Angel investors generally see the following from a startup first: There are a variety of methods to find angel investors including : The best way to find an angel investor is to be introduced by a close friend or colleague of an angel investor.
Richard Harroch and Mike Sullivan.
With our combined years of experience in the field of startup law, entrepreneurship, and venture capital, we are frequently asked by entrepreneurs who are searching for a technology company. Sometimes there isn’t an easy answer to these questions, and as lawyers often like to say: “It depends on the circumstances.” So here are our short answers to the most frequently asked questions about technology startup.
1. Should I form my technology company as a C corporation, an S corporation, an LLC, a partnership or sole proprietorship?
Start as a C corporation unless you really can use the tax deductions that you can obtain from the loss of the business in an S corporation or LLC. General partnership and sole proprietorships are to be avoided because of potential personal liability to the owner of the business. C corporations are the only business type that can qualify as small business that may help you avoid capital gains in the future. Venture capital investors typically won’t invest in an LLC and expect to invest in a C corporation.
2. How do I organize my business?
Delaware provides the standard answer to this question because of its well-developed corporate law. Venture capitalists have a strong preference for Delaware, partly because they are familiar and comfortable with Delaware’s governing laws and regulations. Delaware often saves on legal expenses, because most legal forms are established for tech firms for Delaware corporations. The correct answer is sometimes that it should be the state where the business is located as this will save some fees and filing complexities.
3. How much should I start my business?
As much as you can reasonably afford and in an amount that will sustain you for at least 6-9 months without income. What you will likely find is that it usually takes longer to get a return and that you will incur more expenses than you expected.
4. How likely will it be that my startup can get venture capital funding?
Sehr unlikely. Develop a viable product, gain some traction in the market, hire a good management team, and then envisage venture financing. Your initial financial help will likely come from family, friends or angel investors. Venture investors often want to see tangible traction in product development, sales and marketing before they invest.
Don’t waste your time! It will be counterproductive and slow down your funding. Most investors will either reject or assume that you are unintelligent for even asking. It’s difficult enough to get a meeting with an investor — not another roadblock in the way. For the most part, it is not the idea that is important : it is the implementation of the idea, the progress in implementing the idea, and the expertise of the entrepreneurs behind it.
6. How much of my shareholders should I give to the investors in my business?
Whatever amount you get funded Don’t over-optimise in ownership. Of course you should try to minimize dilution to the best of their ability, but the important thing is to earn cash to grow your business and to make your investors happy as well.
7. How large should a stock option pool for employees be?
Normally it should be 15-20% for early-stage businesses. Standard vesting for options is four years, with a three-year “cliff vesting” and monthly vesting after that. In this context, the term contracting means that the employee must be employed for at least one year by the company before the employee earns any options.
8. How can I attract a venture capitalist to pay attention to my tech startup?
– Any of the following:
- Amuse a lot of people in the marketplace to get traction.
- In turn, be able to show significant growth in revenues
- An experienced management team are assembled
- Developing truly innovative technology with a huge market opportunity.
- Do a personal introduction from a respected colleague to one of the VC partner firms.
RELATED: 65 questions Venture Capitalists will ask startup owners and a guide to venture capital financings for startup firms
9. How can I come up with a good name for my technology startup?
This can be challenging Think a bunch of different names first. Dann make a Google search to see what has been done already – which will probably eliminate 95% of your choices. Give the name easy to spell. It should be interesting, but don’t pick a nonsensical name that won’t give a clue as to what your company does (with all due respect to Google and Yahoo). Do a trademark / trade name search on the name, and then check to see if you can get the domain name. Avoid picking a name that could be limiting as your business mission expands. Finally, make sure that you and your staff will be happy to say the name of the company. For more advice on this subject, see 12 Tips for Naming Your Startup Business.
10. What are some of the challenges to start a tech company?
- Come up with a great and differentiated product or service.
- The determination of adequate funding and maintaining reasonable cash reserves is important
- The Avery R. W. Barlance panel features a great investor pitch deck
- Sticking to it?
- Harder than you expected to work
- With the frustration of constantly being rejected by customers
- Good employees are finding and promoting well.
