Monday, August 16, 2010

Please Vote for My SXSW Panels

Hi folks,

It is that time of the year when, under the guise of crowdsourcing panel ideas, SXSW gets us to mention them a lot and drive traffic to their site.  Be that as it may, I would still very much appreciate your vote for one or more of my panels...

You will have to create a quick account (takes 10 seconds) and then you can give me the green thumbs up (or if you are feeling testy, I suppose you could give me the red thumbs down).

My first panel is called:  Eleven Key Mistakes Every Startup Can Avoid.  It is actually not a panel, but a dual presentation that I am putting on together with my friend David Jones, a VC at Southern Capitol Ventures.  We are going to focus on what I like to call the "dumb" mistakes.  These are mistakes we see folks making over and over again that are really very easy not to make.  Also, some of these can be quite painful to fix -- so why not do it right from the beginning?  We are going to run through the 11 mistakes fairly quickly using real world examples and then throw it open to the audience to ask questions about starting up and the quest for VC.  Last year, I felt like there was a real void of and strong demand for a straightforward, nuts and bolts presentation on setting up your start-up to maximize your funding chances.  So this is my shot at providing it.  Here is the link again:  Eleven Key Mistakes Every Startup Can Avoid.

My second panel is a bit more technical and is focused on the music space.  It is called Spectrum Bias and Streaming Royalties.  We will focus on the basic fact that the FCC's current royalty system is unfairly biased against internet radio and in favor of FM radio (and to a lesser extent satellite radio). Royalty payments range drastically from zero to a huge number, based solely on the spectrum of the radio wave transmitting the song.  There are some key differences in how the various spectrums can monetize, but it is not clear that this makes up for the imbalance in royalty rates.  As an aside, I originally titled the panel: "Forget the Ocean, It's the Size of the Wave", but my SXSW reviewer thought that was a bit too risque...  My friend Joel Erb from SpotTrot will be on the panel among others.  Click here to vote for me:  Spectrum Bias and Streaming Royalties.

I should also mention two other panels that friends have proposed.  The first comes from my partner, Dave Meyers, and it focuses on the long and winding road to an IPO.  It is called Show Me the Money:  Doing the IPO Dance.  Dave is great on this subject and will have a lot of war stories and practical advice on the good and the bad that comes with attempting an IPO.  The second I have mentioned before, but bears mentioning again.  It is a panel on the legality (or lack thereof) of crowd funding a startup in the US.  It is being put on by Fred Bryant at Wealthforge and is called Crowd Funding Your Startup -- Without Going to Jail.

Thanks in advance for your support.  More substantive posts coming later this week!
Click Here to Read More..

Friday, August 13, 2010

More Thoughts on Crowdfunding your Startup

Today, I attended a great RTP event featuring Mark Cuban.  (Thanks to my friends at Southern Capitol and Intersouth for sponsoring it).

The event triggered many thoughts about entrepreneurship that I will share over the weekend.  However, the most interesting part of the event was probably a discussion on the panel that focused loosely on crowd funding.

I've recently been thinking a lot about crowdfunding startups and the various legal and regulatory hurdles to making this a reality.  In my mind, our current regulatory scheme is a classic baby/bathwater problem where our government, in the interest of protecting against a small number of bad actors, has instead made it exceptionally difficult for the vast majority of honest, hard working Americans to invest in startups and share in that portion of the American dream.

The flip side of this is that our government has made it exceptionally difficult for most startups to find sources of equity capital.  The recent changes limiting who can qualify as an "accredited investor" are just the latest of many examples.

On today's panel, there was a great discussion of exactly this issue.  It began with Mark Cuban stating:
We don't have a country of investors anymore.

His point was that innovation is driven by both entrepreneurs and investors and that, without both, innovation and our country will suffer.

Mark's first recommendation was to eliminate capital gains tax on any equity held for more than 5 years.  This would benefit both the founders and their early investors and could provide a huge boost to early stage equity investing in and of itself.

However, the discussion continued with Mark saying:
There should be a way for more of our money to go into something great.

He continued by saying that what we really need to do is "create a different kind of market."  Not the NASDAQ or the NYSE, but a market focused on providing liquidity to early stage companies.  The discussion moved on to the well-documented death of the boutique investment banks that led the IPO boom of the late 90s.  But his point is well taken, the existing public equity markets are no longer an appealing exit for most early stage companies.  And the existing private equity markets are incredibly distorted by regulation which makes them unavailable to the vast majority of potential investors.

At this point Aaron Houghton, co-founder of iContact, made the following excellent points:
What we need to do is open up the long tail of the capital markets.  If we can do this, we will turn everyone back into an investor.

This is exactly right -- the long tail of the capital markets (most retail investors) are only permitted to invest in pubic equities.  And public equities is not where the real innovation and growth are happening in our country.

