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

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

As companies struggle to protect and safeguard personal information, managing the legal responsibilities related to processing personal data consistent with applicable laws is a growing challenge. A well-constructed and comprehensive compliance program can provide an effective risk-management tool. Our colleagues from the DLA Piper Information Law Team have published a handbook with an overview of the applicable privacy and data protection laws and regulations across 58 different jurisdictions, including a section on enforcement. Edited by Cameron Craig, Paul McCormack, Jim Halpert, Kate Lucente, and Arthur Cheuk, the DLA Piper 2011/2012 Data Protection Laws of the World Handbook is available here.

On March 27th, the US House of Representatives overwhelmingly passed the Jumpstart Our Business Startups Act (JOBS Act) with the Senate's recent amendments. Next stop is the President's desk for what is anticipated to be speedy signature. The legislation is intended to improve the ability of emerging growth companies to access capital by relaxing certain rules in private offerings as well as in the period following a company's initial public offering.  Read the details in this summary by our colleagues Christopher C. Paci, Edward Batts, Ann Lawrence, Jason C. Harmon, Christopher B. Edwards, and Andrew D. Ledbetter.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Amendments to the European Union E-Privacy Directive, which was to be implemented by all EU member states by May 25, 2011, imposed a requirement to obtain user consent to the use of cookies, with such consent on an 'opt-in' basis, rather than an 'opt-out' process. Over the past two years, EU member states have been implementing the directive. In this publication, our colleagues Cameron Craig and Paul McCormack summarize the status of the E-Privacy Directive and include a table containing detailed updates as to the manner in which various countries have implemented the law as of March 2012. 

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Our D.C. colleagues Radiance Walters and Debbie Rosenbaum have a great piece posted on Corporate Counsel Magazine concerning contests, sweepstakes, and giveaways using social media.  They discuss the responsibilities and pitfalls associated with these activities.  Key aspects they discuss are:

• Be Aware That Federal and State Laws Apply
• You Should Follow Your Platform’s Terms of Use
• You Should Always Include Official Rules

Read the full article here.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

I came across this Bianca Bosker interview from last fall with Padmasree Warrior, the CTO of Cisco, and thought she had an interesting take on being a woman in a technical field, working among mostly male colleagues.  “I always tell women that the fact that you’re different and that you’re noticed, because there are few of us in the tech industry, is something you can leverage as an advantage,” she said.  She also talks about some of the challenges women in tech face.  Read the full piece here.

On a related note, as part of her response to Gigaom's questions regarding her "Resolutions for 2012", Ms. Warrior included a desire "to be more of an advocate for women in technology at all levels . . . to make sure we don’t lose the progress and momentum that women have made in technology."

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Adriana Gascoigne is the founder and CEO of Girls in Tech, a non-profit organization she launched in February 2007 that is focused on the engagement, education and empowerment of like-minded professional and influential women in technology. Girls in Tech supports over 17,000 members among 37 active chapters worldwide.

Previously, Adriana was the VP of Marketing for SecondMarket, the global marketplace for alternative investments, and was responsible for SecondMarket’s marketing, branding strategy, event production and digital media efforts. She has also worked at a variety of technology start-ups working in marketing, communications and analytics, including hi5, SocialGamingNetwork (SGN), Jambool’s SocialGold, GUBA as well as Ogilvy Public Relations Worldwide (as VP of 360 Digital Influence) and Edelman (as VP of the Digital Group). She is an “Intel Insider,” serving as a brand and product advisor for Intel. She advises a number of start-ups including Involver, Numiyo Technologies, Palindrome Advisors, Charity Blossom, DooChoo, and Change.org.

