can dramatically impact the amount of Delaware franchise tax due: Continue Reading

Recap of 2014 Venture Capital Trends by Region

Posted in For Entrepreneurs and Companies, For Investors and Fund Managers, News and Recent Events, Startups, VC & Private Equity

pic-trent.jpgCONTRIBUTED BY
Trent Dykes
trent.dykes@dlapiper.com

PitchBook just released its recap of 2014 venture capital trends by region, focusing on the most active regions and presenting the information in infographic form. Each infographic can be found here: Bay Area, Pacific Northwest, New York metro and Europe. Below is also a quick summary of the highlights by region:

Bay Area:

  • The median pre-money valuation for 2014 was $28.2m (up from $18.3m for 2013).
  • The most active sector (by both deal count and capital invested), by a wide margin, was information technology.
  • The region accounted for 29.7% of total global venture capital invested and 21.7% of the total global venture capital deal count.

Pacific Northwest:

  • The median pre-money valuation for 2014 was $15.8m (up from $14.4m for 2013).
  • The two most active sectors (by both deal count and capital invested) were information technology and healthcare.
  • The region accounted for 2.8% of total global venture capital invested and 2.3% of the total global venture capital deal count.
  • The region’s most active investors (by deal count) were Madrona Venture Group, Portland Seed Fund, WRF Capital, Founder’s Co-op and Maveron.

New York metro:

  • The median pre-money valuation for 2014 was $17.1m (up from $12.8m for 2013).
  • The two most active sectors (by both deal count and capital invested) were information technology and B2C.
  • The region accounted for 5.7% of total global venture capital invested and 7.2% of the total global venture capital deal count.

Europe:

  • The most active sector by deal count was information technology and the most active sectors by capital invested was a tie between information technology and healthcare.
  • The region accounted for 20.1% of total global venture capital invested and 12.9% of the total global venture capital deal count.
  • The region’s most active investors (by deal count) were High-Tech Grunderfonds, Kima Ventures, Scottish Enterprise, Index Ventures and Octopus Investments.

Are you a joint employer?

Posted in For Entrepreneurs and Companies, Uncategorized

Article prepared by and republished courtesy of our employment colleagues, including the Chair of DLA Piper’s US Employment Group, Michael J. Sheehan; originally published here: https://www.dlapiper.com/en/us/insights/publications/2014/12/are-you-a-joint-employer/

Think supply chain. Think franchisor. Think private equity. For all these types of businesses, the rules of the game are changing.

For a host of reasons – among them cost, efficiency, liability and risk management – many large companies have separated from the work force that performs the tasks associated with the end-delivery of their products or services. Before, under established rules defining who is the employer for purposes of application of labor and employment laws, such companies could safely shield themselves from employer obligations. That is not so today. Today, this model is under attack.

How did this change?

The National Labor Relations Board, the US Department of Labor, the Equal Employment Opportunity Commission, various other federal and state agencies and, of course, a robust and invigorated plaintiff’s class action bar are advocating a liberalized definition of “joint employer.” The thinking behind this shift can be captured in this question raised by Professor David Weil, now the Administrator of the US Department of Labor, Wage and Hour Division:

Are there ways to allow the beneficial aspects of business models built on adherence to quality and consumer service standards to also assure that they meet their obligations under the law to employees?

It is a loaded question and one that, today, points the barrel squarely at many companies. Continue Reading

Tax reform after the mid-terms: Why we can expect Congress to act

Posted in For Entrepreneurs and Companies, For Investors and Fund Managers, Tax

Article prepared by and republished courtesy of our colleagues Evan Migdail, Bruce Thompson and Linda Pfatteicher; originally published here: http://www.dlapiper.com/en/us/insights/publications/2014/11/tax-reform-after-the-mid-terms/.

While some aspects of the agenda for the incoming Republican-controlled 114th Congress are still in formulation, there is no question that tax reform will be a top priority.

Both the expected new Senate Majority Leader Mitch McConnell (R-Kentucky) and House Speaker John Boehner (R-Ohio) have repeatedly stated that tax reform is a fundamental part of their promise to move the country in a new direction. Also, in recent weeks, key Administration officials, including Treasury Secretary Jack Lew, have signaled that tax reform is a potential legacy issue for the President in his remaining two years in office.

The outcome of the elections suggests that voters were frustrated with a federal government, including the Congress, that appeared incapable of addressing the nation’s challenges. Republican leaders have identified the tax system as an impediment to economic growth at home and global competitiveness for US companies. Their challenge now is to show the American people that they have listened to the frustration and are ready and able to work with their Democratic colleagues and the President to reform a tax system that is badly out of date.

Although many of the details of tax reform have yet to be worked out, the basic structure, especially on the corporate side, has been debated in Congress in depth over the past few years and there is substantial bipartisan common ground as to the approach.

Now is the time for companies to look at taking part in the legislative process around tax reform. Find out more about this evolving situation and the legislative process.

Why do VCs require legal opinions in venture deals?

Posted in For Entrepreneurs and Companies, Fundraising, Startups

Contributed by Jeffrey A. Showalter

Most large venture deals require that the Company’s outside legal counsel issue a customary legal opinion, addressed to the investors in the financing, in order to give the investors comfort that the company’s legal affairs are in order. For companies that have been represented since formation by large regional or national counsel with venture capital experience, this requirement generally is not overly burdensome. However, where counsel has not represented the company since formation or is unfamiliar with VC deals, the legal opinion can become an expensive part of the process and a potential delay in the timing of the financing. Below is a short primer on why VCs require legal opinions and the process and cost typically required for a law firm to issue such an opinion.