- Terminating poor performers in a way that doesn’t result in a legal ramifications
- It is so hard to carry so many different hats.
- The Managing of Your Time Efficiency
- Maintaining some kind of work / life balance
- Knowing when to pivot your strategy can help you to move on to the next step in your future strategy
11. What are the biggest mistakes that startup – technology entrepreneurs make?
- Investing with a capital not enough is not a good starting point.
- Thinking that success will come soon will come too.
- Not keeping an eye on the Cashburn of the business
- Not focussing on the quality of the product or service
- Not receiving sufficient customer feedback.
- Underestimating the importance of sales and marketing.
- Not adapting or iterating fast enough to help.
- Not knowing the competitive landscape
- Ignoring legal and contractual matters
- Ignoring intellectual property problems is a misguided technique
- Hiring the wrong employees will not ensure the correct employees are hired
12. What should the founders of a tech company do to develop a minimum-viable product?
Many tech startup takes too long to develop a minimally viable product ( MVP ), which refers to the basic functional version of your product. The product must be well-designed and something that customers really want. You need to perform usability testing and get feedback from customers, which will help you refine and improve the product. Decide who your target market is and adapt the product to that market. That is what is referred to as a “product / market fit”, be prepared to pivot if the MVP isn’t traction.
13. What financial metrics should founders focus on?
Even if a CEO or founder does not have a financial or accounting background, it is important that he or she monitors and analyzes the company’s key financial metrics constantly. Failure to do so can have severe negative consequences for the business. According to the nature of the business the following monthly key metrics will be important:
- CASH (or monthly positive cash flow)
- Gross revenue (and its key components)
- Gross expenditure (and corresponding key components thereof)
- Gross margin (the difference between revenue and costs of the selling product divvied by revenue expressed as a percentage)
- Lifetime value of a customer :
- Purchase cost of the customer
- EBITDA (profit before interest, taxes, depreciation and amortization)
- Customer churn & cry
14. How can I protect my grand tech idea?
Ideas are a dime a dozen. It is actually the actual implementation of an idea that is more important. Obtain a patent for it if it’s truly unique and patentable (see www.uspto.gov ). If the idea can’t be patented, you may be able to get some protection through copyright, trade secrets or NDAs.
15. How can I get the domain name I want?
All good.com domain name is already taken, and usually only to that business that uses a.com name for its website. 99% of domain names are available to purchase — you just have to be ready to pay for the name you want. Do a “WHOIS search” at www.networksolutions.com to discover the contact information for the owner of the domain name in which you are interested and offer to buy the name Don’t be naive and offer $500 for a premium domain name. You will be ignored Willen to pay a fair amount for a good name? Describe what is available for a common word domain name like “administer.com,” “recuperate.com” or “resemble.com”.
Key steps in obtaining a great domain name
16. I have an invention idea for a new product to, How do I ensure that someone has not already invented this idea?
Two important steps to take:
- Do a Google search for the keywords related to your invention.
- Do a search of the USPTO on uspto.gov online.
- If that works and you want to try the idea for a patent, get a patent lawyer
17. Is there a business plan?
Probably not. We prefer to start with a 10-15 page PowerPoint deck presenting the business. For more information, see How to Create a Great Investor Pitch Deck for Startups looking for funding ; Do These 5 Things Instead
18. What marketing steps should I take for my startup?
To successfully do business you need to always attract, build and sometimes even educate your target market. Make sure your marketing strategy contains the following :
- Learn the basic concepts of SEO (search engine optimization) so that people looking online for your products and services can find you near the top of the search results.
- Use social media to promote your business (LinkedIn, Facebook, Twitter, Instagram, Pinterest, etc.) )
- Engage in content marketing by writing guest articles for relevant sites.
- Press releases for any important events.
- Continuously network with other in your industry.
19. What do I have to worry about for my customers’ contracts?
Contracts are legally binding written agreements between two or more parties. They are an important part of the business and must be created and/or negotiated with careful consideration.
While small businesses often conduct business on informal handshake agreement or unspoken understandings, the more is at stake, the more important it is to have a signed contract. A contract acts as the rules that must be followed by both parties. It provides every party with the opportunity to :
- Describe all obligations they are expected to fulfil
- Describe all obligations that they expect the other party (or parties) to meet.