Read on for our interview with Adriana Gascoigne, including her advice (and encouragement) for startup entrepreneurs.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Rebecca Lovell (subject of our past interview/VentureSpotlight) has a post on GeekWire this morning announcing that the tech news site and online community has acquired Seattle 2.0, a site dedicated to assisting tech entrepreneurs build their companies.  GeekWire plans to continue hosting the Seattle 2.0 Awards event and StartupDay conference, in addition to combining the job postings from both sites as well as other elements.  Marcelo Calbucci, founder and driving force behind Seattle 2.0, will advise GeekWire through the integration but is now dedicating his time to his new startup, EveryMove (co-founded with Russell Benaroya).  Nicely done, GeekWire, and good luck to you, Marcelo, with your new adventure.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

The 2011 Venture Census results were released this week by the National Venture Capital Association (NVCA) and Dow Jones VentureSource.  This survey, first conducted in 2008, analyzes the demographics of venture capital professionals in the United States.  Although there was a small increase in ethnic diversity among current venture capitalists (an increase from 12 percent in 2008 to 13 percent in 2011), the number of women investor (non-administrative) professionals decreased from 14 percent in 2008 to 11 percent in 2011 while women administrative professionals accounted for 62 percent of the “non-investor” category.  Women did, however, make up the majority of venture capital firm CFOs.

Read NVCA President Mark Heesen's NVCAccess blog post regarding the Census here or download the full report here.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Our colleagues in DLA Piper's Energy group have published this article describing the interpretation of the contractual provision referred to as "force majeure".  While the piece is focused on the use of this term in energy sector agreements, similar concepts and analysis are used in evaluating force majeure clauses in many types of contracts.  The phrase "force majeure" comes from the French and translates literally as "a superior force".  It is used in legal documents to describe events or effects that are not anticipated and not controlled.  The term may refer to acts of nature (sometimes called "acts of God") such as earthquakes or lightning, as well as acts of humans such as war or terrorism.  A force majeure clause in an agreement addresses risk allocation in the event performance of a contractual obligation (such as a delivery deadline for goods or services, up-time performance requirements in a SaaS model, or the obligation to provide useable space in a building lease) "becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled." (Black's Law Dictionary, Thomson West).  The particular circumstances of your agreement and the bargaining power of the parties will determine whether you include a force majeure clause and if you do, what events will excuse performance of which obligations.

Read the full article here.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

A new M&A Corporate Development Report from Merrill DataSite and mergermarket was released this past week.  It addresses the M&A outlook for the coming year.  They report finding a largely positive view toward M&A deal volume and deal values for the upcoming 12 months, with 76% of the corporate executives and investment bankers interviewed anticipating increasing deal volume and 65% of them expecting deal values to increase in the same period.

The report also includes responses regarding approaches to corporate development within the organizations of the executives interviewed, with half of the executives reporting that corporate development executives are actively involved in post merger integration and more than a third reporting that post merger integration activities are maintained completely separate from corporate development.

You can download the full report here.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Courtesy of our DLA Piper colleagues Jim Halpert, Sydney M. White, Kate Lucente, and Haris H. Khan is a summary of the FTC's recent proposal for modifying the Children’s Online Privacy Protection Act (COPPA) Rule.  COPPA heavily regulates the collection, use and disclosure of personal information from online users who are known to be under 13 years old and from sites and online services targeted to this population.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

The Venture SpotLight turns to Rebecca Lovell today, with the first installment of our interview with her.  Among the many hats she wears, Rebecca is the Chief Business Officer of GeekWire, the tech news site based in Seattle.  In that role, she oversees advertising, sponsorship, planning GeekWire events and generally helping GeekWire connect with the Pacific Northwest technology community.  Some the other roles Rebecca fills: mentor for TechStars and The Founder Institute; community advisor to Startup Weekend; professor of a class on venture capital investing at the University of Washington Foster School of Business; board member of the Northwest Entrepreneur Network; classically trained flutist; self-described “karaoke junkie”; National Merit Scholar; valedictorian of Garfield High School; and former mathlete (ask her about having 75 students create a human mobius strip).

What are the best and worst aspects of your job at GeekWire?  

Best:  I get to work with smart, motivated, passionate geeks and meet with them every day.  I love evangelizing our mission - putting our region on the global map of innovation, where it belongs.  Shining a light on innovation wherever it happens.  Celebrating and supporting geekdom.  

Worst:  I am not a patient woman.  I can see where our business can go 6, 12, 18 months from now and can't wait for rolling out some amazing stuff that I could tell you about, but would have to kill you.  Ordering is important and I don't want to screw it up.  Along those lines, there's a lot of behind-the-scenes, keeping-the-lights on stuff that is the prelude to greatness.

