Archive for September, 2009

Five Mistakes Entrepreneurs Make in Dealmaking – Part I

by Scott Edward Walker on September 29th, 2009

I’ve been doing deals as a corporate attorney for over 15 years, including nearly eight years in the trenches at two major law firms in New York City; and during that period, I have seen certain mistakes made by entrepreneurs (and inexperienced deal guys) over and over again.  The purpose of this post (which is part I of a series) is to discuss the following five basic mistakes made by entrepreneurs in connection with corporate transactions: (1) the failure to diligence the guys on the other side of the table; (2) the failure to build a strong transaction team; (3) the failure to run the negotiations through the lawyers; (4) the failure to check their emotions and to remain disciplined; and (5) blinking first.  The video version of this post is set forth immediately below.

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Selling A Company: Ten Tips For Entrepreneurs

by Scott Edward Walker on September 25th, 2009

Below are ten legal and practical tips for entrepreneurs who are contemplating selling their venture.

1.  Be Careful with Private Equity Buyers.  Private equity firms are in the business of buying and selling companies.  Accordingly, they are extremely sophisticated and savvy and are often represented by large, aggressive law firms.  Deals with private equity buyers are generally more complex than those done with strategic buyers due to, among other things, the level(s) of debt added to the target and/or financial engineering.  Moreover, unlike most strategic buyers, private equity buyers (i) usually require the selling entrepreneur to rollover part of his/her equity into the acquirer (i.e., to maintain skin in the game) and (ii) may require a financing condition in the acquisition agreement – which obviously adds a level of uncertainty to closure.  (more…)

Five Common Mistakes Entrepreneurs Make In Raising Capital

by Scott Edward Walker on September 21st, 2009

This post discusses the five most common mistakes entrepreneurs make in raising capital: (i) playing securities lawyer; (ii) selling securities to non-“accredited investors”; (iii) advertising or soliciting investors; (iv) using an unregistered finder to sell securities; and (v) selling preferred stock to angel investors.  The abridged video version is directly below. 

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Launching A Venture: Ten Tips For Entrepreneurs

by Scott Edward Walker on September 15th, 2009

Below are ten tips for entrepreneurs who are launching a startup that will seek venture capital (“VC”) financing.

1.  Protect Yourself from Personal Liability.  The entrepreneur’s first step in connection with launching a startup should be to form an entity that will protect against personal liability.  As discussed below, a Delaware C-corporation is generally the recommended choice; however, in certain rare circumstances, it may be prudent for the entrepreneur to form an S-corporation or a limited liability company to obtain “pass-through” tax treatment (and then convert the entity to a C-corporation down the road, if necessary).  The bottom line is that the entrepreneur should seek the advice of corporate and tax counsel in connection with the formation of any business organization (e.g., shareholders in S-corporations — as opposed to C-corporations — are not eligible for the “qualified small business stock” capital gains tax break; and losses in C-corporations may be deductible up to $50,000/yr. or $100,000/yr. on a joint return with respect to “Section 1244 stock”). (more…)

Founder Vesting: Five Tips For Entrepreneurs

by Scott Edward Walker on September 10th, 2009

There have been several relatively recent blog posts with respect to the issue of founder vesting, including (i) two posts by Chris Dixon, a smart angel investor and co-founder of Hunch, here and here; and (ii) a post by Mark Suster, a successful entrepreneur turned VC (and another smart guy), here.  There are also a number of solid older posts addressing this issue, including (i) Venture Hack’s post here and (ii) Brad Feld’s post here.  The purpose of this post is three-fold: (i) to weigh-in from the legal side; (ii) to try to pull the foregoing posts together in an organized manner; and (iii) thereby to provide five practical tips to entrepreneurs in connection with founder vesting.   (more…)

Doing Deals With The “Big Boys”: Ten Tips For Entrepreneurs

by Scott Edward Walker on September 7th, 2009

Entrepreneurs often find themselves in high-stakes negotiations with big, savvy players (referred to herein as “Big Boys”) — whether it be a venture capital firm in connection with a financing or a private equity firm in connection with the acquisition (or recapitalization) of the entrepreneur’s business; the situation can indeed be daunting.  Below are ten tips for entrepreneurs to help them through this process.  (more…)