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Michael Gracie

The “standard” for startup legal fees

Ask The VC got a second opinion on the issue, and it looks like the total costs up to the first round closing tally to around ten grand. Closing may cost you up to ten grand more.

Guy Kawasaki got it done for less than $5K, but didn’t raise venture financing (yet).

My take:

Initial structuring is generally pretty “standard,” and I’ve seen it done competently for under $2,500. And that includes any quirks like exchanges of contributed IP for stock, founders vesting, and a base option plan – not from your uncle’s divorce lawyer either. That is the cash price, no deferral – but is well within the credit card advance range for most. You may need a bigger firm come first round – the investors may insist on it – but structure will get tweaked whether you use the same firm thoughout or use a smaller shop upfront and switch to the big guys later.

It looks like you may pay a premium for fee deferral, twice – once in equity and once in deferred fees for going with a top-tier firm from the start (those are the only ones that can really afford to defer fees). And note…using a white-shoed operation is no guarantee your investors aren’t going to ask you to use their lawyer anyway. The question you have to ask yourself is whether the premium is worthy of the contacts that might be had as a result, as well as the cash you’ll conserve at the start. Paul Kedrosky says some need it, some don’t.

I’d go for getting the base put together with someone you know and trust, while sucking up the cash expense. Then, use whatever firm your investors are comfortable with if and when the time comes.

Business and Trout Fishing

A few parallels worth mentioning:

  • The need for patience and persistence – Not everyone is going to buy into your idea the moment you deliver it. By the same token, neither is a trout. Be patient with people as well as finicky aquatica – adjust your presentation to achieve the intended objective. Quit too soon, and you might miss out on the opportunity of a lifetime.
  • Betting on your winners – Throw your all into the stuff that’s working. Successful entrepreneurs get a boost from small successes, and by directing attention to the small wins they often turn them into big ones. Commodities traders are particularly good at this – they generally double up their bets on their winners (and yes, I consider traders entrepreneurs). For trout, go for your favorite flies and favorite holes first – the ones you have confidence in as a result of previous successes.
  • Knowing when to cut your losses – You can turn a small business failure into a big one very easily. Just keep throwing good money after bad. You can turn stellar conditions into a “no fish” day as well – just stick to the same fly, or stand in the same hole. All day.

Why LLCs?

From bizblawg..

The 2nd Circuit Court of Appeals in McNamee v. IRS, No. 05-6151 just affirmed a federal trial court’s determination that the owner of an LLC (limited liability company) can be held personally liable for unpaid payroll taxes. This is a significant decision, which may well be appealed to the Supreme Court.   Meanwhile, let’s look at its significance. People form LLCs and corporations to avoid personal liability for the debts of the company.  Payroll taxes present a slightly different situation because an officer (but not director or shareholder) of a corporation or LLC who is responsible for payroll can be held personally liable for not forwarding the part of payroll taxes that’s withheld from an employee’s paycheck. That’s called the “trust fund amount.”  But that’s not what we’re talking about here.  Here we’re talking about the whole payroll tax amount, both the trust fund amount AND the part the employer pays, which normally is a corporate or LLC debt and the owners (shareholder or members) of the corporation or LLC is generally not liable for that.

C-corps and LLCs have limited liability. The difference is…C-corps have a solid track record in the court system, while LLCs are still growing. My notion is that people form LLCs after being sold on the pass-through tax benefits, not the limited liability aspects of the entity type. They funnel expenses through, never realizing that legitimate business costs are already personally deductible. And if they actually do get serious about their business and it winds up an acquisition target, they’ve got a big mess to clean up before that sale.

Not to mention the little messes like becoming case law.

The whole “messaging” thing is offensive

Mike Arrington noted that a new Ask.com/Crispin Porter ad campaign billboard is offensive. Unabomber…right.

The whole concept of “messaging” is offensive, IMHO. The assumption is that the consumer is not very smart. That might have been true a few decades ago, but it is changing as fast as the information flow is. Throw in the newspapers and television, and it is pretty easy to be skeptical about almost everything.

PS: I am not going to change what search engine I use because Ted Kazinsky’s name is mentioned along with it. It is about results, and a PR campaign isn’t going to change the results. The “messengers” need to realize that if the results aren’t good the moment you see them, you’re forever a lost customer.

Don’t need web ads, but still need bacon

The latest…online advertising exchanges are beginning to mirror commodities exchanges. Exchanges, however, seem to work best when there is a scarcity of resources. I don’t see any scarcity in the online ad realm, as the “real estate” has a marginal cost near zero, and delivery isn’t guaranteed (users can block ads).

