Category: Tech News

Dangers of drafting your own documents

SHOULD I PAY A LAWYER TO DRAFT A CONTRACT OR JUST PLUG NAMES INTO A TEMPLATE – WHAT COULD POSSIBLY GO WRONG?

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In today’s DIY world, there are some things that should be left to the professionals.

We’ve compiled a top ten list of just some of the dangers you can run into when using templates or drafting your own documents. These are all things that we’ve actually seen in agreements.

  1. Using the wrong document. One classic issue is grabbing the first consulting agreement that shows up on the web, without realizing that it’s drafted to be one-sided in favor of the other party. 
  1. A 4-line agreement with no end-date or ability to terminate. Lasts longer than most marriages…
  1. The Frankenstein agreement. The drafter takes clauses from multiple documents and sews them together without realizing that some concepts are being covered two different ways by two different clauses.
  1. Undefined terms. Every other word in the agreement is uppercased, but not defined. 
  1. Fancy words.Malfeasance” and “devolve” – nobody knows what these mean. 
  1. Illegal clauses. Not all states will honor a non-competition clause imposed on a rank and file employee – California is one of them. 
  1. Integration clauses. The drafter includes an “entire agreement” clause . . . but it doesn’t reference its own schedules and exhibits! 
  1. Backdating deals. Rather than enter into an agreement on November 30, 2016 that is effective as of June 30, 2016, the drafter wants to pretend the contract existed before it was actually signed. Under the wrong circumstances, the drafter opens herself up to fraud claims. 
  1. Termination. Includes material breach as a way to terminate, but doesn’t say if the non-breaching party still gets paid from the party in breach. The non-breaching party gets injured twice. 
  1. Training. An agreement to provide training, without any details on the number of hours or for how many weeks the training will last.

Sometimes the pitfalls come in piecing together an agreement from multiple sources, grabbing a document you’ve used before and trying to repurpose it to a new situation, or downloading a “boilerplate” agreement from the internet for free. Whatever the method, it usually ends up costing you more to have your attorney fix your attempt at drafting than it would have been to have your attorney draft the documents from the get-go.

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Startup Law Unplugged with General Assembly

Join us in Downtown, Los Angeles on Wednesday, September 28th from 7:00pm – 8:30pm for our “Startup Law Unplugged” event with General Assembly!

This event is designed to be more of a workshop for attendees than just a speaking event, so we will open the floor to questions from attendees – right from the start! If there are no questions up front, we will speak on topics our entrepreneur clients encounter along the way.

Agenda:

  • 10 minute introductions
  • 50 minute Question & Answer session / discussion on common topics for entrepreneurs
  • 30 minute networking afterwards

Sign up here: https://generalassemb.ly/education/startup-law-unplugged/los-angeles/29430

 

 

Mottek on Money interview

I am please to announce that I was interviewed last week by Frank Mottek for his  radio show, ‘Mottek On Money’,  which airs on KNX 1070. I spoke about our first time entrepreneurs workshop with the LA Venture Association (LAVA), as well as recent trends for technology startups in Silicon Beach.

Click below to listen to the podcast of the interview (I’m at the 19:25 mark).

Mottek On Money (Sept. 10, 2016)

“Mottek On Money” airs 11am on Saturdays and 8pm on Sundays on KNX1070.

 

 

New Book! ‘Winning the Game’

I am thrilled to announce that I just published my second book!

Winning the Game:  How to Successfully Sell Your Business” is the companion to my first book on venture capital for first time entrepreneurs.

By reading Winning the Game, you’ll learn how to successfully sell your business using the advice of a corporate lawyer with $6+ billion in merger & acquisition experience. This book breaks down the lessons that a business owner needs to learn to have a successful exit. Each chapter is geared toward explaining in simple terms what a business owner needs to know about finding buyers and getting to a deal. The book guides the reader through challenging concepts like earnouts and indemnification in an easy-to understand format. The author shares life lessons from other business owners to help the reader avoid pitfalls.

 

Winning the Game is live on Amazon now and is currently listed as the #1 New Release in Consolidation & Merger!

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Last Call: First Time Entrepreneur Workshop

This is the last call for our First Time Entrepreneur workshop on Saturday June 18th!

The program is open to entrepreneurs that are starting companies in areas that are likely to draw venture capital investment. The program is not open to service providers.

