A blog about making your business leaner, faster and smarter

5 Most Common Pitfalls that Startups Should Avoid

The entrepreneurial spirit is as much a part of the fabric of America as baseball, democracy, and McDonald’s. We dream big, work hard, and invest our finances into something that we truly believe in. While our intentions may be noble and our ideas unparalleled, there are many things to consider before launching a startup business. A study from the University of Tennessee published some astonishing facts earlier this year including that 25% of all startups fail in the first year and by year four, 50% are no longer exist. The leading causes for startup failure include poor management of financial decisions, lack of managerial experience, inadequate inventory, and lack of planning and research (no focus, bad advice, burnout, poor market awareness, etc). Here are some things to consider as you manage your new company: Know the Law – There is a ton of research, legal jargon, and paperwork that comes …

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Congrats newly-minted JDs!

Now that you’ve wrapped up the bar we want to offer you the chance to start working right away with one of the fastest-growing startups in the legal industry. UpCounsel is seeking legal research and writers to work for our senior attorneys! Get started with your application by emailing us at: juniors@upcounsel.com While most of you know UpCounsel as a platform for talented lawyers to connect with great clients, our senior attorneys often need help with things like research and legal writing for their clients. We know how much you want to work with our amazing senior attorneys, and we’ll connect the best applicants with work from those attorneys. If you have a JD and you’re admitted to the bar, you can email juniors@upcounsel.com to request an application question. If you’re interested in hiring reasonably priced research associates during this pilot, you can send an email to: ineedjuniors@upcounsel.com We’ll alert you …

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3 Tips for Issuing Equity to Startup Employees

Most startup companies get going with a plethora of cost-saving measures including working out of dismal (read cheap) spaces, employing sweat equity, and promising future equity. Most startups reward early hires for taking the risk and joining an unproven team by offering them company equity – after all working for a startup doesn’t always mean a big reward in the end. So, what is the right way to issue equity to startup employees? 1. Issue Equity in Alignment with Company Goals There are different options for equity compensation depending on whether your company is a limited liability company, a C corporation, or an S corporation, but in every case it’s important to align the issuing of equity with the company’s goals. For example, if the company is poised for fast growth the the intention of going IPO then you may want to issue equity early and based on milestones. If …

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Are Convertible Bridge Notes Better for Startups or Investors?

We discussed convertible notes recently, and noted that the reasons they were popular. The primary feature of a convertible promissory note is that the debt investment automatically converts later into company equity at a discounted price per share. Some investors, however, do not like the terms of the typical convertible bridge note feeling that they do not adequately compensate an investor for the risk taken during early-stage startups. Today, convertible debt is considered a good structure for a startup’s angel round, but is it good for investors? First, let’s review what a convertible bridge note with a price cap is in financing terms. What is a convertible bridge note? These days, investors may refuse to do convertible bridge financings unless the conversion price on the debt is capped. For example, an investor may request the conversion price is the lower of a discounted Series A price or the price per …

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How to Use Google Patent Search for Patent Research

The first step to getting a patent is determining whether someone else already has the patent. Remember the first to file rule? If you’re the first person to come up with the idea, you can patent it and you’ll have a monopoly over that invention’s use for 20 years from the date of your patent application. Not so long ago, a patent search required hiring a lawyer or a professional patent agent, but thanks to the Internet, you can now do your own patent search with minimal effort and cost. One of the most useful websites for doing patent research is Google Patents (www.google.com/patents) – a useful resource that includes text-searchable patents dating back to the 1790s.  Google Patent search is a big improvement over what the United States Patent and Trademark Office offers because many patents are not text-searchable there, plus many patent researchers find Google Patents to be …

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What does a Convertible Note look like?

Convertible notes – or convertible debt – have become the de facto standard for small (i.e., less than a million) seed-stage deals in the last few years. There are two primary reasons convertible notes are popular: They are easy to complete quickly and cheaply, keeping legal work and negotiations on both sides to a minimum. Experienced investors don’t want long and involved legal counsel in a typical convertible debt round of funding – in fact the term sheet for a deal like this could be only 2-3 pages long. The second reason is the ability to ignore valuation, which can be the hardest factor to determine objectively. Convertible notes used to be called ‘bridge’ financing and they worked in a couple of ways: A VC firm that invested in the startup’s Series A funding round will make an additional investment to help ‘keep the lights on’ while the company goes …

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What Should I Expect to Pay in Legal Fees for Series A Financing?

Statistics from top law firms routinely show that new startups spend a good deal of their money in legal costs. The legal fees for Series A financing are reported to range from between $40-$60K – about half to 70% of which will be paid by the investors depending on how your agreement is negotiated. If the investors are not represented by counsel, as is true in some angel financing deals, then the company’s legal fees can be significantly lower (partially due to the lack of back-and-forth negotiations between teams of attorneys) Although some will argue that when you have a seed stage company that needs to close a seed round where all parties are willing to use a standard set of documents and don’t need much negotiation (often where the investors agree to go in without counsel), the legal fees for that transaction can be as low as $5K. To …

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What’s the Danger in ‘Liquidation Preferences’?

The term ‘liquidation preference’ is one of the essential components of a preferred stock agreement – it’s generally considered the second most important term in a venture capital investment and it’s outlined on the term sheet. (See How do you Understand a Series A Term Sheet for term sheet details.) So, what is a ‘liquidation preference’ and what does it mean to business owners and investors? Term Sheet Facts – Types of Stock The following are the two most common types of stock and who holds each type: Common Stock – the basic equity interest in a company. Typically the type of stock held by founders and employees. Preferred Stock – has some ‘preferences’ over common stock like dividend and redemption rights, conversion and voting rights, etc. Typically owned by venture capitalists and other investors in the company. Venture capital investors almost always insist upon having preferred stock because the …

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How do you Understand a Series A Term Sheet?

The first round of investment from a venture capitalist or ‘angel investor’ is called a Series A round and that is defined by the terms included in the Series A Term Sheet. Each round of investing has its terms and definitions and this one defines the terms the first time an entrepreneur or small business seeks outside capital funding. If you’re a small business owner or entrepreneur and have just been handed a Series A Term Sheet by a venture capitalist, whatever you do don’t sign it just yet. Many business founders have been dazzled by the numbers and signed a term sheet that was not in their favor simply because they missed a sneaky clause or discovered an term too late. Here’s an important thing to note – term sheets are non-binding which means they are just a way of moving along the process of negotiation with some terms …

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How much does it cost to get a software patent?

It’s important to remember that the strategic value of a valid software patent is in protecting your idea from inappropriate use by the competition as well as positioning your company for better earnings. The cost of a patent is relevant to the perceived value of the patent, so applying for a patent on a new miracle invention could be worth every penny you spend (and more). Applying for a patent on something that everyone knows how to work around, on the other hand, makes no sense and isn’t worth the basic application fee no matter how cool your workaround is. According to the American Intellectual Property Law Association, the typical software patent costs between $8,000 and $12,000 with the median about $10,000. Those prices including filing fees. The typical software patent on UpCounsel costs between $6,000 and $9,000 and includes representation after filing. Steps to Save Money on a Software …

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