Monday, August 22, 2016
We are now more than three months into the Title III crowdfunding experiment. I have been wanting to get back to posting on Title III crowdfunding since my "LIVE" post back in May, but so much other fun stuff has been going on! So, to make me feel a bit better on that point, I will share some current crowdfunding data with you all in this post based on publicly available information obtained from a Westlaw search performed yesterday (Sunday, August 21, 2016). [Note to the powers that be at the SEC: EDGAR makes it hard to find the aggregated set of Form C filings unless you are collecting data on an ongoing basis. I hope that changes as EDGAR continues to improve . . . .]
At the outset, I will note that others have offered their own reports on Title III crowdfunding since I last posted (including here, here, and here). These reports offer some nice summaries. This post offers a less comprehensive data dump focusing in on completed offerings and withdrawn offerings. At the end, I offer some limited observations from the information provided here about crowdfunding as a small-business capital-raising alternative, the need for EDGAR adjustments, inferences about the success of Title III crowdfunded offerings, and platform disclosure about withdrawn offerings.
First, however, the top-level Westlaw-based summary:
Total Form C filings: 85 (275 filings show on Westlaw, but only 85 are non-exhibit filings representing distinct offerings)
Total Form C/A filings (amendments, including exhibit filings): 153
Total Form C-U filings (updates): 4
Total Form C-W filings (withdrawals): 2
The remainder of this post takes a shallow dive into the updates and withdrawals. Filings in each case are presented in reverse chronological order by filing date. All referenced dates are in 2016. Issuer names are copied from filings and may not be the actual legal names of the entities.
Saturday, June 11, 2016
A colleague sent me a link to a White House blog post focusing on Title III of the Jumpstart Our Business Startups Act (JOBS Act), known as the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act (CROWDFUND Act). The main theme of the blog post, entitled The Promise of Crowdfunding and American Innovation, is stated in its summary: ''Crowdfunding' rule makes it possible for entrepreneurs across the country to raise small-dollar investments from ordinary Americans." This much is true. And the post accurately notes that "previous forms of crowdfunding" also already did this.
But the post goes on to extol the virtues of the CROWDFUND Act, which offers (among other things) a registration exemption for investment (or securities) crowdfunding--a very special type of crowdfunding involving the offer or sale of debt, equity, investment contracts, or other securities. Or at least the blog post tries to extol the virtues of the CROWDFUND Act. I am not buying it. In fact, the post doesn't come up with much of substance to praise . . . .
The coauthors focus a key paragraph on explaining why the CROWDFUND Act is heavy on investor protection provisions. But they do not talk about the costs of the legislation in relation to its potential benefits, except in the most superficial way--mentioning "risks" without classifying them and outlining the "multiple layers of investor protections." Although it was written before the final Securities and Exchange Commission rules were adopted under the CROWDFUND Act, my article for the Kentucky Law Journal offers a more detailed picture of benefits and costs and shares my view that the costs are likely to outweigh the benefits for many market participants.
Maybe sensing this (and the possible lack of success of the CROWDFUND Act that may result from this imbalance), the coauthors of the White House blog post offer the following:
One encouraging recent sign is not only the launch of many new regulated crowdfunding platforms, but also the growing ecosystem of “startups helping startups” to provide services for this new marketplace—making it easier for entrepreneurs to fulfill disclosure requirements, verify investor credentials, educate investors, and more. Over time, these new tools may increase transparency and provide strong accountability not only for “the crowd,” but also for the “family and friends” that have long served as entrepreneurs’ first source of seed capital.
This is a super effect of crowdfunding generally and of securities crowdfunding under the CROWDFUND Act specifically--the emergence of new services and market participants to support crowdfunding and small capital raising more generally. I predicted this in my first article on crowdfunding (co-authored with one of my former students) : "Because '[c]rowdfunding is a market of and for the participants,' some traditional financial intermediaries may be shut out of this sector of the capital formation process. No doubt, however, new support roles for crowdfunding will develop as the industry matures." [(p. 930, n.263) (citations omitted)] But these market innovations would be more pronounced, imv, if the CROWDFUND Act provided participants with a more balanced set of costs for the benefits provided. As the blog post notes, "it’s still a fact that not every entrepreneur has access to needed capital." More can be done to solve this problem with a registration exemption that allows for small capital raising--funding at well less than the $1 million level set under the CROWDFUND Act--at less cost.
The blog post concludes with more platitudes. ("America’s entrepreneurs are our engines of economic growth, innovation, and job creation . . . .") Really, this blog post is a bit of a puff piece--manifesting both good marketing (for those who read and believe it) and overoptimism.