What advice would you give to someone applying for a job at a startup?  Embrace uncertainty.  You may be applying for a specific job but you will need to be a generalist - a real team player.  That provides huge opportunity but is a big responsibility - you've got to call for the ball.  If you see a problem, present a solution, or just fix it.  You've got to be nimble and move at the speed of startups.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

DLA Piper LLP (US) recently distributed an electronic newsletter “Emerging Growth and Venture Capital News” containing articles regarding certain avoidable expensive employment-related mistakes by startups, updated federal rules governing investment advisers, cloud computing, and valuations in the context of venture capital financings.  The newsletter also has a list of some representative emerging company and VC transactions recently completed by DLA Piper attorneys.  If you would like to be added to DLA Piper’s e-mail distribution lists for news related to venture capital funds and emerging growth companies, click here.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Today Dow Jones VentureSource reported that venture capital firms invested $8.4 billion in Q3 2011, 29% more than in Q3 2010.  Additionally, the total of 765 deals is an 8% increase over the third quarter of 2010.

Jessica Canning, global research director for Dow Jones VentureSource, noted that:

Venture investment rose in the third quarter, putting the industry on pace to near pre-recession investment levels by the end of the year.  While it’s unclear how long venture capitalists can continue at this pace given the weak fund-raising and difficult exit environments, the increase in deal activity, especially among early-stage start-ups, shows VCs are optimistic they will be able to support the next generation of start-ups.

A significant portion of the VC investments made in Q3 2011 were early stage, with seed and first round financings making up 42% of the deals and 21% of the funds invested during the period.  The consumer internet, IT, business and financial services, medical device and energy sectors all saw increases in both dollars invested and number of companies funded.

Read the full release here.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Venture capitalist Fred Wilson recently published a guest post on his blog from Giant Robot Dinosaur about “Minimal Viable Personality”, what Fred refers to as "voice".  Giant Robot Dinosaur, a/k/a “The Grimster”, explains why personality is a critical aspect of a successful product.  This is true for products of venture-backed companies or those funded in other ways.  I am including it here because I think it is particularly important for startups - as they usually get just one chance to succeed with an initial product - and because I love the drawing of bread versus bacon.

As The Grimster explains in his typical succinct BUT ALL CAPS manner:

• MOST IMPORTANT STEP FOR BUILD PRODUCT IS BUILD PRODUCT.
• SECOND MOST IMPORTANT IS BUILD PERSONALITY FOR PRODUCT.
• NO HAVE PERSONALITY? PRODUCT BORING, NO ONE WANT.

As illustrated by this simple yet solid pictorial advice:

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Canadian futurist Richard Worzel recently posted a piece entitled 9 Trends in Innovation on his blog, FutureSearch. His "trends" list is made up of approaches he believes will lead to innovation and success. From his list, I’ve pulled some sections that struck me as particularly applicable to a tech startup with the goal of significant long-term growth. Read the entire piece here.

Exclusivity is overrated; fanaticism is more valuable

Worzel acknowledges that “creating fanatics is not easy. It takes years of work, meticulous attention to detail, and outstanding customer service.”  Fanatical customers are not only frequent purchasers of your products, but they can be evangelists out in the business or consumer world for your technology and influence others to give your products a try.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

From our colleague Robert Benson in Los Angeles, here is a helpful summary of the recent patent law changes as a result of the Leahy-Smith America Invents Act (H.R. 1249) signed into law on Friday, September 16, 2011.  The biggest change – giving priority to the inventor “first-to-file” rather than the one who was “first-to-invent” – becomes effective 18 months from enactment, while a number of other changes kick in immediately.  For those of us accustomed to the prior U.S. system that focused on the first person to create the invention, this will be an adjustment.  It will bring us in line, however, with many international patent systems.  Those in tech companies will want to make sure their engineering and other technical staff are aware of the new system on at least a general level, with the individuals responsible for IP strategy and protection becoming familiar with the details. 

Read the full piece summarizing key aspects of the new act here.  The full text of the bill can be found here.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

If I was not already a huge fan of Foundry Group, this video (posted on Geekwire last week - thank you John Cook!) would have put me over the edge. They had me the second I saw the suits.

