Startup Toolbox

Jay Parkhill September 10th, 2007

Vosnap is a project/company that emerged from Startup Weekend in Boulder, Colorado last July. A whole bunch of people locked themselves in an office for a weekend with a goal to launch a product by the end of it.

They still haven’t launched, but that doesn’t mean it’s not a great idea. Talented people working together are fun to behold.

One trick, though, is how to properly reward everyone’s efforts. This is really a question with two parts:

1) How to value each person’s contributions relative to the others; and
2) How to issue equity to each person under US securities laws.

The Sand-Dollar-Hour System
I once heard about an alternative economic system developed in west Marin County, Calif. It involved sand dollars as units of currency, and was completely egalitarian in that each person earned a certain number of sand dollars per hour worked, whether as neurosurgeon or streetsweeper. The idea never caught on much, but it stuck with me, and the Vosnap group seems to have done something similar.

As their blog explains, they have 60 contributors, each offering different sets of skills. Rather than try to make judgments of relative importance among them (a sure recipe for collapse of the project) each person got one “share” for each day at the weekend, up to 3.

Simple enough, though it would have been better if they had been sand dollars or cowrie shells. Nobody gets it perfect, I suppose.

Crowdsourcing Cleverness
I have written previously about crowdsourcing and securities law issues. The bottom line is that securities laws aren’t conducive to doling out shares to lots of people.

However, some clever soul must have considered that if each participant is “active in the business”, then the contributors can jointly form a limited liability company in which no securities “sale” is involved. That is to say, if the equity earned is all of the “sweat” variety, then there is no securities offering, and no securities compliance issues to worry about. Note that this only applies to LLCs, not corporations.

A Little Ugliness at Tax Season, but it Gets the Job Done
So Vosnap itself is a corporation, which works well for venture funding purposes. The LLC owns 1/2 of Vosnap, Inc., and the Startup Weekend participants own their relative shares of the LLC.

Clever. The tax issues are going to be a little messy when income tax season rolls around (there will be two entities to prepare tax returns/statements for, and each LLC owner will get a K-1 partnership statement to include in their personal returns), but it gets a piece of the business to all participants and gives them some incentive to keep plugging away at it. Nice thinking.

• Securities , Startups
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Jay Parkhill August 28th, 2007

I’m a little late jumping on the bandwagon about Keith’s post, now two weeks old. The logic certainly makes sense- as one type of investment loses some luster another becomes more attractive (again). I didn’t post on it earlier largely because it was so well covered elsewhere I didn’t see a whole lot to add.

But then I realized I was wrong. I have two clients raising money right now, and both have had conversations with prospective investors who are really excited about the company, but loath to give up short-term gains they see markets delivering in the next few months.

As short as the timelines can be for tech-companies to start-up, build-out and exit, it’s still hard to convince an investor he should let his money sit idle in a company’s bank account rather than generate real cash in a six-month timeframe. Startups are risky, for sure, and even in the best cases the return is 1-2-3 years out or more. It ends up something like trying to convince the investor that two birds in the bush really are better.

I’m looking forward to seeing Keith’s prediction to come true and for “hedge fund fever” to abate a bit. The calculus is still skewed toward the short-term gains savvy investors can make; when a little more of the shine comes off the apple I am hoping that investors will be more comfortable balancing “longer term” tech company bets with shorter market-based approaches.

• Financings , Startups
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Jay Parkhill August 22nd, 2007

I wrote a post for Found|Read on some common complaints I have heard about working with lawyers, and how to avoid them. The title was supposed to be “How to Work with your Lawyer”, but the “with” got dropped so now it reads “how to work your lawyer”. I guess that is ok, too.

• Blogging , Startups , Tips & Tricks
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Jay Parkhill August 17th, 2007

Update:  athleague.com is the official site being rolled out to schools.  beta.athleague.com is for the general public to check out.

I met Ravi Mishra last summer and it has been an enormous pleasure to help him get his new business off the ground. He is a terrific guy and I am thrilled to see that the new site, athleague.com, has launched in beta. I told him that his business plan was the among the very best I have ever read- and I’ve read many.

Athleague plans to bring a new level of organization to “informal” sports- intramural at schools and adult sports leagues/teams in the larger world. It is a niche that is close to my heart. I’m looking forward to seeing how it will work for my bike racing team.