The mirror must need cleaning.

No accountability when it comes to accrued liabilities

I went to school in a state that mandated a fifth year to sit for the CPA exam. I was broke after 3 1/2 years, so after graduation I bolted to another state to work (and sit). Unfortunately, the Master’s in Accounting I skipped covered governmental and non-profit accounting, so I had to teach it to myself.

It never agreed with me, as it didn’t reflect reality. My instincts, it seems, were correct – the “right side” of the federal government’s balance sheet is short a few bucks…actually something like 50 trillion short, when you ignore accrued liabilities.

This isn’t newsDavid Walker, Comptroller General of the GAO, has been talking about it for a while. But major media coverage has been sparse to this point.

Freebase : random introduction

I just started checking out Freebase under the “alpha” test. Feels like a personal profiler on AJAX steroids. Got a warning that I was using the wrong browser (Safari), but everything seemed to work fine for me. Neat movie and music database. I suspect it will get more interesting as users input more data. Will visit again – still, curious as to what others have thought…

Reminiscing – the first half of 2007

I.e. the glaring gap between January and May of this year…

Shut down one company

The victim was Tot Jot. Be as it may, it was a good learning experience. The biggest lesson…you can’t ignore the “feet on the ground” marketing needed by a business, even if the company is entirely virtual.

I certainly want to thank the potential investors I spoke with, even if they didn’t wind up writing any checks. Good insight can always be had from conversing with professional stakeholders. You may not think that way when they are telling you to stick your concept in the “FU bin” (yes, one actually said that), but reflection will make the message a lot clearer. I’ll also thank several close friends who supported me in the endeavor, as well as those that advised me to pull the plug.

Prepped another company for financing

A great job some folks I know did building something really fantastic. They aren’t really part of the local club, operations are spread all over the place, and they were missing a solid financial arm. We pulled together a years worth of books and records in under a week, and spent the rest of the time sculpting a set of financial projections that, for the couple of months I was involved, were mirroring actuals within a couple of percent of gross revenue and even a bit closer below the margin line. The Excel model was a bit of a pain to share, as it was over 2mb, but heck, it worked.

Now let’s just keep our fingers crossed that they get their cash.

Technology Use

I had a Powerbook on the desk for more than two years. But in my infinite wisdom, I thought I needed an Intel-based MacBook Pro so I’d have easy access to Windows and Linux (through virtualization). Now, I’d be hard pressed to think of a computer I’ve had more problems with – I think Apple has quality control issues resulting from new-found popularity and an obsession with earbuds and living rooms. They’ve jumped though hoops trying and set things straight – things are still not quite right, and I’ve given up. Sad.

Recreation

I missed out on more recreational activities than any one person should in a lifetime while working on Tot Jot. While it was a great mental exercise, a person shouldn’t have to leave a dozen fly rods sitting in their tubes for an entire season. It’s almost inhumane. I promise it won’t happen again.

Stringing together something new

Yes, but I’m not all that keen to start popping off about it. It’s kind of the in-thing to “pre-market” your “pre-alpha” product or service, and by invite-only to boot! Doing this has two effects: 1) it essentially cuts you out of any more worthwhile opportunities that might arise before your idea really gels; and 2) it almost guarantees that if you go down, it’ll be in flames. There used to be a term for this…vaporware, and proliferation of it is usually a pretty good sign that the pot is ‘a boiling over.

What ever happened to the element of surprise? Or do I mean humility?

UPDATE: I’ve got a lot of handwritten notes from the past few months – I’ll use them to fill in some of the blanks, as time permits.

Imports complete

Found some help, and now imports for the old Thoughtmarket.com and Spamroll.com posts are complete.

I’ve dispensed with categories in favor of tags, so posts are organized by origin (Office, Mobile, Spamroll, Thoughtmarket, and a yet to be filled category entitled “Rivers and Flats”).

If you are coming from Thoughtmarket.com or Spamroll.com via a link you found, and are now looking for a particular post, please accept my apologies in advance. I wasn’t particularly concerned with preserving inbound links, and the idea of a redirect file thousands of lines long wasn’t in the cards. Use the search box, comfortable in the certainty that I hope it works for you.

UPDATE: I can’t believe there were over a thousand entries.

UPDATE 2: There are plenty of broken internal links – fixing those will take plenty of time, but if you’re finding them, I’d greatly appreciate it if you’d point them out.

UPDATE 3: Tags are back where they should be.

This post was pushed from Blackberry

A mobile post [but this problem is solved].

UPDATE: If you are using WordPress and want post-from-email functionality, use Postie from Economy Sized Geek.