During our five hour program, you will learn how to:

  • Determine the value of your company
  • Put together a capitalization table
  • Understand how VCs screen potential investments
  • Understand the differences between trademarks, copyrights and patents and when you need them
  • Choose co-founders
  • Network at startup events — the right way

Saturday June 18, 2016 (10am-3pm)

Santa Monica Place Mall – EXPERT DOJO ,(The Old Redwood Grill, Next to the Cheesecake Factory)
395 Santa Monica Place
The Community Room – 3rd Floor
Santa Monica, California  90401

For more information and how to register, please click here: http://www.lava.org/events/EventDetails.aspx?id=815409&group=

Reminder: First Time Entrepreneur Workshop

Don’t forget about our First Time Entrepreneur workshop on Saturday June 18th!

We will be teaching about valuation, dilution, intellectual property rights, working with co-founders, and a variety of other topics that are critical for startup founders to master.

Saturday June 18, 2016 (10am-3pm)

Santa Monica Place Mall – EXPERT DOJO ,(The Old Redwood Grill, Next to the Cheesecake Factory)
395 Santa Monica Place
The Community Room – 3rd Floor
Santa Monica, California  90401

For more information and how to register, please click here: http://www.lava.org/events/EventDetails.aspx?id=815409&group=

OUR TAKE ON THE SEC’S PROPOSED RULE ON GENERAL SOLICITATIONS

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By Andy Beal and Matt Crowley

Before Congress passed the Jumpstart our Business Startups (JOBS) Act, startups were prohibited from offering and advertising the sale of stock to the general public. You could not offer shares of stock on your website or in a newspaper.

The JOBS Act attempts to lifts some of these restrictions in an effort to make fundraising easier for startups. One step taken by Congress was to loosen the rules on soliciting the public to buy stock from startups.

The Act required the Securities and Exchange Commission to write new rules to explain how startups can offer stock to the general public. On August 29, the SEC issued 69 pages of proposed rules related to advertising offerings and soliciting the general public. We thought it would be helpful to summarize the proposal for you.

Under the SEC’s proposed rules, a startup can advertise to and solicit the general public, but can still only sell to accredited investors.

What does this mean for a startup?

Under the proposed rules, a startup must take reasonable steps to verify that purchasers are accredited investors. The SEC did not provide a list of reasonable steps, so the rules are not very helpful at the outset.

However, the proposed rule does give some hints:

In short, the rule says that what steps are reasonable depends on the circumstances of the transaction. In other words, every deal is different. What is reasonable under one set of circumstances may not be reasonable under another set of circumstances. To clarify, the SEC included a nonexclusive list of factors that a startup should consider:

What qualifies someone as an accredited investor? Most startups raise money from individuals. An individual who has a net worth of at least $1 million, or with an annual income is at least $200,000 qualifies. Determining whether someone has the requisite net worth or annual income may require requesting individual financial records, tax returns, etc. The SEC understands that this information is not public and may not be easily found. For this reason, the startup may not be required to do as much diligence on an investor who qualified because of his or her net worth or income.

How much, and what kind of, information do you need to obtain about a potential investor? The more information a startup has, and the more credible that information is, the less steps a startup needs to take to verify the status of an investor. Publicly filed information is very helpful in this situation. For example, if the potential investor is an executive of a public or reporting company, the annual report containing his or her compensation information would be a reliable source.

How did you go about the offering, and what are the terms? This is where the “facts and circumstances” of the offering dictate the reasonableness of a startups actions. The SEC provided a rare example to illustrate this factor – if a startup is soliciting investors through email or social media, simply having the investor check a box on a questionnaire is not a reasonable step in verifying the person’s status as an accredited investor. On the other hand, if the issuer advertised the offering to a database of pre-screened accredited investors, having each potential investor check a box on a questionnaire is a more reasonable step. Basically, the SEC is saying that it is not reasonable to rely solely on an investor’s representation that he or she is an accredited investor.

The SEC’s rule writing process involves an open comment period that allows anyone to submit concerns, opinions and suggestions. One comment that the SEC agreed with was that if your offering has a high minimum investment amount, say $500,000, an investor’s ability to satisfy the minimum amount can be taken into account when you are trying to determine whether that person is an accredited investor or not. In other words, the fact that the investor is capable of investing $500,000 can be partially relied upon in concluding that an individual is an accredited investor.

One thing to always keep in mind, regardless of the steps you take, is that every company issuing securities must keep records of the steps taken to verify an investor’s status, because the issuer has the burden of proving that the steps they took were reasonable.