Category Archives: Startups

Learn How to Raise Money for Startups with Texas Equity Crowdfunding Sites

The Capital Factory is hosting this event on February 11, 2015 from 6:30pm to 8:30pm.  It will beheld on the 16th floor at 701 Brazos St. in Austin.

From the site:

The purpose of this free event is to educate small businesses on how to research, plan and execute equity crowdfunding campaigns to raise seed investments and/or venture capital on one of the leading Texas Crowdfunding Portals.

Speakers from leading Texas Crowdfunding sites will cover what type of paperwork needs to be filed with the Texas State Securities Board (TSSB), what type Private Placement Memorandums (PPMs) , Disclosure Documentation and other types information that needs to be produced and made available to potential accredited and unaccredited investors.

You can read more about the event and signup to attend here.

Starting a Business? Here Is What You Should Know About The Non-Compete Provision With Your Former Employer (or Partner)

Folks starting a new business are often doing so after working for an employer or after departing a previous venture with other partners.  Frequently these entrepreneurs have a non-compete provision tucked into some agreement from the previous relationship that they either did not know about or have not considered.  Look closely through all of your agreements and often enough  you will find one buried in a confidentiality agreement, non-disclosure agreement, company agreement or shareholder agreement restricting the activity of individuals that leave the company.

If you find one, here is what you should know about that non-compete provision:

What is the scope of the restricted activity and how long am I prohibited from engaging in it?

This is the threshold issue because it answers the single most important question for your new business: what activity(ies) am I prohibited from engaging in and for how long?  Your former partners or employers likely drafted a very broad scope of activity into the non-compete provision.  The key here is what activity would a court actually restrict you from engaging in.  For example, perhaps you worked in procurement for your former company but want to start a company that, while no doubt competing with your former company, would actually focus on the sales side.  If your non-compete includes a general prohibition from competition, would this include moving into a completely different role as a competitor?

What is the geographic area in which you are restricted from competing?

This is one common area where companies tend to overreach.  For example, if you only worked in one county in Texas but the agreement prohibits you from competing across the entire state then a court could view that geographic restriction as overly broad.   On the other hand, certain industries and businesses don’t lend themselves well to geographic restrictions so courts will look to other reasonable limitations such as specific clients.

What is the legitimate business interest that the provision is designed to protect?

Texas has a history of close scrutiny when it comes to enforcing non-competition provisions.  By law, these provisions can only be enforced to the extent necessary to protect the goodwill or other legitimate business interest of the company.  Identifying the interest your former employer is attempting to protect is a key inquiry in determining whether the restrictions contained in the agreement are reasonable and whether a court would ever enforce them.

What is “competing?”

This is something that is often overlooked.  Often these provisions include language such as “directly or indirectly competing with.”  That is a much broader restriction than most people realize when it comes to competition.  What is the difference?  Direct competition would be offering a similar product or service.  Indirect competition means fulfilling a customer or client’s same need as the previous company did, even if you are not offering a similar product or service.  Similarly, the language in the agreement is important because it may go further than simply restricting competition and actually define how you are restricted from competing.

Is This The Beginning of an Era of Entrepreneurship and Business Ownership?

I’m seeing it in my own practice and I’m hearing it from other attorneys, not just business lawyers but also those in the areas of estate planning and litigation. Over the past year, more and more clients are looking for help starting their own business.  Folks are looking for assistance with setting up their business and protecting both themselves and their families for years to come.  Are we seeing a new era of entrepreneurship and business ownership, and if so, why?  What are the motivations behind it?  I don’t think there is any one cause but I can me speculate on some of the reasons that I believe we are seeing a growth in entrepreneurial spirit.

A Reality Check – Employees Aren’t As Safe As They Thought.

A nice cushy corporate job used to be the end game.  Decades ago my parent’s generation, and then mine, were groomed on the guarantee idea that you go to college, get a corporate job, move up the ladder, maybe switch companies once in your lifetime, and you are set until retirement.  Whoops.  The reality is the only thing that matters in the corporate world these days is the company’s stock price. If laying off a few thousand employees can increase that share price a few cents then they are out the door.  Corporations no long have any loyalty to their employees and the employees have finally figured that out.  This has been going on for some time but what I think is interesting and causing a long term impact in how this has affected two different generations.

