The High-touch Legal Services® Blog • For Startup Companies » Financing

WSJ: Angel Investors are Getting Harder to Sell

Dana — Thu, 15 Dec 2011 22:18:01 +0000

In an article published today (Chasing the New Angel Investors), the Wall Street Journal discusses why entrepreneurs must work ever-harder to persuade angel investors to invest.

According to the article, although seed and startup angel investment has increased, there are several reasons why that money is more difficult to attract:

Since the recession, many angels have become more demanding, looking for proof of marketplace acceptance rather than a hunch that it exists.
Angel groups, which syndicate deals among their members, have a more-formal review process that may involve discussions by dozens of potential investors.
With less venture capital available, angels are more concerned about whether a company can grow to profitability or a successful exit.

The article’s advice for entrepreneurs: Have something to show, know your business thoroughly, and polish your pitch.

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.

SVASE East Bay Series 11/16/11: What’s Hot – What VCs Like and Why

Dana — Thu, 10 Nov 2011 19:06:49 +0000

The evening of Wednesday, November 16, the Silicon Valley Academy of Startup Entrepreneurs (SVASE) will present “What’s Hot – What VCs Like and Why” as part of its East Bay Series. Here is the event description:

To build a fundable company, you need to know the areas that investors are focusing on. Venture capitalists specialize in identifying important and lucrative opportunities before they become trends. So, what are VCs intrigued by today? Where will their money be invested? What is the effect of recent economic conditions? Learn what you will need to build a company that capitalizes on the latest developments.

Panel members will include:

Brent Ahrens, Canaan Partners
Cindy Padnos, Illuminate Ventures
Randy Hawks, Claremont Creek Ventures

The event will take place at the beautiful Crow Canyon Country Club and will include a tasty buffet dinner.

SVASE East Bay Series 10/19/11: VCs Uncensored

Dana — Fri, 14 Oct 2011 18:50:06 +0000

The evening of Wednesday, October 19, the Silicon Valley Academy of Startup Entrepreneurs (SVASE) will present VCs Uncensored as part of its East Bay Series. Panel members will include:

Carl Showalter, General Partner, Opus Capital
Xander Mahony, Investment Professional, Draper Fisher Jurvetson

Event description:

Hear directly from venture capitalists on what they love, hate and worry about when working with entrepreneurs. Our panel will discuss mistakes they see entrepreneurs make, pitfalls they help companies avoid, and the challenges of rapidly growing a business. They will talk about valuing companies, negotiating deal terms, raising additional rounds, replacing CEOs, and much more. This lively and candid discussion will open your eyes to the world of VCs and will help you better understand and work with them.

The event will take place at the beautiful Crow Canyon Country Club and will include a tasty buffet dinner.

How can I Invest More Money in My Corporation?

Dana — Wed, 12 Oct 2011 02:37:57 +0000

This post is based on a Quora question in which a user who already had invested money in his corporation wanted to know how he can invest an additional amount. My answer, reproduced below almost verbatim, starts by summarizing the steps for an initial equity investment.

Let’s assume you did your startup paperwork properly: The board of directors approved issuing some or all of the corporation’s authorized shares to you in exchange of payment of certain consideration; you deposited that consideration into the corporation’s bank account; the secretary recorded your share ownership on the corporation’s share transfer ledger and issued a share certificate to you.

When you contribute additional funds to the corporation, you probably either:

Will be issued more shares (though, in my experience, this is less likely because founders often issue all of their shares up-front) through a process like that described above, or
Will make a loan of the additional amount to the corporation, in which case you should prepare an appropriate loan agreement and promissory note (if you expect to make additional contributions in the future, it probably makes sense to enter into a revolving loan agreement with a schedule of contributions and repayments that is updated from time to time).

Photo credit: Arjun Kartha via stock.xchng

Can an Undocumented Immigrant Form a Corporation?

Dana — Fri, 09 Sep 2011 01:19:24 +0000

This post is based on a question that I answered on OnStartups.com. The short answer is “Yes, an undocumented immigrant can form a corporation.” The rest of this post is adapted from the full answer that I provided.

You can form a corporation – no problem. I have helped dozens of foreign clients (non-citizens, no social security number) go through that process.

With a bit of effort, you can obtain an Employer Identification Number for the corporation. Please see Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S.

Your greatest limitation will be that you cannot legally work for the corporation without a work visa – which, I suspect, you will not be able to obtain because your undocumented status would become known. And if you were to raise funds, you would be legally obligated to raise this fact, likely frustrating your efforts.

However, (1) you can be a director of the corporation (please see Visa Basics for Foreign Entrepreneurs, Part 2: What Constitutes Work?), (2) the corporation can hire employees and independent contractors, and (3) the corporation can enter into contracts to carry out its business objectives.

The situation you are describing may be unusual here in the Bay Area, but it is not all that unusual in the Southwestern U.S. I was interviewed by a writer in Arizona who told me that it is quite common for undocumented immigrants there to form LLCs so they can obtain an EIN and, thus, be able to accept payments legally and pay taxes.

