Founder Tip
of the Week

Innovators Wanted

Big ideas, Bite sized. Welcome to the Founder Tip of the Week.

Going Back to Cali: The Pitfalls of Contracting for Works Made for Hire From Consultants in the Sunshine State

It is essential for start-up companies to properly characterize their service providers who are individuals (i.e., natural persons) as either employees or independent contractors (i.e., consultants). Among other matters, a company is required to pay payroll taxes and comply with minimum wage and hour laws for its California-based employees but not its contractors.

Crowdfunding: Don’t Give Up on Accredited Investors

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (aka the JOBS Act), which included the cleverly titled Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act, or "CROWDFUND Act." The CROWDFUND Act established a securities law exemption (codified at Section 4(a)(6) of the Securities Act) allowing startups to raise funds under conditions that would have previously been considered a general solicitation.

Back to Basics: Consider the Number of Shares to be Issued When You Form Your Startup

There is no required minimum or maximum number of shares by law that must be issued to founders or reserved in the equity incentive (stock option) pool in a startup. Of course, what does matter is the percentage of the company each individual stockholding represents. A startup may issue 100 shares or 100 million shares at formation, and 50 shares in the former or 50 million shares in the latter still represents 50% of the equity of the startup. A typical equity pool is between 10% and 20% of the total number of shares issued and reserved for issuance.

Changing Roles: From Founding CEO to “Employee”

Perhaps few times for an emerging growth company present more risk than the transition of a founder/CEO to "employee" status. This often happens later in the startup life cycle, when a company has funding and/or sales traction. The difference between a smooth and rocky transition can represent the difference between success and failure of the company.

IP Owners Beware

It is important for founders and IP owners to be wary of the practice derogatorily referred to as “patent trolling.” This practice occurs when a company that has a patent right, either through development or acquisition, enforces those rights against other businesses in an opportunistic manner and typically without any intention to practice, manufacture or market the patented invention.

Conduct Research on Potential Investors

Raising capital for a new startup can be a daunting task for the founders. There are several types of investors and capital sources for startup projects, including friends and family members, angel investors (high net worth individuals), venture capital funds, corporate/strategic investors, and government grants. Each of these capital sources has different investment criteria and expectations.

Developing Your Social Media Presence

To engage potential and current consumers in today's evolving online environment, it is necessary to build a web presence that communicates your company's message and vision in a compelling and effective way. Social media outlets, such as Twitter and other online relationship building tools, can help you develop a bond with your target audience that is built on mutual engagement.