The baby boomers and folks in my parent’s generation are stunned when they get laid off because they expected security.   Younger generation have seen this happening over the past 10-15 years and they learned a lesson.  I learned this lesson when my own father was “retired” in the middle of a family vacation by a large company after 30 years.  People want security and the only way they can get real security is by taking control of their future and becoming their own bosses.  Younger generations learned this lesson well and are creating their own startups in college or working for a large company just long enough to establish a security blanket, some experience, or the cash needed to strike out on their own.

Stagnation in Employee Advancement.

A byproduct of better health? Longevity? The Great Recession?  For any number of reasons, people are simply working longer and later in life.  Some simply because they aren’t ready for retirement.  65 simply isn’t old age anymore and people are plenty capable of working for a number of years beyond.  Others are working more years because they have to.  For a number of unfortunate folks, their retirement accounts were decimated and they are working to rebuild them.

The result of older generations staying in their positions longer is that it stifles the growth of younger employees.  Younger generations don’t have the opportunity to advance simply because there is no room to promote them within a company.  This is perhaps a bigger problem in smaller companies where older employees may have been with the company for decades.  Eventually this stagnation will wane but at the very least it delays the advancement of younger employees which inevitably leads to frustration.  If you can’t move up in management, why not move out and start your own business?

A Changing Perspective on the Definition of “Success.”

There was a time when success was looked at as a house, spouse, kids, and a nice little 9-5 job.  How many corporate employees truly work 9-5 nowadays?  Company’s want more of your time, more of your effort, but pay?  I believe that we have seen the breaking point.  Folks are no longer interested in working endless hours with no real benefit.  Employees rarely see any direct benefit from working those longer hours, other than keeping their job.  Starting a business isn’t easy, it requires a lot of work, and every business owner knows they work a lot more than they ever did as an employee.  But when it is your business you don’t mind those extra hours as much because they are a direct benefit to You.

There is another angle to this definition of “success” that is equally important.  The past 15-20 years have seen countless stories of folks going out and striking it rich starting their own businesses and there is a real tendency to think, why not me?  It started with the Dot Com’s of the late 1990s and continued even through the recession.  For some people, even having a steady job and family life no longer fits the definition of “success.”  For them, “success” only comes by building a product or business.  There are different paths to financial security and one of the best is building a sustainable business.

A Desire to Innovate.

Who hasn’t thought at some point in time, “You know, I bet I could do that better,” or “Why do I have to waste my time with unproductive paperwork?”  Anyone who has worked in a company of any size knows that there are procedures and processes in place.  What happens if you don’t follow those procedures?

The fact is that most large companies are not out to try to do things better or create new ideas.  There are literally thousands of entrepreneurs out there who left corporate life because they had an idea that they just had to try out.  Corporations aren’t creating new ideas, they are buying them by going out and acquiring startups.  Google alone has reportedly acquired over 140 businesses in the past 12 years.  A number of corporations are also out buying talent rich startups.  Some folks simply don’t get the opportunity to fully demonstrate their creativity and talent without creating their own startup.

A Second Career or a Need to Try Out an Idea They Have Had for Decades.

A surprisingly large portion of this boom in entrepreneurship and new businesses is coming from the baby boomer generation and people over 50.  I see two groups here.  The first are the folks who took early retirement or were unfortunate casualties of the Great Recession and are looking for a second career.  Let’s face it, finding a new job later in life is much more difficult for a variety of reasons many of which have no relation to age.  The second group are the ones who wish they had done it years ago.  They’ve lived the corporate life, made a decent amount of money and have the ability to retire comfortable.  But they also have an itch deep down or secretly wished they had started their own business years ago.  Now that they have some security for retirement, they want to see if they can make it work while they still have time and (whether they realize it or not) actually provide even greater security for themselves heading into “retirement.”

3 Day Startup Austin

For the student entrepreneurs of the world, I want to make you aware of 3 Day Startup Austin which is coming up November 2nd through November 4th at the University of Texas. Here is what is all about: The idea of 3 Day Startup is simple: start a technology company over the course of three days. We… Continue Reading