But then again, what did I expect from a blog post put out by White House staff? I suppose, given the President's support for the CROWDFUND Act (and the JOBS Act overall--which the coauthors also praise more generally in a paragraph of the post), I should expect the White House to promote the use of the CROWDFUND Act through these kinds of public relations messages. OK. I get that. Nevertheless, I admit to being disappointed that more is not being done in the Executive Branch and elsewhere to point out the shortcomings of the CROWDFUND Act and fine tune the regulation of securities crowdfunding so that it can have its maximum positive impact on business and project innovators and investors alike. Instead, I fear that well intending proponents are over-promoting the CROWDFUND Act, which may ultimately sour folks on securities crowdfunding as a capital raising alternative if few are able to take advantage of the current regulatory exemptions. We'll see. I hope I am wrong in worrying about this. Time will tell.
Tuesday, April 26, 2016
Beer is good. It's an opinion based on serious research. A lot of beer laws are not good. They often restrict beer distribution, limits sales, and generally make it harder for us to access good beverages.
There have been some benefits of these restrictions. The main one, probably, is that it provided the storyline for Smokey and The Bandit:
Big Enos (Pat McCormick) wants to drink Coors at a truck show, but in 1977 it was illegal to sell Coors east of the Mississippi River without a permit. Truck driver Bo "Bandit" Darville (Burt Reynolds) agrees to pick up the beer in Texas and drive it to Georgia within 28 hours. When Bo picks up hitchhiker Carrie (Sally Field), he attracts the attention of Sheriff Buford T. Justice (Jackie Gleason). Angry that Carrie will not marry his son, Justice embarks on a high-speed chase after Bandit.
(Note that IMDB's description -- "The Bandit is hired on to run a tractor trailer full of beer over county lines in hot pursuit by a pesky sheriff." -- seems to have confused the film with the Dukes of Hazzard. Crossing state, not county, lines was the issue and Rosco P. Coltrane was not part of the Bandit films. I digress.)
In my home state of West Virginia, getting craft beer, until 2009, was hard. Beer with more than 6% ABV could not be sold in the state. All beer in the state is "non-intoxicating beer" but the definition was raised from 6% so that it now includes (and allows) all malt-based beverages between 0.5% and 12% ABV.
Wednesday, March 30, 2016
Some readers may be interested in the position listed below. Georgia Institute of Technology, Scheller College of Business has a strong faculty and is a recognized leader in the sustainability area.
Managing Director, Ray C. Anderson Center for Sustainable Business
(Professor of the Practice or Academic Professional)
The Scheller College of Business at the Georgia Institute of Technology in Atlanta, Georgia seeks applications or nominations for an academic appointment as the Managing Director, Ray C. Anderson Center for Sustainable Business (ACSB). The Center is part of the Scheller College of Business, which was ranked #1 in the US and #8 globally in the 2015 Corporate Knights Better World MBA Rankings. The College is a dynamic environment with a commitment to sustainability embedded in its strategic plan and faculty members across many disciplines who have sustainable business interests. The Managing Director will have the opportunity to shape and steer the growth of the Center’s activities and impact, as the Center recently received a long-term gift doubling its operational budget from the Ray C. Anderson Foundation. The Managing Director will also have the opportunity to partner with the Georgia Tech Center for Serve-Learn-Sustain (CSLS), an institute-wide undergraduate education initiative that is developing learning and co-curricular opportunities designed to help our students combine their academic and career interests with their desire to create sustainable communities.
More information follows after the break.
Friday, March 11, 2016
Some of our December graduates haven just taken the Florida bar exam. As always, I asked them about the business associations questions. Florida drastically changed its LLC rules in 2014, but still hasn’t asked any questions about LLCs, focusing instead on partnerships and corporations (at least according to the students). From a review of the released questions, the bar didn’t ask about LLCs before the amendments either.
I teach BA again next year and I’m struggling with what to emphasize. Business Associations is not required in many Florida law schools, but it is at St. Thomas, and many students enter the class with trepidation. Most will only take the one required course and won’t go on to advanced classes in securities regulation, corporate taxation, or other drafting courses. I try to focus the required BA class on skills that graduates will need in the workplace in addition to preparing them for the bar by using released test questions. Now I wonder how to balance the tension between the rise of LLCs and the many changes in laws related to securities regulation with the bar’s continued focus on partnerships and traditional corporations.
Yesterday the Obama administration added Miami to the list of tech hire jurisdictions. The Kauffman Index ranks Miami as second in the country for startups. Last month, a blogger highlighted my city’s proximity to Latin America and our emerging tech scene. With these realities in mind, should I add even more to what I already teach about legal issues that entrepreneurs and startups face even if that’s not what the Florida bar tests? I never want to “teach to the test” but I also want to make sure that I am responsible in my pedagogy, which for me includes marking up operating agreements, spending time demystifying IPO filings, and introducing them to hybrid entities that entrepreneurs ask about.
Unlike 20 other states, Florida has not adopted the Uniform Bar Exam, but I believe that any test that asks students to do the kind of critical analysis they would have to do in practice is a good thing. This week the Florida bar established a new committee to consider the issue, but I don’t have high hopes for a quick change to the bar exam. Lawyers here recently killed a proposal for reciprocity, and some see the UBE as a back door effort to flood Florida with out of staters.