- Limit liability.
- Set parameters such as a timeframe in which the terms of the contract will be met
- Set payment and other terms and conditions.
- Clearly the parties must agree on all the risks and responsibilities of a party.
A contract is in essence a written agreement of the minds. While it is generally drawn up by one party and favours the needs and needs of that party, it should initially be considered a work in progress that changes and grows as each party contributes to it before signing until it becomes binding on all parties. If the conception is monetary or a promise to work or provide a service to a specified time period, it is the heart of a contract.
Item 20. What should I know when I seek to invest angel investors for my tech startup?
Angel investors especially in looking at a potential investment:
- The founders were praised for their quality, passion, engagement and experience.
- The market opportunity and the potential for the company to grow are addressed to be very large
- Early sign of business traction
- Interesting intellectual property or technological activity
- A reasonable value for the company
- The likelihood that the company would be able to obtain additional funding in the future if progress is made on this important issue.
Angel investors will first see the following from a startup:
- A clear elevator pitch for the business
- A Executive Summary or Investor Strategy deck
- Possible to be a prototype or working model of the company’s product or service
- Any early adopters, customers or partners are considered to be early adopters.
There are a variety of methods to find angel investors, including:
The best way to find an angel investor is to be introduced by a close friend or colleague of an angel investor. LinkedIn can be useful to determine mutual connections.
21. What licenses, or licences do I need for my tech startup?
Depending on the nature of the business, you may require the following permits, licences or regulations :
- Permits for regulated businesses (aerospace, agriculture, alcohol, etc.) are required.
- A sales tax permit or licence of the state
- Municipal and County Business Permits or Permits
- Zoning permit would be allowed
- Federal and state tax / employer IDs
22. What should I worry about when hiring a person?
RELATED : 15 BIG LESIMEDS BY Startups –
23. What agreement should I have with my founder co-founders?
- How is the equity dividing between founders?
- Article 5 : Is the equity ownership subject to vesting based on the continuing participation in the business?
- What are the roles and responsibility of the founders?
- Does the company or the other founder have the right to purchase back shares of the founder if he leaves? If so, how much is it?
- How much time each founder is required to devote to the business?
- Quelles are the companies (if any) entitled to? Comment can that be changed?
- Which founders will be members of the board of directors of the company? (the board will have important powers including the ability to terminate employees, including CEO (chief executive officer)
- Under what circumstances can a founder be deprived of his job as an employee of the business? (Normally this would be a decision of the board of directors.
- Which assets or funds contribute to the business or invest each founding member?
- Comment will a business sale be determined?
- What is the overall – objective and vision for the business?
– 24. What ethical issues should be worrying me for my tech startup?
In the event that important legal issues are ignored, the startup can sink. CEOs and founders should ensure that the company takes steps to comply with all applicable laws. Here are a number of the key legal points that startups should focus on:
About the authors,
Richard D. Harroch is a director and global head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco region. His focus is Internet, digital media and software companies and he was the founding director of several Internet companies. His articles have appeared in Forbes, Fortune, MSN, Yahoo, FoxBusiness and AllBusiness.com on site. Richard is the author of several books on startup and entrepreneurship, as well as co-author of Poker for Dummies and a Wall Street Journal bestseller book on small business. He is the author of a 1,500-page book by Bloomberg titled Mergers and Acquisitions of Privately Holded Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at Orrick Law Firm, with experience in startup, mergers and acquisitions, and venture capital. He has been involved in over 250 M&A transactions and 250 Start-up Loans. He can be reached via LinkedIn.
Mike Sullivan is a partner and Chief Executive Officer of the Corporate Group in the San Francisco office of Orrick, Herrington and Sutcliffe. He concentrates on representing emerging companies, entrepreneurs and angels/funds of venture capital. Mike has led hundreds of financings and M&A transactions for emerging companies in a wide variety of industries, particularly in the software industry, satellite / space, mobile / digital media, cleantech and food / wine / spirits sectors. Mike is a contributor to the venture capital and public offering negotiations (Aspen Law’s Business ) He is accessible through the website www.orrick.com.