Posted by Megan Muir on May 09, 2013

Megan Muir.jpgCONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

Investor and serial entrepreneur Jonathan Sposato has seen enough startup pitches in his day to know what he likes. In this Geekwire post from earlier this year, he shares his three favorite things to hear from founders seeking an investment. One key piece of advice from Joanathan that is simple and straightforward: your investors want to know their money is going to be put to good use.

With that in mind, he advises founders to “speak provocatively and ambitiously about their concept,” to share names of other well-respected investors who are already on board, and to provide a detailed plan for using the funds they are requesting. 

Jonathan’s suggested approach in one sentence:

Please tell me: How you’re going to crush it, who else agrees with you besides me, and how you are going to spend my money.

Posted by Trent Dykes on April 29, 2013

CONTRIBUTED BY
Karen Katz of DLA Piper's Venture Pipeline

The Global Corporate Venturing (GVC) group has released its first quarter report making clear that there is a consolidation of traditional financial venture capital and the growth of corporate venture capital. GE's investment of $105M in Pivotal is a great example. What this means for both the early stage company community and the venture capitalists is a need to truly focus on the customer - early and often. Corporates provide customer access and when a new company can demonstrate that its offering provides true customer value, high growth and bigger exits will follow.

These findings highlight for me Harvard Business Review’s May 2013 recent article outlining the lean start up framework. Lean start-ups are iterative, customer focused and the wave of the future. They require early partnership and interaction with customers, buyers, strategics and financing sources all at the same time.  

Check out these two reports showing this convergence around the customer in the links below: here is a link to the GVC report; and here is one to the HBR article called "Why the Lean Start-Up Changes Everything" by Steve Blank.

Posted by Asher Bearman on April 22, 2013

Asher Headshot - Resized.pngCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Choosing the best type of entity for a company can be a challenge.  C corporations are the norm for most emerging growth businesses, particularly those raising money from investors.  However, LLCs are becoming more widespread, even for operating businesses.  Founders may want to have the tax benefits of LLCs, which are not subject to a company-level tax (as is the case with C corporations) and may enable more tax deductions. 

This potential for tax savings does not, however, come without a cost.  LLCs tend to be more complicated and expensive to setup and manage, particularly for operating businesses.  LLCs can become even more tricky for businesses that want to issue equity to incentivize employees or other service providers.  This article addresses some of the ways LLCs can use equity to incentivize service providers, and the implications of each option (pardon the pun).

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Posted by Trent Dykes on April 17, 2013

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

The Angel Resource Institute, Silicon Valley Bank and CB Insights recently released their angel group update 2012 year in review, the Halo Report. The Halo Report analyzes angel investment activity and trends in the United States. Here are a couple interesting 2012 highlights:

  • The median angel round size was $600K;
  • The median angel round size was $1.5M when angel groups co-invest with other types of investors;
  • The median pre-money valuation for early stage angel group deals was $2.5M;
  • 63% of angel group deals were in companies with revenue;
  • 56% of angel group deals were in new companies;
  • 11% of 2012 deals were convertible debt (up from 6% in 2011);
  • California was the most active region for angel deals, both in number of deals (18.1%) and total dollars invested (23.1%), but California was lower in both categories compared to 2011; and
  • The top three industry sectors attracting angel investment were internet, healthcare and mobile, both in number of deals and total dollars invested.

A copy of the full report can be found here and the infographic can be found here. 

Posted by Trent Dykes on April 02, 2013

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

If you are reading this post, then you probably share my belief that one of the best things our government can do to spur economic and job growth is to support the startup community. In recent years, government entities ranging from state (See Maryland’s proposed tax credit to support investment in cybersecurity industry) to federal (See JOBS Act: What matters most for startups and VCs) to the IRS (See Fiscal Cliff Bill to renew 100% QSBS tax break) have enacted programs designed to enable more and easier investments into startup companies (in the US). However, many commentators have argued that such efforts are not enough.