So I have a conflict. How do other professors tackle the coverage issue? Comment below or feel free to email me at email@example.com.
Friday, January 22, 2016
Two weeks ago I posted about whether small businesses, start ups, and entrepreneurs should consider corporate social responsibility as part of their business (outside of the benefit corporation context). Definitions of CSR vary but for the purpose of this post, I will adopt the US government’s description as:
entail[ing] conduct consistent with applicable laws and internationally recognised standards. Based on the idea that you can do well while doing no harm … a broad concept that focuses on two aspects of the business-society relationship: 1) the positive contribution businesses can make to economic, environmental, and social progress with a view to achieving sustainable development, and 2) avoiding adverse impacts and addressing them when they do occur.
During my presentation at USASBE, I admitted my cynical thoughts about some aspects of CSR, discussed the halo effect, and pointed out some statistics from various sources about consumer attitudes. For example:
- Over 66% of people say they will pay more for products from a company with “good values”
- 66% of survey respondents indicated that their perception of company’s CEO affected their perception of the company
- 90% of US consumers would switch brands to one associated with a cause, assuming comparable price and quality
- 26% want more eco-friendly products
- 10% purchased eco-friendly products
- 45% are influenced by commitment to the environment
- 43% are influenced by commitment to social values and community
- Those with incomes of 20k or less are 5% more willing to pay more than those with incomes of $50k or more
- Consumers in developed markets are less willing to pay more for sustainable products than those in Latin America, Asia, the Middle East, and Africa. The study’s author opined that those underdeveloped markets see the effects of poor labor and environmental practices first hand
- 75% of millennial respondents, 72% of generation Z (age 20 and younger) and 51% of Baby Boomers are willing to pay more for sustainable products
- More than one out of every six dollars under professional management in the United States—$6.57 trillion or more—is invested according to socially-responsible investment strategies.
- 64% of large companies increased corporate giving from between 2010 and 2013.
- Among large companies giving at least 10% more since 2010, median revenues increased by 11% while revenues fell 3% for all other companies
From marketing and recruiting perspectives, these are compelling statistics. But from a bottom line perspective, does a company with lean margins have the luxury to implement sustainable business practices? Next week I will post about CSR in larger companies and the role that small suppliers play in global value chains. This leaves some small businesses without a choice but to consider changing their practices. In addition, in some ways, using some CSR concepts factors into enterprise risk management, which companies of all size need to consider.
January 22, 2016 in Business Associations, Corporate Governance, Corporations, CSR, Current Affairs, Entrepreneurship, Ethics, Management, Marcia Narine Weldon, Nonprofits, Research/Scholarhip, Social Enterprise | Permalink | Comments (1)
Friday, December 11, 2015
Amazon Prime Now has debuted in Nashville. Amazon Prime Now offers free two-hour delivery on many items for Prime members. The service is amazing and is already changing the way I shop. I really dislike shopping malls, especially during the busy holiday season, but I also dislike waiting weeks (or even days) for shipments to arrive, so Amazon Prime Now is a perfect solution.
With Amazon Prime Now expanding, I imagine even more brick and mortar retailers will be headed to bankruptcy unless they find a way to differentiate their companies and add more value.
Brick and mortar retailers may find differentiation through community building services. I already see some retailers attempting this. Running footwear and apparel stores are offering free group runs starting from their storefronts and/or group training programs for a fee. Grocery stores are offering group cooking classes. Book stores are offering book clubs. The list goes on.
These brick and mortar retailers are finding it more and more difficult to compete with e-retailers on price and convenience. With the rise in technology, however, face to face community seems to be increasingly rare. Brick and mortar retailers that aid in community building may be able to justify higher prices for their goods, and the fee-based training programs may add another solid revenue stream.
Similarly, in my classes, I consistently ask myself: How am I providing value beyond what students could receive from an online course? I have made changes (like more group work, more case method work, more writing-based assessments, and more face to face advising) in response to this question, and I continue to look for ways to improve. Adapt or die.
Friday, December 4, 2015
Earlier this week, my co-blogger Josh Fershee authored an interesting post about the surprising crowdfunding success of the PicoBrew "Keurig for Beer.” After reading Josh’s post and the embedded links, I have to agree with him; I have no idea how they raised $1.4M for a product that I don’t see being that useful. The product appears to be both overly expensive and overly time-consuming.
I think many venture capitalists would join Josh and me in questioning the wisdom of PicoBrew, at least before it raised $1.4M. But as I wrote in an earlier post, crowdfunding may help overcome biases of venture capitalists. In the days since Josh’s posts, I have heard a few people talk about how excited they were about PicoBrew. These people were all at least 10 years younger than Josh, me, and most venture capitalists. While us “older folks” may not see a use for the product, judging from the crowdfunding results and a little anecdotal evidence here in Nashville, there appears to be significant market demand for PicoBrew. Similarly, on the show Shark Tank, the female “sharks” have accused their male counterparts of largely avoiding companies with products aimed at women; and while I have not run the numbers, it does seem like the sharks' investments skew toward products that they (or maybe their family members) would use. Very few venture capitalists are under 30 years old, so perhaps products aimed at younger people got passed on more often than they should have before online crowdfunding became popular. Of course, crowdfunding can have a dark side as well; crowdfunding may be used not only to uncover good products that were passed over, but could also be used to lure more gullible funders.