SVASE East Bay 7/20/11 – Angel and VC Perspectives

Dana — Wed, 13 Jul 2011 18:18:19 +0000

The evening of Wednesday, July 20, the Silicon Valley Association of Startup Entrepreneurs (SVASE) will present “Your Capital-Raising Roadmap – Angel and VC Perspectives” at the beautiful Crow Canyon Country Club as part of SVASE’s East Bay Series (a tasty buffet dinner is included). Here is a description of the event:

You dream of venture capital to turn your great idea into a huge entrepreneurial success. But even if venture capital is appropriate, other types of funding -such as bootstrapping, personal loans, friends and family, or angel investment – usually come first. Our panel of VCs and angel investors will explain which types of funding are appropriate at each stage and how those types of funding can be combined, over time, to maximize returns for both entrepreneurs and investors.

Panel members lined up so far include:

Harj Taggar – Y Combinator
John Matthesen – Serial Entrepreneur / Angel Investor / Venture Partner

MarketWatch: European Startups still Drawn to the Valley

Dana — Thu, 07 Jul 2011 16:51:12 +0000

An article (“For Europe’s start-ups, Silicon Valley still calls”) published yesterday by MarketWatch, part of The Wall Street Journal Digital Network, discusses why European tech entrepreneurs continue to flock to the San Francisco Bay Area.

The article’s theme:

Divided by geography, language, regulation and, in some cases, just old-fashioned cultural prejudice, the region has struggled to shed fully its image as a place where men and women with ideas are born, but where they do not necessarily stay, prosper or secure funding.

Some of its main points:

In Europe, failure is to be avoided; here, failure is seen as a step along the road to success.
European venture capitalists invest in established companies; VCs here are more likely to make seed- or startup-stage investments.
On a per-capita basis, the U.S. has twice the amount of VC investment in Europe – and almost half of the U.S. total takes place in California.

WSJ: Entrepreneurs Turn to Peer-to-Peer Loans

Dana — Fri, 17 Jun 2011 23:39:19 +0000

In an article yesterday (“Peer-to-Peer Loans Grow”), the Wall Street Journal discussed increasing use of peer-to-peer lending sites such as Prosper and Lending Club by small-business owners.

The reason such use is increasing: During and since the financial crisis, small businesses have had a difficult time obtaining bank loans, and the loans that they can obtain often have unfavorable terms.

How peer-to-peer lending works: The borrower pays the site a fee. The site analyzes the borrower’s creditworthiness, sets an interest rate accordingly, and posts the loan. Investors anonymously invest small amounts – less than $1,000 – in loans that interest them. As each loan payment is made, each investor receives his or her portion. Because the site has low overhead, borrowers pay a lower interest rate that they would to a bank; in turn, investors receive a higher return than they would from many other investments.

The sites are regulated by the Securities and Exchange Commission. As a result, they issue prospectuses that highlight the risks of using the sites. For example, the Prosper Prospectus includes more than 20 pages of risks related to borrower default, Prosper’s ability to service the notes, and the like.

Perhaps most important, in the event of a default, the lenders cannot go after the borrower directly. As a result, lenders should be prepared to lose the entire amount of their investments. However, with default rates of less than three percent, peer-to-peer lending can make sense for investors who spread their money in small chunks among many loans – and it makes a huge amount of sense for borrowers who cannot obtain money elsewhere.

SVASE East Bay Series 6/15/22: Step by Step – Raising Money from VCs

Dana — Sun, 12 Jun 2011 23:14:41 +0000

The evening of Wednesday, June 15, the Silicon Valley Association of Startup Entrepreneurs (SVASE) will present “Step by Step – Raising Money from VCs“ as part of its East Bay Series at the beautiful Crow Canyon Country Club in Danville, California (tasty buffet dinner included). Here is a description of the event (emphasis added):

In equity financing, the entrepreneur raises money by selling shares in the business to investors, thereby making them partners. Investors earn their returns when the company is sold or through another liquidity event, so their incentives are largely aligned with the entrepreneur’s – they both want the business to succeed. In this program you will learn the step-by-step process of raising equity from a venture capital firm and how to build a successful relationship with your VC.

Panel members will include:

Tim Wilson, Partech International
Rock Clapper, Band of Angels
Jack Robertson, The Robertson Group

SVASE East Bay Series 5/18/11 – Pitching: How to Go the Distance and Chalk Up a Win

Dana — Sat, 14 May 2011 02:22:41 +0000

The evening of May 18, the Silicon Valley Association of Startup Entrepreneurs (SVASE) will present, as part of its East Bay Series, “Pitching: How to Go the Distance and Chalk Up a Win”.

Here is the description from the SVASE website (emphasis added):

Pitching isn’t just about the Giants winning the World Series – it’s also about entrepreneurs presenting their companies to potential investors. In this session, two real-life entrepreneurs will pitch their companies to a panel of investors, who will explain what the entrepreneur – and you – can do to better direct your presentations to investors’ highly-subjective strike zones.

The panel of investors includes:

Nicolas El Baze, Partech International
Jay Jamison, Blue Run Ventures
John Matthesen, Serial Entrepreneur / Angel Investor / Venture Partner

The program will take place at the beautiful Crow Canyon Country Club and will include a tasty buffet dinner.