Articles Tagged with “sacramento startup lawyer”

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Starting a new business requires a substantial investment of both time and financial resources. While some entrepreneurs have enough financial resources to do this on their own, most new business people need to seek out others who are willing to invest in their business. From purchasing or leasing real estate, hiring a staff, or purchasing raw materials and equipment, the front end costs of a business can be huge and it can take a while before you start to see a profit.

To help business people who are just starting out, Forbes recently created a list of common mistakes small businesses make when seeking out investors. We have included some of Forbes‘ tips below, as well as some tips from the U.S. Small Business Administration (SBA).

SBA Tips for Securing Investors

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In October, NetApp Inc. sued its rival, startup Nimble Storage Inc., in the U.S. District Court for the Northern District of California, alleging unfair competition, misappropriation of trade secrets, breach of contract, and five other counts related to the hiring by Nimble of former NetApp employees. NetApp accuses Nimble of recruiting its employees and encouraging them to steal confidential information, including sales materials, pricing models, and details about customers. According to the complaint, about 15 percent of Nimble’s employees — or 55 employees — and half of its executives are former NetApp employees. The suit was filed just weeks after Nimble filed to raise up to $150 million in an initial public offering. The company went public on December 13, and is led by former NetApp executive Suresh Vasudevan. Both Nimble and NetApp are in the business of providing data storage.

Startup Secrets

This lawsuit raises a very important issue for startups: Keeping secrets — particularly trade secrets — private. Startups should understand that there are four types of intellectual property that can and should be protected: (1) trademarks; (2) copyrights; (3) patents; and (4) trade secrets. A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. Examples of trademarks include McDonald’s golden arches symbol. Figures or characters, such as Geico’s talking gecko, can also be a trademark. A copyright protects works of authorship, such as writings, music, and works of art that have been tangibly expressed. A patent is a limited duration property right relating to an invention, granted by the United States Patent and Trademark Office (PTO) in exchange for public disclosure of the invention (we have discussed patent trolls many times in previous articles). A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. Examples of trade secrets include the recipe for Coca-Cola and KFC’s fried chicken. Both recipes are allegedly stored in secret safes and known only by a few select employees.

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Regardless of which political party you align yourself with, the Obama Administration’s October rollout of the Patient Protection and Affordable Care Act, commonly called the Affordable Care Act or Obamacare, was a disaster. The HealthCare.gov website was — and remains — overrun with traffic and technical glitches, and it appears that the number of Americans signing up for coverage is well below the number forecasted by the Administration. Six days ago, the Department of Health and Human Services Secretary Kathleen Sebelius announced an internal review of what happened and why, stating that the Inspector General for the Department would review what happened with the “flawed and simply unacceptable” launch of the website. The Department also released the latest enrollment figures, which shows a promising jump in sign ups during the month of November of 365,000, up from the 106,000 people who signed up in October.

The Affordable Care Act was signed into law by President Barack Obama on March 23, 2010. The goals of the Act are to (1) increase the quality and affordability of health insurance; (2) lower the uninsured rate by expanding public and private insurance coverage; and, (3) reduce the costs of healthcare for individuals and the government. Though there are many critics of the Act, including those who are opposed to specific provisions of the Act and the promised insurance reforms, and those who object to the way in which the Act was passed in 2010, it appears that one group of individuals may be applauding its implementation.

According to a report from the Robert Wood Johnson Foundation, the Urban Institute, and Georgetown University’s Health Policy Institute, the Affordable Care Act is expected to produce a significant increase in entrepreneurship. One of the major roadblocks to entrepreneurship in this country is difficulty obtaining health-insurance coverage on the open market. The report finds that because of the Affordable Care Act, the number of self-employed Americans will be 1.5 million higher in 2014 (an increase of 11 percent). Why? The Affordable Care Act means that access to quality, affordable health-insurance coverage is no longer tied to employment. The report finds strong evidence that without this barrier, the number of self-employed people in the United States will increase with “full implementation” of the Act and lead people to start their own businesses as self-employed entrepreneurs.