Somewhat related, the Chronicle of Higher Education recently ran an article entitled “When Recruiting Teenagers, Don't Forget to Question Your Assumptions.” The article is focused on undergraduate recruiting practices and challenges readers to question conventional wisdom. The article notes a disconnect between what universities think applicants want and what applicants say they want. For example, “[a]lthough 30 percent of admissions officials said social media was the most effective way for a college to engage students who had never heard of it, just 4 percent of students said the same. . . . And while 64 percent of admissions officials said a college’s official social-media accounts were important to prospective students after applying, only 18 percent of teenagers said the same.” The article’s main directive appears to be, don’t assume what prospective students want, ask them and use evidence to craft your recruitment programs. Using evidence rather than hunches to make decisions may be obvious to professors, but I wonder how many schools use sophisticated studies in designing their recruiting programs.
Like all of us, venture capitalists and university recruiting staff members have blind spots. Perhaps evidence, from crowdfunding and student surveys, can help these respective groups shrink those blind spots.
Friday, November 20, 2015
This past Sunday afternoon, I attended a screening of the film Poverty, Inc.
The trailer is available here.
I share a few, somewhat disconnected, thoughts on Poverty, Inc. under the page break.
Friday, October 16, 2015
Recently, a number of the sports media outlets, including ESPN, the Pac-12 Network, and Fox Sports featured a company called Oculus that makes virtual reality headsets used by Stanford University quarterback Kevin Hogan, among other players, to prepare for games.
In 2012, Oculus raised about $2.4 million from roughly 9,500 people via crowdfunding website Kickstarter. Following this extremely successful crowdfunding campaign, Oculus attracted over $90 million in venture capital investment. In mid-2014, Facebook acquired Oculus for a cool $2 billion.
Oculus is only one example, but it caused me to wonder how many companies are using crowdfunding to attract venture capital, and, if so, whether that strategy is working. This study claims that 9.5% of hardware companies with Kickstarter or Indigogo campaigns that raised over $100,000 went on to attract venture capital. Without a control group, however, it is a bit difficult to tell whether this is a significantly higher percentage than would have been able to attract venture capital money without the big crowdfunding raises.
If I were a venture capitalist (and I was raised by one, so I have some insight), I would see a big crowdfunding raise as potentially useful evidence regarding public support for the company and/or product demand. Crowdfunding, in some cases, might also be a helpful check on venture capitalist groupthink and biases.
As a venture capitalist, however, the type of crowdfunding used would matter to me. In most cases, I imagine I would see a large gift-based or rewards-based crowdfunding raise as a significant positive. Gift-based crowdfunding is essentially free money for the company, and reward-based crowdfunding usually comes with minimal costs or is simply pre-ordered product. Gift-based or rewards-based crowdfunders could create some negative press for the company when the company raises outside money, as the crowdfunders did in the Oculus case (see here and here), but that seems like a relatively small problem in most cases.
In contrast, the costs and risks associated with equity crowdfunding, in the states it is currently allowed, would raise at least a yellow flag for me. Equity crowdfunding comes with so many strings attached to various small shareholders that I could see it scaring off venture capitalists. The administrative headache, plus the risk of multiple lawsuits from uninformed investors seems significant. In addition, owners who have engaged in equity crowdfunding have a smaller percentage of equity in their hands and may have raised the crowdfunded money at an unattractive valuation.
At least two of my co-bloggers have written significant articles on crowdfunding (see, e.g., here and here), so perhaps they will weigh in on whether they have seen companies using crowdfunding as a strategy to attract venture capital, whether it is working, and whether the type of crowdfunding really matters.
Friday, October 9, 2015
My wife and I both have many close family members in South Carolina, so the recent flood has been on our minds recently.
My first thoughts are with all of those affected by the flood.
Relevant to this blog, the flood also reminds me of one of the opening passages in Conscious Capitalism by Whole Food's co-CEO John Mackey. In that passage, Mackey recalls the massive flood in Austin, TX in 1981. At that time, Whole Foods only had one store, and the flood filled that store with eight feet of water. Whole Foods had loses of $400,000 and no savings and no insurance.