One final note, a good friend -- Fred Bryant from Wealthforge -- is working on solving these issues around crowdfunding startups.  He was picked to potentially do a panel at SXSW on the subject -- you should definitely give him your votes.  Here is the link. Click Here to Read More..

Thursday, August 5, 2010

Securities Law Violations -- It Never Ends

I've been working with a baby company.  They have a good idea and have been putting together their formation documents and getting their IP straight.  No serious conversations yet about raising money.

Then -- BAM -- on Monday I got this email [certain details removed to protect the guilty]:

I'm sending you this email because [Super Cool Company] is raising funds for our new project, the [Super Cool Idea].  Its a really cool project where we're getting people around the world to [Augment their Social Gaming Reality in a Consumer Facing, Location Based, Real Time App].

I'll be posting some project updates on it today and in the coming weeks, but I figured I'd send you an email letting you know this is going on so you can follow the progress as we try to raise $3000 from at least 50 investors by the end of August.

Please share this with anyone you know that might be interested, we're also looking for developers ([Code Ninja], you'll be getting a call from me soon) and future participants!
Thanks, hope you have a great week.
-[Clueless Founder]
Founder, [Super Cool Company]

Congratulations -- you just violated securities law.

To be clear, telling your friends or even investors about your company/idea is not a securities law violation.  It is even ok under certain circumstances to email a potential investor and ask for money -- though you need to be careful and should certainly consult with a lawyer before you do so.

But what you should almost certainly not do is send out a blast email asking for money.  Even worse, you should NEVER tell people to share your offer with anyone they know who might be interested.

That my friend is a "public offering" of securities.  And the SEC has a thing about companies that do public offerings of securities without first registering them.

Just remember that an offering of securities must either be registered with the SEC (e.g. through an IPO) or must be "exempt" from registration. There are a whole mess of exemptions, most of which you (and I) will never need to know about. (For example, interests in a railroad equipment trust are exempt. Who knew?).  

However, the most important exemption for a baby company is the exemption for transactions "not involving any public offering." That is, private transactions. There are a variety of safe harbors and legal interpretations that help us figure out what a non-public offering is -- you may have heard of Reg. D, which is the most common -- but at the most basic level your offering cannot be made to the general public.  

The offering above -- where the founder is urging his buddies to "share this with anyone you know that might be interested" -- is unquestionably a public offering.  Since it is unregistered, securities laws = violated.

As I have said before, be safe out there folks.  And please try not to violate securities laws ...

Click Here to Read More..

Wednesday, August 4, 2010

Two Different Ways to Handle Launch Issues

Last week I had the (good?) fortune of experiencing two separate product launch failures.  Coincidentally, both were for iPad products.

The first was Flipboard, a social media reader app that, if you are on the iPad and have not heard of, you are surely living in a box.  After hype that verged on hysteria, the demand for Flipboard apparently far exceeded their capabilities.  Once I signed in, all it told me was that Twitter and Facebook were unavailable. This continued for several days.  At which point (and only if you loaded a new version) you were asked to join a mailing list to find out when you could access Twitter and Facebook.  Almost a week later, I received an email saying -- Hey, you can join!  Except that it was sent in error, apparently to a lot of people.  Later that day, I finally got my actual invite, signed into the site and it subsequently worked for approximately 1 day.  Ever since it has been bolloxed.  No access to the social media sites.  While it still sits on my iPad, I do not feel compelled to open it regularly.  I'll stick to the tools that I had pre-Flipboard which actually work.

The second was my Redeye mini, an infrared attachment for the iPad that allows you to use your iPad as a universal remote.  I originally heard of this item months ago and considered it to be one of the killer apps for my iPad.  I already keep the iPad next to me when I watch TV (never know when you might want to check IMDb or bang out a few RSS feeds).  Consequently, I was pretty excited when I got the shipping notice.  Unfortunately, it didn't work.  I was literally twiddling with the settings when I received the email that I've copied here.

The letter begins:
Dear RedEye mini customer,

Thank you for supporting us by being one of the first to purchase the new RedEye mini. As such, it is with deep regret that we write to inform you that we will be recalling the entire first lot of RedEye mini units - all those with serial numbers beginning with C0101.  Although many of you may not have experienced problems thus far, we plan to replace all RedEye mini units with new hardware at no cost to you. Customers who do not wish to receive a replacement unit may instead choose to receive a refund of their full purchase price. There is no need for you to return your RedEye mini to us - if it is working for you, please continue to keep and to use it. 

It goes on to discuss an issue they have discovered with the adhesive used by their manufacturer.  They apologize and give you a choice of a free replacement in 3 to 4 weeks or your money back.

I'll tell you what, I was a little bit disappointed that the device doesn't work.  But I was very happy with this response and I am confident that I will receive a proper device in a few weeks.

Two very different ways to handle a launch issue.  One left me cold and confused, the other left me warm and confident.  The difference was quick and decisive communication. Click Here to Read More..
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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.