The High-touch Legal Services® Blog…for Startups!

© 2009-2017 Dana H. Shultz, Attorney at Law

When a Handshake Deal Isn’t Really a Handshake Deal

Logo for Y Combinator, which announced The Handshake Deal Protocol

Last week Y Combinator announced The Handshake Deal Protocol. A “handshake deal” is an oral commitment to a funding transaction between a startup’s founders and an investor. The handshake deal is necessary in Silicon Valley because, in the world of startups, one must move quickly.

As Y Combinator notes, however, a handshake deal can create problems:

Unfortunately, things don’t work as smoothly in Silicon Valley as among diamond dealers. This is not a closed community of pros who deal with one another day after day. Many participants in the funding market are noobs, and some are dishonest.

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WSJ: Most Accelerators Are of Doubtful Value

WSJ.com logo

Accelerators offer entrepreneurs seed funding and one-to-one mentoring in exchange for an equity stake, making a profit when some of their startups receive institutional (VC) funding. However, according to a Wall Street Journal article published yesterday (Start-Ups Crowd ‘Accelerators’), most accelerators – especially those outside Silicon Valley, Boston and New York – are of doubtful value.

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WSJ: How to Ask Friends and Family for Money

Logo for WSJ.com, which published an article about asking friends and family for money

Yesterday the Wall Street Journal published an informative piece about asking people you know and love (i.e., friends and family) for a loan (Do’s and Don’ts of Asking Friends for Money). Here is a recap of the tips offered by experts quoted in the article:

  • Put yourself in the lender’s shoes.
  • Borrow the money as you would from a bank.
  • Bring in a lawyer to draw up the agreement.
  • Ask for more money than you think you need.
  • Assume the worst.
  • Remember “Hamlet”. [“Neither a borrower nor a lender be….”]

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

WSJ: Lots of Money for Social Startups

WSJ.com logo

In an article published yesterday (“Money Rushes Into Social Start-Ups”), the Wall Street Journal reported that VCs are investing in companies that are taking social networking from computers to mobile phones. The rationale, according to the article (emphasis added):

Behind the spurt of new services is also the idea that the phone, carried by people at all times, can reinvent the notion of a social network by sharing more real-time information about where people are, what they’re seeing and even who they’re around.

Other points made in the article: (more…)

WSJ: Startup Obtains Financing via LinkedIn

Wall Street Journal website (WSJ.com) logo

Yesterday the Wall Street Journal published a fascinating article (Dear Contact: Send Cash) about a startup that obtained first-round funding of approximately $350,000 via LinkedIn.

The founder sent an appeal to his 700 contacts, offering ownership of 2% of his company in exchange for approximately $35,000. Within eight days, ten investors (the target number) were lined up

The founder must have had an impressive set of contacts. In any event, I’m impressed – this was a creative approach that saved the founder a huge amount of time.

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

WSJ: Startups can Pitch to Angels for Free

In an article published today (Start-Ups Get Free Chance to Pitch to Angel Investors), the Wall Street Journal discusses ways that startups can pitch to angel investors without having to pay a fee.

Thrust of the article: Some angel investment groups require that entrepreneurs who need funding pay for the right to present their businesses for consideration. Organizations fighting the “pay-to-pitch” approach include Open Angel Forum and AngelList.

Check out all posts about angel investors.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Funding Your LLC: Avoiding Mistakes

I recently answered an Avvo question about capital contributions and loans to an LLC. The question and answer are reproduced, in somewhat edited form, below.

Q: I am the sole member of an LLC. What is the best way to make capital contributions? Can I do this in the form of a loan? (more…)

Sramana Mitra: Bootstrapping – Weapon of Mass Reconstruction

Photo of Sramana MitraLast evening I attended a meeting of eBig’s Startups / VCs SIG. Sramana Mitra presented “Bootstrapping – Weapon of Mass Reconstruction.” It was highly informative for the entrepreneurs in attendance.

Her first comment was one with which I agree completely: There is too much emphasis on on venture capital funding – few businesses qualify, and other forms of financing allow the entrepreneur to retain greater control and a larger share of the business. (See Realistic Financing Options for Startup Companies.)

Sramana then proceeded to expose a large number of myths about entrepreneurship, and she finished by answering attendees’ questions.

The Entrepreneur Journeys page of Sramana’s blog provides a large number of informative interviews with entrepreneurs from around the world.

Photo credit: Blog Business World

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

WSJ: Startups Will Keep Struggling in 2010

In an article published yesterday (Start-Ups Will Keep Struggling in 2010), the Wall Street Journal reported that startup funding will remain tough to find in 2010.

The major problems:

  • Most entrepreneurs use personal savings or contributions from friends and family, but personal wealth – often tied to the value of homes or stock portfolios – has not bounced back from the economic downturn.
  • For both conventional bank loans and those insured by the Small Business Administration, entrepreneurs most show (a) that they have invested a significant amount of their own money and (b) solid cash-flow projections.
  • During the first half of 2009, the total value of angel investments fell 30% compared to 2008; 2010 is expected to continue at the 2009 level.
  • While venture capitalists are continuing to invest, they typically have been protecting later-stage companies already in their portfolios rather than funding startups.

The minor bits of good news:

  • While angels are investing less per deal, the total number of deals increased during the first half of 2009 over 2008.
  • Stimulus-related measures may increase SBA loans from 1% of all small-business lending to between 5% and 10%.

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Related posts:

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

WSJ: VCs to Resume Funding Startups in 2010

In an article published today (After Dry Year, Start-Ups Are Poised to Get Cash), the Wall Street Journal reported that venture capitalists will resume funding startups in 2010.

The major reasons for this development:

  • During much of 2009, VCs were hoarding cash to protect their existing companies. With the economy and the stock market stabilizing, VCs are returning to investment mode.
  • Whereas initial public offerings were almost nonexistent this year, investment bankers see IPOs returning in 2010.

Some additional points made in the article:

  • During 2009, the vast majority of the (modest) VC investment that did occur was in information technology or health care.
  • For 2010, VCs are looking for opportunities in social networking, mobile technology, health-care technology, and clean technology.

Related posts:

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.