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Startup Percolator

The blog posts on Startup Percolator cover a wide range of topics essential for entrepreneurs and startups.

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November 1, 2012

Who Really Owns “Your” IP?

"This deal is standard. Let's close TODAY!!" We've heard this so many times only to find out that the early stage technology start-up hasn't fully protected its intellectual property and, as a result, funding gets delayed, or in some extreme cases, even cancelled.

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October 25, 2012

The Trouble with Using Finders to Raise Funds

Sometimes a company will engage a “finder” to help it find financing. I always tell founders that they should confer with the company’s legal counsel when considering whether to engage a finder.

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October 17, 2012

Personal v. Business Expenses?

Many startup owners, in the early days as the sole owner, may feel tempted to run “sort of” personal expenses through their corporation on the theory that they have no other owners to harm.

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September 26, 2012

Leasing Your Office Or Facility – What Are You Getting?

Negotiating a lease for your company's office or facility can be precarious. Real estate is not your core business, and you do not want to spend tremendous time (or expense) finalizing the lease document. In addition, start-ups and emerging companies without strong financials do not enjoy significant leverage in strong real estate markets.

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September 12, 2012

Privacy Policy: Who Needs One and What Should It Say?

Practically all websites you visit have a privacy policy. Prior to launching a website, you may wonder whether you need a privacy policy, too. It is extremely likely that you do.

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September 2, 2012

Delaware Franchise Taxes 101

Sometimes, about January, I get an urgent call from a founder telling me that his or her corporation has received a franchise tax bill from the State of Delaware for tens of thousands of dollars.

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August 29, 2012

Special Classes of Founders Stock

The vast majority of technology startups are capitalized in the same manner: common stock to the founders, common stock reserved in an option pool for employees and consultants, and preferred stock (Series A, Series B, etc.) sold to investors. However, a small but probably growing percentage of startups consider a more complicated stock structure that includes, in addition to the types of equity above, a special class of common stock reserved for founders.

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August 21, 2012

Classifying Employees: Independent Contractors Or Exempt

If there is a ground zero of potential liability, this is it. Cash-strapped federal regulators and states are focusing on misclassification cases with renewed zeal and enthusiasm. And companies, even with the best of intentions, often mischaracterize employees as independent contractors (consultants or advisers). Independent contractors are not subject to wage and hour laws, meaning they don’t need to be paid minimum wage or overtime, are not subject to payroll taxes, and are not entitled to meal and rest periods. Some companies use the “try and buy” approach of hiring a “contractor” for a few months before “converting” him or her to a full-time employee. But companies and contractors are not free to decide what type of relationship they are creating. Federal and state laws alone dictate what constitutes an employee versus an independent contractor relationship.

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August 15, 2012

Fund GENEROUSLY to Milestones

Founders often seek advice regarding the amount of capital to be raised. The conventional wisdom is to raise sufficient capital to permit the company to achieve a milestone that will result in a material increase in the company's value. The milestone might be...

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July 31, 2012

Post-Employment Noncompetition Obligations Are Generally Unenforceable In California

For a start-up company, noncompetition agreements typically arise in one of the following contexts; a founder or new employee entered into a confidential information and inventions assignment agreement (or similar agreement) with his or her former employer that prohibits competing with the former employer, the start-up company wants to prohibit a terminated employee from competing with the company, or in an acquisition, the buyer demands a founder and/or key employee sign a noncompetition agreement.

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July 25, 2012

Valuation: How Much is Your Startup Worth?

How does a technology startup determine its valuation? Is it an art, a science or a combination of the two? Does a startup's valuation increase if it has a slick pitch deck and a clever company name? Should a startup use a Ouija board to determine its valuation?

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July 19, 2012

"Your First Vehicle for Fund Raising: Convertible Notes or Preferred Stock?"

"I think we need about $1,000,000 to $2,000,000 for our first round of funding. Should we use convertible notes or issue preferred stock?" This is one of the most common questions we get from entrepreneurs looking to raise their first round of outside funding. When deciding between convertible notes or preferred stock, consider these key factors.

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July 10, 2012

Maintaining Good Corporate Hygiene

As a founder of a start-up company, you will likely be spending the bulk of your time refining your business plan, pitching your ideas to VCs and looking for talented and experienced employees to fill out your team. Admittedly, in the early days, you probably won't have much time for anything else, including attending to corporate formalities. However, giving some early attention to establishing and maintaining good corporate hygiene will pay dividends down the road that far exceed the fairly nominal investment required up front, especially when it comes to raising money or gearing up for an ultimate exit, such as a sale of the company or IPO. Here are a few fairly simple things that every start-up should do early in its lifecycle.

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July 5, 2012

83(b) Election Basics

We find ourselves explaining 83(b) elections several times a week, so we thought it would be a good blog topic. In the start-up world, the opportunity to file of an 83(b) election generally arises in the context of a founder purchasing low-priced “founder” common stock of a start-up company that is subject to vesting, or an employee, director or other service provider of such a company “early exercising” an option for stock that is subject to vesting. Such stock is sometimes also referred to as “unvested” stock or stock subject to “reverse vesting.” All this means is that...

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June 27, 2012

Take A Step Back To Take A Leap Forward

The introduction of a disruptive technology leads to the collapse of sales of recorded music. Does this refer to the impact of legal and illegal digital music downloads on CD sales? Certainly.