• Startups , Web , clients
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Jay Parkhill August 8th, 2007

Congratulations to the group at Kaboodle, who just announced their acquisition by Hearst Media. I was privileged to work with them at their inception- it’s a cliche, but you would be hard pressed to find a nicer group of people. They worked hard to build Kaboodle into a solid shopping bookmark destination, and I know Hearst has big plans for the future as well. I’m looking forward to seeing it.

• M&A , Startups , Web
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Jay Parkhill July 17th, 2007

I wrote a piece for Found|Read on how contract professionals can write service agreements that let them develop specific work product without handing over their their toolsets to clients.  I have definitely worked on both sides of this issue and it can be sensitive.  “Residuals” and generalized tools and methods are pretty fuzzy concepts.  It takes care and specificity to be sure each side understands what is being delivered to the client and what isn’t.

• Copyright , Intellectual Property , Startups
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Jay Parkhill July 13th, 2007

Internet law presented an interesting set of new challenges for lawyers around privacy, permissions, click-wrap contracts, etc. Recently I have seen a new set of issues arise around widgets and the interactive web generally. It’s very interesting, though my clients wish there were clearer answers.

Client confidentiality stops me from talking much about issues I am working on, but here are a couple of public matters within the same sphere.

Virgin Mobile is apparently in a spat with a Flickr user over a photo Virgin grabbed for an outdoor advertising campaign. As reported, Virgin complied with attribution requirements of the Creative Commons license under which the photo was posted, but the photo contained an image of a minor, whose parents say they did not consent to use of the likeness.

Somewhat related, here is a series of posts from employment lawyer George Lenard on the legality of using social network sites for background checking on employee candidates. The conclusion is that it is legal, but don’t take everything you see as verified truth, and be aware that many profiles contain age, ethnic background and other personal data that employers are allowed to know, but need to handle carefully.

The common thread here is that information posted in one context can be used ever more easily for others. More to the point, permission to one use does not mean permission to others, but the technical tools can’t always recognize these distinctions. A friend can give me special permission to see his/her semi-private Flickr photos. Do I violate my friend’s copyright or privacy rights if I stream those photos to my own blog- with unrestricted access?

Probably yes, is the answer. Given how easy it is to do that, what are the consequences and how can we address it? Good questions- no sure answers.

• Startups , Web
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Jay Parkhill July 11th, 2007

I have and regularly use accounts on LinkedIn, Facebook, Last.fm, Flickr and a couple of other social internet sites.  It’s awkward and I find it almost embarrassing to send out a bunch of separate emails from each service to link up with people I know in the real world.  I want a widget that will let me send a single message to someone offering to connect on all of the services at once. 

• Startups , Web
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Jay Parkhill July 10th, 2007

With all the recent talk about Facebook I finally decided to check out the F8 platform. I opened a Facebook account a year or so ago but abandoned it when I couldn’t find anything to do there. F8 is cool, though.

The range of different applications people have built is impressive and some of them are even interesting (to me). What impresses me more is their vision (to paraphrase Wayne Gretzky’s famous phrase) of where the puck is headed.

In the past two days I have read two articles about walled gardens. They’re everywhere, but no one likes them. OpenID is a great idea to put some holes through the walls, but at best it seems like it will let users tunnel from one walled garden to another with a consistent user identity.

Facebook gets it a little better. By opening the platform to outside developers they let users lob content out from behind walls elsewhere. It is terrific as far as it goes. It comes closer than anything else I’ve seen to letting people aggregate their web “presences” in one place.

Problem is that it’s a walled garden itself. All that stuff that gets lobbed out of other gardens is basically stuck inside Facebook’s own walls (Kottke explains this better than I can). It’s certainly an interesting problem- how can you take the walls down entirely so that data can flow in and out, back and forth, and still make money?

Facebook, by embracing “inbound-openness”, certainly seems to have skated past its other big competitors at the moment.  I’m fascinated to see whether Mosh and Socialstream envision social networking platforms as moving in the same direction.

• Startups , Web
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Jay Parkhill June 30th, 2007

The folks at Avvo apparently saw the post below, because they called me about it today. I didn’t talk to them, but their voicemail said they understand the concern and are working out a system to use email addresses registered with State Bar authorities (?) as a way of verifying identity instead of credit cards. Good for them for realizing the credit card system is a bad idea. I’ll look forward to checking the service out further once the new system is in place.

• Startups
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