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

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

WSJ: VCs Reducing Appetite for Risk

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In an article published today (Venture Capital to Suppress Its Appetite for Risk in 2013), the Wall Street Journal reports that venture capitalists have dramatically lowered their appetite for risk, reducing the power of Internet entrepreneurs who are seeking funding.

The article notes that:

  • In light of disappointing stock-market performance of Facebook, Zynga and Groupon, VCs are investing less in consumer Internet companies.
  • During the past year, valuations have gone down significantly.
  • On a quarter-over-quarter basis, the number of deals, the amount invested and the percentage of “up” rounds all have declined.

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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.

Equity-Based Crowd Funding: Pro and Con

Logo for WSJ.com, which published an article about equity-based crowd funding

Congress is considering legislation by which the Securities and Exchange Commission would lift limits on private equity investments, letting companies sell equity interests to investors online (“crowd funding”). Today the Wall Street Journal published a debate on this topic (Should Equity-Based Crowd Funding Be Legal?).

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WSJ: Lots of Money for Social Startups

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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: Specialty Lenders are Lending

In an article published today (Entrepreneurs Find Success With Specialty Lenders), the Wall Street Journal reported that some entrepreneurs who otherwise cannot obtain loans have been able to borrow from banks that specialize in niche industries.

As an example, the article cites Silicon Valley Bank, which caters to high-growth technology and life sciences firms.

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: More Funds for Startups, but Still Hard to Get

In an article yesterday, the Wall Street Journal reported that funding for startups is more plentiful than it was a year ago, but still is hard to come by (Start-Ups Chase Cash as Funds Trickle Back).

Among the phenomena discussed:

  • Angel investment groups that want to see profitability before they invest
  • Reduced availability of funds from home-equity and retirement-account loans because of lower? asset values
  • Dedication of additional money to protect existing investments rather than to start new investments
  • Availability of venture capital only if a company has a product or customers

Related post: Realistic Financing Options for Startup Companies

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.

Asset-Based Lending on the Rise according to WSJ

Logo for WSJ.com, which published an article about asset-based lendingIn an article yesterday (Asset-Based Lending Grows in Popularity), the Wall Street Journal reported that asset-based lending – loans secured by the borrower’s assets as collateral – surged during 2008 and 2009.

The reason: Businesses that lack the credit rating, track record, or patience to seek traditional sources of capital can get loans by pledging their equipment, inventory, accounts receivable, or other liquid assets as collateral.

Downsides: Asset-based lending comes with a relatively high interest rate. If a payment is missed, the collateral may be seized by the lender.

Related post: Realistic Financing Options for Startup Companies

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.

Need Funding? WSJ Offers Tips to Gain Credibility

In a November 30 article (“Trust Me”), the Wall Street Journal offers tips to entrepreneurs who want to gain credibility in the eyes of potential funding sources.

Based on a study of key individuals at 28 entrepreneurial ventures, the article asserts that “the most successful founders were masters at making symbolic gestures that signaled stability and credibility” in four vital areas:

  1. Personal CredibilityExample: Revealing personal details that strike a chord with listeners
  2. The Company’s ProfessionalismExample: Thoughtfully prepared web page and business cards
  3. The Track RecordExample: Showing a prototype or a controlled product demonstration
  4. Emphasizing and Building Ties Example: Being associated with prestigious stakeholders

Takeaway: In a tough, competitive economic environment – especially if you are an entrepreneur without a track record – sending a message of credibility is just as important as having a great? product, a large market, and the right management team.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

The “Independent Contractor” Trap Becomes More Dangerous

Earlier this year, I wrote Avoiding the “Independent Contractor” Trap about the dangers that companies face if they misclassify employees as independent contractors. The Wall Street Journal recently reported (Employers and Workers Clash in Court Over ‘Contractor’ Label) that those dangers have increased.

According to the WSJ article, the Internal Revenue Service will audit 6,000 randomly-selected U.S. companies in its first attempt since 1984 to quantify the extent of employee misclassification. The IRS is not taking this step merely to help the individuals involved receive the pay and benefits to which they are entitled – state and federal governments stand to gain billions of dollars every year from withholding taxes, unemployment insurance and workers’ compensation if workers are classified properly.

Even greater than the risk of a government audit is the risk that a disgruntled “independent contractor” will file a wage claim (see Wage Claims – Nasty but [Sometimes] Necessary).

Avoiding the “Independent Contractor” Trap lists factors that can help you determine how to classify workers properly.

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.