Mackey notes that "there was no way for [Whole Foods] to recover with [its] own resources" and then:
- "[a] wonderfully unexpected thing happened: dozens of our customers and neighbors started showing up at the store....Over the next few weeks, dozens and dozens of our customers kept coming in to help us clean up and fix the store...It wasn't just our customers who helped us. There was an avalanche of support from our other stakeholders as well [such as suppliers extending credit and deferring payment]. . . . It is humbling to think about what would have happened if all of our stakeholders hadn't cared so much about our company then. Without a doubt, Whole Foods Market would have ceased to exist. A company that today has over $11 billion in sales annually would have died in its first year if our stakeholders hadn't loved and cared about us--and they wouldn't have loved and cared for us had we not been the kind of business we were." pgs. 5-7
I have two questions. First, what decisions lead to that sort commitment from stakeholders? Second, does this sort of commitment only attach to small businesses?
Asked another way, would Whole Foods still have that sort of stakeholder turnout today? If not, is it because they have not continued to make decisions that inspire stakeholders or simply because they have grown so large that stakeholders assume the company can fend for itself.
It is seemingly easier to make connection with a small, local business than with a large chain, but there do seem to be a few larger companies that still reach their stakeholders on an individual and personal level. Companies, of all sizes, seem to reach stakeholders through making thoughtful decisions in hiring, training, producing, and giving. Authenticity seems to be quite important, as does listening to stakeholders and taking action to address stakeholder needs.
Wednesday, September 30, 2015
I recently learned, via e-mail, that Albany Law School has a number of open positions that may interest our readers. The positions, and links to the postings, are provided below:
- Associate Dean for Strategic Initiatives and Information Systems
- Tenure-Track Position in Commercial Law
- Tenure-Track Position in Tax and Transactions Clinic
- Visiting or Contract Faculty Position-Business Transactions and Entrepreneurship
- Visiting or Contract Faculty Position-Patents/Technology Transfer, Innovation and Entrepreneurship
Wednesday, September 23, 2015
As I earlier noted, I participated in a continuing legal education program at The University of Tennessee College of Law last Friday on the basics of crowdfunding. My partners in crime for the last hour of the event were two folks from Chattanooga, Tennessee (yes, home of the famous choo choo) who have been involved in crowdfunding efforts for local businesses. One used crowdfunding to finance a change in the location of a business; the other used crowdfunding to gauge interest in his business concept and raise seed capital. They described their businesses and financing efforts in the second segment of the program (after a foundational hour on crowdfunding from me).
The business location change was for The Camp House, a coffeehouse owned and operated as part of The Mission Chattanooga, a local church. Private events, including music performances, also take place at the venue. The Camp House raised over $32,000 through a crowdfunding campaign on Causeway. Matt Busby, Director of The Camp House, educated us on donation crowdfunding through a non-profit platform.
The new business concept and capital raise was for Treetop Hideaways (a/k/a, The Treehouse Project), a business that designed, built, and rents time in a luxury treehouse. The principals raised over $34,000 on Kickstarter. One of the two men behind this project, Enoch Elwell, offered us practical information about reward crowdfunding. Enoch also told attendees about his work with local entrepreneurs through CO.LAB and CO.STARTERS.
In the last hour of the program, the three of us reflected on crowdfunding successes and failures and speculated about the future of crowdfunding (using their experiences and my research as touchstones). It was a wide-ranging discussion, filled with disparate tidbits of information on business formation, finance, and governance, as well as professional responsibility and the provision of practical, cost-sensitive legal advice. Both Matt and Enoch turned out to be great folks to talk to about business finance, choice of entity, and the role of lawyers in small business formation and operation. Their observations were thoughtful and sensible. I learned a lot from them, and participants (practitioners and students) also indicated that they learned a lot. Everyone had fun. It was pure business lawyer/law student joy on a Friday afternoon! :>)
For those who were not at the program on Friday and would have liked to have been there, all is not lost. We plan to post a recorded version of all three program segments here in a few weeks. Continuing legal education credit will be available in Tennessee for viewing the online recording, upon completion of the test provided and payment of the applicable fee.
Friday, September 18, 2015
For many businesses a good online reputation can significantly increase revenue.
Kashmir Hill, who I know from my time in NYC, has done some interesting reporting on businesses buying a good online reputation.
Earlier this week Kashmir posted the results of her undercover investigation into the problem of fake reviews, followers, and friends. When asking questions as a journalist, those selling online reviews insisted they only did real reviews on products they actually tested.
Kashmir then created a make-believe mobile karaoke business, Freakin’ Awesome Karaoke Express (a/k/a F.A.K.E), and found how easy it was to artificially inflate one's online reputation. She writes:
For $5, I could get 200 Facebook fans, or 6,000 Twitter followers, or I could get @SMExpertsBiz to tweet about the truck to the account’s 26,000 Twitter fans. A Lincoln could get me a Facebook review, a Google review, an Amazon review, or, less easily, a Yelp review.
All of this for a fake business that the reviewers had, obviously, never frequented. Some of the purchased fake reviews were surprisingly specific. In a time when many of us rely on online reviews, at least in part, this was a sobering story. It was somewhat encouraging, however, to see Yelp's recent efforts to combat fake reviews, albeit after a 2015 article by professors from Harvard Business School and Boston University showed roughly 16% of the Yelp reviews to be suspicious or fake.