Last week Foundry Group released “I’m a VC”, with more than a nod to Saturday Night Live’s Digital Shorts. Jason Mendelson wrote, directed and sang, together with his fellow Foundry partners, Brad Feld, Seth Levine, and Ryan McIntyre, with help and cameos by others.

The video was produced in connection with the release of the new book by Feld and Mendelson, Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.  Buy it from their site AsktheVC and the authors will autograph your copy. On their firm’s site, the Foundry guys have some good commentary on their recent foray into film.  The video is a great laugh, but in all seriousness the book is going to be suggested reading for all of my startup clients.

BTW, if you have trouble getting the I’m a VC tune out of your head, try listening to "Here Comes Another Bubble" by the Richter Scales from a few years back. And keep an eye out for Feld at about 1:23.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

 Today the Venture Spotlight is on Kate Matsudaira, Vice President of Engineering at SEOmoz, a prominent Seattle-based developer of search engine optimization (SEO) software and tools. 

Kate has extensive knowledge of building large scale distributed web systems and web services, and currently manages the SEOmoz core technology team.  Prior to SEOmoz, Kate served as VP of Engineering at another startup, Delve Networks (now part of Limelight), where she helped create and monetize a large scale distributed system for online video delivery and search.  She has also worked for other leading technology companies such as Amazon.com, Microsoft and Sun Microsystems.  Kate received her bachelor’s degree in Computer Science from Harvey Mudd College in Claremont, California and has completed graduate work in both business and computer science at the University of Washington.  Outside of work, she is a self-described fashion and cupcake junkie and loves spending time with her dogs.

At what point did you first think about working in tech as a career?

I don’t think I ever considered not working in a technical role.  I loved math and science since I was a child.  I used to like doing math workbooks for fun, and would routinely get in trouble for dismantling things like clocks and radios.  I went to college at Harvey Mudd, which is a “liberal arts school of math, science and engineering” – and so it was just assumed you would major and study some field in technology.  Harvey Mudd is also sort of like the college in Real Genius; we weren’t known for having tremendous social skills.  I was crazy and took lots of extra electives because I couldn’t pick which field I liked best.  I ended up picking computer science, because I loved the beauty of creating programs – it felt so magical seeing your work come to life on the screen.  I still feel so lucky that I get paid to do what I love.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

The "Startup Genome Report" released this week from seed accelerator blackbox collected data from 650+ startups to analyze factors that led to a company's  success or failure.  I'm adding it to my recommended must-read list for early stage entrepreneurs.  The authors (Max Marmer, Bjoern Lasse Hermann and Ron Berman) have summarized 14 indicators of success and have made the full report available for download here (in return for providing some basic information).  It's great to have a relatively large, current data set, rather than the more limited view we each get, in our roles as service providers to startups, founders, VCs, etc., from our companies, clients and portfolio investments.  A few of the findings that struck me as interesting:

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The Future of M&A, the mergermarket and Merrill DataSite report released earlier this month, reflects a strong expectation of increased merger activity in 2011 and 2012.  The technology, media, and telecom sectors are expected to see a significant increase in merger activity, along with energy/utilities. The report, based upon interviews conducted in the fourth quarter of 2010, also indicates a growing sense that the valuation gap between buyers and sellers is narrowing, along with more optimism regarding financing alternatives. 

Silicon Valley Bank has a new M&A report out as well, Private Life Science M&A Analysis: More Structured Deals and Quicker Exits in Biotech.  Reviewing M&A exits from 2005 through 2010, the report concludes that biotech companies have quicker exits and lower multiples versus medical device companies.  It also found that biotech exits are more frequently structured with some up-front payment and the remainder payable based upon achievement of later milestones. This is a shift from prior years in which most life science acquisitions were paid out entirely at the front end.  This report also finds an increase in M&A activity and notes that exits are happening later in a company's life cycle than previously.

Relative to 2009 and 2010, we've seen an increase in Seattle area private companies being acquired.  The improved exit opportunities seem to be helping some investors decide to start putting new money to work.  It will be interesting to see how the deal volume holds up through the summer. 