Purpose—what is the purpose of a legal opinion?

As noted above, in a venture financing, the legal opinion is primarily intended to provide the investors with comfort that the records and procedures relating to the company’s formation, corporate governance and capitalization are in order and that the company has properly approved, and has the legal authority to enter into, the subject venture financing transaction without burdensome registration with the SEC. Although the company also makes representations and warranties to the investors with respect to these issues, unlike other representations and warranties made by the company that relate primarily to business issues (i.e., intellectual property, material contracts, employment matters, etc.), the company’s outside legal counsel is often in a better position than the company to provide reassurance on the matters covered by a legal opinion.

Process and Cost—what does it typically cost for a law firm to issue a legal opinion? 

In order to provide a typical legal opinion, a law firm must review all of the company’s corporate and capitalization records since formation, the transaction documents and various other material contracts and relevant statutes. Where the law firm has represented a company since formation, this “review” has largely already taken place prior to the financing, by virtue of the firm having prepared the relevant corporate and capitalization records. However, where the law firm is new to representing the company, this review of records can require substantial investment of time (particularly if the company has been in existence for a long period of time and has a complicated capitalization table) and often results in the identification of issues that the company needs to remediate, or “clean-up,” in order for the law firm to issue a “clean” opinion. Given this variability in required work, the cost of rendering a legal opinion in a venture financing typically ranges from $5,000 to $20,000 or more. In understanding why these costs can become so large relative to the other legal costs of the deal, it is also important for companies to appreciate that a law firm’s professional liability insurance coverage is used to back-stop any inaccuracies in the firm’s legal opinions. Accordingly, when issuing legal opinions, law firms must implement conservative procedures to ensure absolute accuracy.

2014 Technology Leaders Forecast Survey Results Released

Posted in For Entrepreneurs and Companies, For Investors and Fund Managers, News and Recent Events

pic-trent.jpgCONTRIBUTED BY
Trent Dykes
trent.dykes@dlapiper.com

Thank you to all who participated in the Technology Leaders Forecast Survey that we posted last month. As posted earlier, on October 7, DLA Piper hosted its 2014 Global Technology Leaders Summit, where technology leaders, influential innovators and policymakers convened to discuss the future of innovation. In connection with the Summit, DLA Piper released the results of the survey, which was developed with PitchBook. The results concluded that: “With a thriving tech economy, ballooning valuations and an IPO market humming at a level unseen since the dot-com boom of the late 1990s, headlines have lately, inevitably been raising the specter of another tech bubble — and asking whether a corresponding collapse is at hand. The answer, according to technology leaders, is a resounding no.”

Other key takeaways from the survey results included:

  • 83% of respondents expected moderate economic growth over the next 12 months.
  • Many respondents were bullish about their own business prospects, with more than a quarter reporting that they expect significant growth in the next year. Another 69% believe sales will grow at a moderate pace.
  • 67% of respondents believe that China will be a major source of innovation in the near-term, a drastic change from the 2012 survey results when 9 out of 10 respondents didn’t view China as a serious contributor to global technology development.
  • Attracting and retaining talent continues to be a major concern among technology leaders.
  • Another primary concern among technology leaders is protecting their intellectual property and proprietary data, specifically data security.
  • Executives eye mobile, big data and cloud computing as the three most promising sectors of the technology economy. Respondents were less bullish on social media and digital currencies such as Bitcoin.

If you are interested in more detail, a copy of the full survey results can be found here.

Recent SEC Interpretations Facilitate Intrastate Crowdfunding

Posted in For Entrepreneurs and Companies, Fundraising, News and Recent Events, SEC, Startups, VC & Private Equity

A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

 

The SEC has recently issued interpretations regarding Rule 147.  This rule provides a safe harbor under Section 3(a)(11) of the Securities Act of 1933, as amended, which exempts from federal registration securities offered and sold only to persons resident within a single state or territory, in which the issuer is also resident.  While the exemption is a relatively simple idea at a high level, there can often be challenges in applying it, such as determining where a company resides or where an offer occurs.  Rule 147 provides bright line tests that can be critical when structuring an intrastate offering.

The recent SEC interpretations are specifically useful if attempting to structure a crowdfunding transactions solely within a state.  The interpretations clarify that an issuer would not violate Rule 147 by:

  • engaging in general advertising or general solicitation, provided that offers of securities are made only to persons resident within the state of which the issuer is a resident;
  • using an third-party Internet portal to promote an offering to residents of a single state, if the portal implements adequate measures so that offers of securities are made only to persons resident in the relevant state;
  • using its own website or social media presence to offer securities, if it implements technological measures to limit communications that are offers only to those persons whose Internet Protocol, or IP, address originates from a particular state and prevent any offers to be made to persons whose IP address originates in other states.

In addressing the challenges of limiting offers of securities to residents of the issuer’s state, the SEC strongly encouraged:

  • using disclaimers and restrictive legends making it clear that the offering is limited to residents of the relevant state; and
  • limiting access to information about specific investment opportunities to persons who confirm they are residents of the relevant state (for example, by providing a representation as to residence or in-state residence information, such as a zip code or residence address).

It is important to recall that Rule 147 only provides a federal securities registration exemption.  An issuer using it must still comply with state securities registration requirements.  With the recent crowdfunding rules adopted in Washington (and a few other states), conducting an intrastate crowdfunded securities offering will be possible.

The SEC’s recent interpretations give issuers comfort that, when attempting to use such state crowdfunding exemptions, they will not inadvertently step outside of the federal exemption for intrastate securities offerings.