Go read Kashmir's entire article, it will make you even more skeptical of reviews you read online and small businesses with tens of thousands of friends/followers.
Thursday, September 10, 2015
Transactions: The Tennessee Journal of Business Law is sponsoring a continuing legal education program on the afternoon of Friday, September 18 entitled "Crowdfunding: The Basics." If you will be in or near Knoxville at the end of next week (maybe because you're arriving early for a certain football game on Saturday night versus Western Carolina . . . ), come on over and check it out. I am presenting for the introductory session. The second session will feature entrepreneurs from two local (Chattanooga-based) crowdfunded social enterprises, and the third session will be a discussion among the three of us about successful and unsuccessful crowdfunding efforts.
I am excited to be able to participate in this program with local entrepreneurs and have the opportunity to talk to them about the future of crowdfunding. I will post important out-takes from the program in the future. I assume there will be a number of them . . . .
Friday, September 4, 2015
Babson College has posted their Global Entrepreneurship Monitor ("GEM") Reports for 2014 (one global, one for the U.S.), available here.
The reports are valuable resources and should be read in full, but below are a few, selected quotes from the executive summary of the US GEM Report.
- "The United States consistently exhibits among the highest entrepreneurship rates in the developed world. At 14% of the U.S. working age population, entrepreneurship levels edged upward in 2014 to reach the highest level in the 16 years GEM has assessed this activity. This represents approximately 24 million Americans starting or running new businesses. An additional 14 million people were estimated to be running established businesses."
- "36% of U.S. entrepreneurs operate in the business service sector, which is generally associated with knowledge and service-based businesses."
- "15% of entrepreneurs state that 25% or more of their customers come from outside the United States. This shows an increase over 11% reported in 2013, but it is still lower than 21% reported, on average, in the other innovation-driven economies."
- "29% of Americans personally know an entrepreneur; this measure has generally followed a downward path since 2001, when 43% indicated this affiliation."
- "Women’s entrepreneurship in the United States exhibits among the highest rates (11%) in the developed world."
- "The United States shows the highest rate of entrepreneurship among 55-64 year olds (11%) across the 29 developed economies surveyed by GEM in 2014."
- "20% of entrepreneurs aged 18-34 currently employ six or more people. 58% of 18-24 year olds and 46% of 25-34 year olds project six or more employees in five years. Among both younger age groups, 75% use the internet in their businesses."
At Belmont University, we have quite a number of entrepreneurial students, and I think the statistics show that entrepreneurship is a critical piece of our economy.
On the legal scholarship side, Gordon Smith (BYU Law) and others have been building the Law & Entrepreneurship field. The field continues to grow, and I hope to make it to the annual meeting of the Law and Entrepreneurship Association at some point soon.
On the legal education side, there is now a Law & Entrepreneurship LLM at Duke, and the number of related programs is growing. My colleague Mark Phillips is one of the academics advocating for the teaching of entrepreneurial skills to law students, and he shows that those entrepreneurial skills are useful to lawyers at law firms of all sizes.
Thursday, August 6, 2015
We here in Tennessee took a strong interest in the decision in Obergefell v. Hodges, since one of the cases being decided was from Tennessee (Tanco v. Haslam). We at The University of Tennessee were especially interested. The plaintiffs in the Tanco case are University of Tennessee faculty members at the College of Veterinary Medicine, located on our adjacent sister campus (for The University of Tennessee Institute of Agriculture) here in Knoxville. As East Tennessee awaited the Supreme Court's decision--and in the aftermath of the opinion's release, the press sought for and found many angles on the case.
Of interest to me, as a business lawyer, was the interaction of the case with local business--existing and potential. As with most things, there were (and are) two sides to this coin. Locally, and nationally, both have gotten some play. For opportunistic business lawyers, both sides present advisory possibilities.
Some press time was spent on what I call the "Sweet Cakes" issue (covered by blogs as well as the traditional press, with my favorite law coverage coming from Eugene Volokh over at The Volokh Conspiracy, including this post). Sweet Cakes is, of course, the now-famous family-owned-and-run Oregon wedding cake purveyor that expressly refused to sell wedding cakes to same-sex couples. Eugene outlines a number of interesting legal issues in his posts, and regardless of whether you agree with his conclusions, you can see there is much lawyering involved in the business decisions of those who are intent on being conscientious objectors to same-sex marriage through their business activities. In Tennessee, the Obergefell decision has been famously followed with reports of anti-same-sex marriage signage, like this press item on a sign posted by the owner/proprietor of a hardware store.