One country that appears dedicated to its startup community, and that has a very interesting and seemingly effective model for facilitating growth, is Israel. Last week I met with Daniel Marcus of the Israeli law firm Amit, Pollak, Matalon & Co. to discuss emerging growth and venture capital markets and I took the opportunity to ask Daniel more about Israel’s government funding model via its Office of the Chief Scientist (OCS). Luckily, Daniel and his colleague, May-ad Katz, had previously written a great article titled “Exporting technology from the ‘start-up’ nation” summarizing the OCS funding system and related encumbrances.

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Posted by Asher Bearman on March 27, 2013

Article prepared by and republished courtesy of Ed Batts of DLA Piper; originally published here.

Negotiation fatigue is an age-old problem in completing any contract – and often, whether fair or not, the further back in the document the clause is positioned, the greater the fatigue.

 

A choice-of-law provision, which decides which jurisdiction’s law shall govern the contract, is almost always near the last clause in a contract. How often have dueling sets of lawyers (and more frequently, frazzled and puzzled clients who simply want a contract done before the end of the quarter) exhausted themselves on other provisions, only to trade away choice of law for a perceived gain elsewhere in the document?

 

Delaware Vice Chancellor Donald Parson’s February 22 decision in Meso Scale Diagnostics vs. Roche Diagnostics (Delaware C.A. No. 5589-VCP) highlights how important this seemingly mundane provision can be years later in a change-of-control situation. It also highlights a potentially critical divergence between Delaware and California state law.

 

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Posted by Trent Dykes on March 12, 2013

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

A great reminder compliments of our colleague Mark Radcliffe: On March 16, the US patent system will undergo a fundamental change from the current “first to invent” to a “first to file” system.

By way of quick background, a “first to invent” system means that even if another party files a patent application on your invention first in the US Patent and Trademark Office, you will still be entitled to obtain a patent on your invention if you can prove you created the invention first. The new “first to file” system, which becomes effective on March 16, 2012, provides that you can no longer get a patent by proving that you actually created the invention before the filing date of the first patent application.

Patents have become an increasingly important part of the assets of startups, especially since most startups exit through merger. PwC, in its recent report on US technology M&A, explains that “companies with strong patent portfolios continue to be likely targets for future acquisitions, as modern competitive pressures force businesses to acquire and defend intellectual property rights.”

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Posted by Trent Dykes on February 05, 2013

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 on March 1. At this point, you should have 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 $75 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 1st, 20% due by September 1st, 20% due by December 1st, and the remainder due March 1st.

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

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Posted by Asher Bearman on January 29, 2013

Asher Headshot - Resized.pngCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

 

 

The Startup Company Starter Kit, available in our “Forms” section in the right hand column, provides forms to do any of the following: 

  • Create an offer letter for a prospective employee (state specific and will address confidentiality obligations)
  • Create an agreement that an existing or new employee will sign that protects and preserves the employer's proprietary information and inventions (often called PIAAs, these are critical for employees involved with company IP)
  • Disclose confidential information TO someone else (for disclosures BY the company) 
  • Receive confidential information FROM someone else (for disclosures TO the company) 
  • Disclose and Receive confidential information (mutual NDA)
  • Engage a consultant (form consulting agreement)
  • Document your release of information to someone who agreed to keep that information confidential (tracks disclosures of confidential information)
  • Create an employee exit interview declaration (a checklist to confirm that the former employee has returned all company information)

Posted by Trent Dykes on January 11, 2013

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

A reminder to companies that had incentive stock option exercises in 2012, Section 6039 of the Internal Revenue Code requires a corporation to furnish a written statement to any employee or former employee who either exercised an incentive stock option during 2012 or during 2012 first transferred legal title to shares acquired under the corporation's Section 423 employee stock purchase plan. The corporation must furnish these statements on Forms 3921 and 3922 no later than January 31, 2013.

These corporation must also file information returns providing the same information with the IRS. This requirement applies to both privately held and publicly traded corporations.

Our executive compensation and employee benefits colleague William Hoffman provides more detail regarding this deadline and the related requirements here.