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It is becoming increasingly more difficult for startups to survive. According to one report, long-term survival rates for startup companies have been plummeting over the past 20 years: Between 1994 and 2010, survival rates have declined from a nearly 100 percent survival rate in 1994 to just 25 percent in 2010. Separate studies performed by the U.S. Bureau of Labor Statistics and the Ewing Marion Kauffman Foundation — a nonprofit that promotes U.S. entrepreneurship — found that of all companies, only about 60 percent of startups survive to age three and approximately 35 percent survive to age ten.

So, why do some startups fail and how can you ensure a successful startup. Harvard Business School Professor Noam Wasserman has written a book called, “The Founder’s Dilemma: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.” In the book, he has identified some reasons why startups fail. One of the major reasons startups fail is that they are co-founded by individuals who have a prior social relationship, not a prior professional relationship. According to Wasserman, such teams end up in disaster. Another major reason startups fail is that the founding teams divide the equity within a month of founding when uncertainty is at its highest.

While there are some factors that are beyond the control of startups, but may contribute to their demise, such as the economy or new government regulations, there are some things startups can do to help create a more stable company and one capable of surviving. Following are some of the factors experts say are likely to accompany a successful startup: (1) Starting the venture as part of a team and preferably with someone whom you have a prior professional relationship; (2) Drafting a business plan; (3) Starting the business on a full-time basis; (4) Starting a larger company, i.e., larger initial investment, greater number of employees, and greater size of assets; (5) Starting in a notoriously favorable industry; (6) Obtaining work experience in your targeted industry prior to starting your company; (7) Implementing and using a marketing plan; and, (8) Ensuring that financial controls are in place. These are important factors for startups to consider and implement, but what about the founders themselves.

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Last week, we discussed the Sarbanes-Oxley Act and what startups should know about it. We noted that shortly after the Sarbanes-Oxley Act was enacted, critics argued that it restricted innovation and suffocated the growth of startups and small companies because the cost of compliance was too great for them. In response to these concerns, the government, on April 5, 2012, enacted the Jumpstart Our Business Startups Act or JOBS Act. The purpose of the JOBS Act is to encourage funding of small businesses and startups by easing certain securities regulations. For example, the JOBS Act extends from two to five years, the time that certain small companies and startups have to begin complying with the requirements of the Sarbanes-Oxley Act, i.e., certifying the accuracy of financial information. It also provides an exemption from the requirement to register certain public offerings with the Securities and Exchange Commission.

According to Forbes magazine, Title II of the JOBS Act takes effect today, and it lifts the ban on general solicitation, allowing startups to publicly advertise that they are seeking investments. General solicitation means “to publicly advertise the opening of an investment round in a private company by utilizing mass communication.” As reported by Forbes, “[b]eginning today, September 23, 2013, under Title II of the JOBS Act, entrepreneurs will be permitted to publicly advertise that they are fundraising for their businesses, something that was previously illegal for the past 80 years under Rule 506 of Regulation D and Rule 144A of the Securities Act of 1933.” The only restriction under Regulation D 506C is that all investors must be accredited, generally having earned $200,000 for the past two years, or $300,000 if married, or having a net worth of $1 million not including a personal residence (see more on compliance next week).

What Does Removal of the Ban Mean for Startups

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Last month, we discussed the plight of FlightCar, a California car rental startup, currently involved in a lawsuit with the City of San Francisco. The City alleges that FlightCar, which rents out vehicles parked at the San Francisco International Airport by their traveling owners to other airport travelers, is undercutting rental car companies at the airport by acting like a rental car company but ignoring the regulations that govern them. The case of FlightCar highlights the situation facing three other California startup companies involved in the business of “ride sharing.”

What are “Ride Sharing” Companies?

Ride-sharing companies are in the business of providing vehicles-for-hire. The services basically use mobile-phone applications to connect people in need of a ride with everyday drivers. In California, the three largest startup companies providing the service are Uber, Lyft, and SideCar.