The other side of the coin is, of course, the new opportunities that same-sex marriage creates for existing businesses and entrepreneurs. In the run-up to the Supreme Court's ruling, The Tennessean reported that "[o]pening marriage to same-sex couples would yield an additional $36.7 million in spending in Tennessee in three years as more than 5,400 same-sex weddings are expected to be held in the state during that period, according to estimates from the Williams Institute, a think tank at UCLA Law dedicated to sexual orientation and gender identity research." And after the decision, the Nashville Business Journal reiterated the message. New businesses formed to take advantage of this new market for marriages in the state will need--you guessed it--lawyers! Since Gatlinburg--in the Smoky Mountains just a stone's throw from Knoxville--is a wedding destination, our end of the state should see its fair share of that "action," assuming the business environment is welcoming . . . . This article indicates there may be some businesses in that part of the state that are willing to participate in same-sex weddings.
So, as with other legal changes of any magnitude, we may conceptualize Obergefell as a full-opportunity-for-lawyers act, and those opportunities will likely enure to business lawyers as well as others.
Thursday, July 30, 2015
Last week I attended a panel discussion with angel investors and venture capitalists hosted by Refresh Miami. Almost two hundred entrepreneurs and tech professionals attended the summer startup series to learn the inside scoop on fundraising from panelists Ed Boland, Principal Scout Ventures; Stony Baptiste, Co-Founder & Principal, Urban.Us, Venture Fund; Brad Liff, Founder & CEO, Fitting Room Social, Private Equity Expert; and (the smartest person under 30 I have ever met) Herwig Konings, Co-Founder & CEO of Accredify, Crowd Funding Expert. Because I was typing so fast on my iPhone, I didn’t have time to attribute my notes to the speakers. Therefore, in no particular order, here are the nuggets I managed to glean from the panel.
1) In the seed stage, it’s more than an idea but less than a business. If it’s before true market validation you are in the seed round. At the early stage, there has been some form of validation, but the business is not yet sustainable. Everything else beyond that is the growth stage.
2) The friend and family round is typically the first $50-75,000. Angels come in the early stage and typically invest up to $500,000.
3) The seed rounds often overlap with angels and businesses can raise from $500,000 to $1,000,000. If you have a validated part of a business model but are not self funding then you are at Series A investment stage. You still need outside capital despite validation. The Series A round often nets between $3-5 million and then there are subsequent rounds for growth until the liquidity event which is either the IPO or acquisition.
4) Venture capitalists are investing their LPs' money and often the LP will co-invest with the VC. Their ultimate goal is for the company to get acquired or go public.
5) At the early stages some VCs will show a deal to other investors if it looks good. Later stage VCs will become more competitive and will keep the information and good deals to themselves.
6) It’s important to find a lead investor or lead angel to champion your idea.
7) Not all funding is helpful. Some panelists discussed the concepts of “fallen angels” or “devils,” which were once helpful but now are not providing value but still take up time and energy that could be better spent focusing on building the business. “False angels” are those who could never have been helpful in the first place.
8) You don’t want to be the first or the last check the angel is writing. You want to get references on the angel investor and see where they have invested and what their plan is for you.
9) There is smart money and dumb money. Smart money gives money and additional resources or value. Dumb money just gives money and nothing else. It’s passive and doesn’t jump into the business (note the panelists disagreed as to whether this was a good or bad thing). Another panelist noted the distinction between helpful and harmful money. Harmful people think they are helpful and give advice when they don’t have a lot to add but take up a lot of time. Sometimes helpful money just gives a check and then gets out of the way. It’s the people in between that can cause the problems.
10) VCs and angels invest in teams as well as ideas. They look for the right fit and a mix of veteran entrepreneurs, a team/product fit, a mix of technical and nontechnical people, professionals whose reputations and resumes can be verified. They want to know whether the people they are investing in have been in a competitive environment and have learned from success or failure.
11) Crowdfunding can be complicated because investors don’t meet the entrepreneurs. They see everything on the web so the reputation and the need for a good team is even more important.
12) Convertible notes are the “gold standard” according to one speaker and it’s the workhorse for funding. There was some discussion of safe notes, but most panelists didn't have a lot of experience with them and that was echoed this week by attorney David Salmon, who advises small businesses and holds his own monthly meetups. One panelist said that the sole purpose of safe notes was to avoid landmines that can blow up the company. Another panelist indicated that from an investor standpoint it’s like a blackhole because it’s so new and people don’t know what happens if something goes wrong.
13) The panelists indicated that businesses need to watch out for: the maturity date for their debt (how long is the runway); when can the investors call the note and possibly bankrupt the company; how will quirky covenants affect the next round of financing and where later investors will fall in line; and covenants that are easy to violate.
14) There was very little discussion of Regulation A+ but it did raise some interest and the possibility to raise even more funds from non-accredited investors. Only 3% of the eight million who can invest through crowdfunding actually do, so Reg A+ may help with that.
16) All of the panelists agreed that entities may start out as LLCs but they will have to convert to a C Corp to get any VC funding.
There was a lot more discussion but this post is already too long. Because I've never been an angel nor sought such funding, I don’t plan to provide any analysis on what I’ve typed above. My goal in attending this and the other monthly events like this was to learn from the questions that entrepreneurs ask and how the investors answer. Admittedly, most of my students won’t be dealing with these kind of issues, but I still introduce them to these concepts so they are at least familiar with the parlance if not all of the nuances.