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Was looking at the details of TechDwellers, a space for startups that was recently launched by Seattle-area developer and venture capital firm The Benaroya Company.  It’s located south of downtown Seattle in the Georgetown neighborhood, and boasts amenities including free high speed Internet, free parking, mail service, 24/7 access, and conference rooms/event spaces. Rates run $19.75/square foot/year for private office suites; $295/month for dedicated co-working desk space.  Dan Shapiro, who founded and served as CEO of Ontela, the mobile imaging company that merged with Photobucket, located his new company Sparkbuythere.  A short-term lease at a space such as TechDwellers looks like a good step up from the founder’s basement before a company knows what type of space it may want (and what it can afford) long-term.  Given the downtown Seattle parking rates, and the limited bus schedules late at night/early morning when developers often head home, the free parking may turn out to be a big advantage.

Speaking of Dan Shapiro, he posted a piece on his blog with his views on the ever-touchy topic of splitting founder equity.  It sparked a flurry of comments at GeekWire and Hacker News.  No matter how you come out on how to split equity, it's a conversation co-founders should have very early on.  It won't get easier over time, so better to get it sorted out in the beginning.

CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Earlier this week, in connection with a visit by President Obama to Facebook's offices in Palo Alto to participate in a Facebook Townhall, the National Center for Women & Information Technology (NCWIT) announced a new startup alliance focused on women in tech - the Entrepreneurial Alliance.  Ping Fu, founder of GeoMagic, writes about the event and the new alliance on the White House Office of Science and Technology Policy blog.  The alliance aims to help startups hire more technical women, retain them, and establish a successful company culture by making available practices used to create and maintain an inclusive technical culture and helping get the word out about jobs to women with technical skills.  For additional information, check out NCWIT's fact sheet about the Entrepreneurial Alliance.  And in case you are interested, you can read some of the Q&A with the President following his Facebook appearance here or watch the Townhall here.

CONTRIBUTED BY
Trent Dykes
trent.dykes@dlapiper.com

 (in collaboration with Megan Muir)

We recently guest posted the below article on TechFlash.  At the end of this post, we have added some supplemental information in an effort to respond to a few questions we received from TechFlash readers. 

* * * * *

As the founder of a startup, one of the first issues you need to address is how to finance your company’s operations.  If you are lucky enough to be able to fund your startup out-of-pocket, or through generous family members, congratulations.  You can probably skip the rest of this post and get back to building your business.  However, if you are like most founders, you won’t be able to self-fund your company entirely and your revenues won’t exist yet, or won’t be adequate to grow the company.  In some instances you may be able to obtain government grants or if you have some type of hard asset or significant accounts receivable to use as collateral, you may be able to borrow from a bank.

This post addresses a common method for financing the growth of a tech startup – by selling stock in your company.  What type of investor is right for your company – family and friends, angel investors, venture capitalists, or some combination of these – is something you will want to consider carefully.  We’ll save that discussion for another post as it’s an interesting topic on its own.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

As reported in The Seattle Times, Bothell-based HaloSource recently completed its initial public offering of shares on the London AIM stock exchange.  HaloSource plans to use the proceeds to pay down existing debt and to accelerate growth.  A few large shareholders also obtained some liquidity as they sold shares in the offering.  Because the company’s shares have not been registered in the United States, the AIM exchange filings are not generally available here.  In its prospectus, the company anticipates substantial (40%) growth in 2010 versus 2009 sales. 

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Although the dollar amounts may be relatively small, there is increasing competition for early stage startup investments that is driving up valuations.  Paul Graham talked about this phenomenon at Y Combinator's annual Startup School (see here for Graham's presentation).  VCs are making some small seed investments in dollar amounts you'd typically see from angels, creating pressure on other investors to get in a deal quickly and allowing founders to push valuations higher.  Dow Jones VentureWire reporter Tomio Geron has a good summary here.

The speed with which deals are getting done allows the founders to get back to work building their company and less time fundraising, which may be one of the best things about the trend.  A number of these startups are structuring their fund raising as promissory notes that will convert to stock later, saving time in papering the deal at the front end, and avoiding negotiating the company's valuation until the later equity round.  It will be interesting to see if the high valuations Graham and Geron mention will apply for some of those companies when they go to price a round at some point down the road.  If they've put the bridge money to good use, a higher valuation later may not seem so high.