July 30, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Financial Markets, International Business, Law School, Legislation, LLCs, Securities Regulation, Teaching | Permalink | Comments (0)
Wednesday, May 27, 2015
As a semi-closeted (now "out," I guess) foodie* and as a lover of "things Brazilian" (including Havaianas flip-flops and Veja sneakers, as well as churrascarias and caipirinhas), I read with interest a recent electronic newsletter headline about a thriving Brazilian chef. I clicked through to the article. I loved it even more than I had thought I would.
The article tells the story of an emergent Brazilian chef and restauranteur, Rodrigo Oliveira, and his flagship establishment (Mocotó), as promised. That was great. But that was not all. The piece also told the story of a business run using a "holistic business model."
Today, Oliveira focuses on his employees as much as his customers. . . . Oliveira pays for his employees’ part-time education. And their kids’ health care. And daily jiujitsu and yoga classes in the room he built upstairs. It’s a rarely encountered, holistic business model that contributes to his restaurant’s roaring success. . . .
. . .
Beneath the street level they’re boring out new dormitories for employees, for a quick nap and shower between jiujitsu, work and class. . . .
He also seems to be attentive to the greater local community beyond his customers and employees, preferring (to date) to expand his business locally rather than into larger metropolitan areas. Good business? Yes! But it seems like more than that. This business appears to have more than one bottom line!
Perhaps this is not a remarkable story, in the end. Regardless, I wanted to share it. Another Brazilian social enterprise, Ashoka, gets a lot of attention.** But it's now clear to me that we can and should look beyond larger, storied examples of social entrepreneurship for other manifestations of social enterprise in action in Brazil.
**Actually, much to my surprise, Ashoka is a U.S. organization that networks social enterprises across the globe. So, it's not even Brazilian! Having been in Rio teaching for a few summers and known of its presence there, I assumed it was a Brazilian organization. Please forgive the error. Hat tip to co-blogger Haskell Murray for pointing it out to me.
Wednesday, May 13, 2015
As some readers may recall, I posted twice back in November about The University of Tennessee, Knoxville's decision to drop the Lady Vols moniker and mark from all women's sports teams at UTK other than women's basketball. The first post primarily wondered about university counsel's consideration of trademark abandonment in the rebranding effort. The second post unpacked some additional issues raised by the first post and addressed some readers' and friends' concerns about my stance opposing the rebranding.
Interestingly, adverse reactions to the branding change, which is effective on July 1 (the beginning of the new academic year at UTK), have not died down since those original posts. Letters from concerned citizens have been published in the local paper, and the paper even published a recent news article documenting some of the back-and-forth between Lady Vol fans and the campus administration. [Ed. Note: this article may be protected by a firewall.] I have followed all of this with some interest.
Honestly, part of me just cannot wait for the university to drop the mark altogether so that I can start using it to mass merchandise retro Lady Vols t-shirts, hats, and other merch. Entrepreneurial pipe dream? Maybe. But it seems like a great idea, yes?
And there's a case involving Macy's that I will be following to help me to assess whether and, if so, when to launch my venture. The case, covered in an article in the New York Law Journal on Monday, involves Macy's and its disuse/limited use of department store names forsaken as a result of its own rebranding efforts. You know the names well if you're a person of a certain age--A&S, Filene's, Marshall Fields, Stern's, etc. (I shopped at all of them. Eek!) The defendant in the action, Strategic Marks, claims the right to use these so-called "heritage marks" for bricks-and-mortar and online shopping services. Apparently, Strategic Brands filed intent to use applications and statements of use with the U.S. Patent and Trademark Office. In the case, Macy's challenges Strategic Marks's right to use the heritage marks--asserting, among other things, that the marks have not, in fact, been abandoned (given that Macy's still uses them on the occasional plaque, t-shirt, and tote bag.) The case had been scheduled for trial earlier this year, but the trial date was postponed to reflect new claims by Macy's regarding Strategic Marks's use of additional marks earlier registered by Macy's.
The case apparently raises some interesting trademark abandonment issues that also may apply to the Lady Vols rebranding effort as time moves on. Among them: the length of time a mark must be in disuse before it is considered abandoned (although a presumption of abandonment apparently arises after non-use for three consecutive years), the types of behavior that constitute an intent not to resume use of a mark, and the effect of residual goodwill associated with a mark on claims of abandonment. Although Macy's and Strategic Marks do not agree on the facts of the case, it is the law as applied to those facts that I am most interested in knowing.
Of course, since UTK is keeping the Lady Vols name for the women's basketball team, at least for now, the trademark abandonment issue is not ripe. Accordingly, I cannot yet think about quitting my day job to promote the Lady Vols brand to all the passionate UTK women's sports fans out there. But I am keeping my entrepreneurial eyes on this issue. If they do away with tenure in The University of Tennessee system, for example, I may need an opportunity like this . . . !