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Why Tech Startups Get Funding, Not More "Meaningful" Ones

I read a good post yesterday from Chris Dixon on his blog about why there aren’t more “Meaningful Startups.”   In the article and comments, the discussion had to do with why tech companies, more specifically, internet startups get the majority of funding instead of companies that seem to solve a bigger societal problem, such as curing a disease.  He argues that the other what some might call “more meaningful startups” don’t get off the ground because they have a hard time getting funded and this is due to time to exit and amount of capital required. I tend to see that funding and society are major reasons for the tech funding boom. From the entrepreneur’s point of view, they see a rise in what some would argue may be another dot-com bubble with internet related companies getting funding, growing rapidly, and seeing relatively quick liquidity events (e.g. Facebook multi-billion dollar IPO, Instagram billion dollar acquisition).  They don’t think about all the work and failures that led those companies to success or, for the majority of startups, to failure.  The growth in society of smart phone technology and tablets has created a new boom in not only internet services, but apps and all kinds of new SaaE (software as an everything you could ever need) businesses.  I am not saying they aren’t passionate about their ideas, but the fact that they can more easily get funding, face high unemployment rates for full time jobs, and get societal support these days tends to help convince someone to jump into the startup market with the next greatest app or cloud computing platform. One of the biggest problems I see with many entrepreneurs is that they don’t know how to commercialize and execute.  Many people have had great ideas for hundreds and thousands of years, so you first have to find a product or service that fulfills a need of society (or creates that need) to go beyond being just a great idea.  The next steps are to execute on that idea and commercialize it, i.e. you need to be able to make a profit.  Traditional business models are changing and evolving over time; however, you can’t ignore the bottom line and the almighty dollar, peso, pound, or euro.  If you don’t make money, it doesn’t matter how good your idea is; you need to have a business model and planning to achieve...

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"I didn't realize an email or downloading an app could be an enforceable contract"

With the ever changing technology and world in which we live, practices of how things are done change over time.  This includes things like entering into contracts or modifying those agreements.  Many people try to rely on the “I didn’t sign anything” or “I didn’t know” defense to get out of a contract, especially in the online or electronic context.  These defenses may sound valid, but often people are not able to use them when it comes to things like email or online services. Several laws were put into place on the federal level and adopted by some of the states that address concerns about online transactions or agreements.  The Electronic Signatures in Global and National Commerce Act (E-sign) and Uniform Electronic Transactions Act (UETA), and Uniform Computer Information Transactions Act (UCITA)(few states adopted this one) are all examples of such laws.  These laws seek to make electronic communication or transmission of information relevant in the modern world to create things like enforceable contracts.  They also put protections in place for consumers to avoid consumers being taken advantage of by things like hiding terms or conditions of use or making it clear that someone is being obligated by clicking on the “I accept” box or button. As just a few examples, courts have found that emails back and forth can be considered a signed written contract or that emails amended a contract, even though the physically signed agreement said amendments must be in writing.  So your physical signature of your name is not required to obligate you.  Also, when you click on that “I accept” button or even just by downloading a piece of software, you could be obligating yourself to certain contract provisions that may restrict or limit what you can do with their online service or software.  The biggest thing that courts will usually look to is whether the party had notice of what they were agreeing to and whether they intended to agree.  The intent to agree can sometimes be inferred by the fact that someone downloaded the software or took some other affirmative step, even if they later claim they didn’t intend to be obligated. So just because you didn’t physically sign a written contract, be aware that the next time you download an app or send off various emails, you may be agreeing to be bound by contract provisions which you may not have...

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Is it bad if cofounders split a company evenly, but one cofounder provides all the seed capital?

Chris Barsness, Lead experience getting startups off the ground… Not exactly sure how you mean skew the split, but here are the issues I see:If you are both putting in something of major value to the company and those values are somewhat similar…

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Once at a startup, how if at all can an employee increase his/her options or total equity ownership?

Chris Barsness, startup, finance, law, and tech nerd I have put in performance based vesting of restricted stock units, straight stock grants, or stock options, but these equity grants typically need board approval or at least put into a board approved…

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Facebook shows lots of cash and revenue, high valuation

In Facebook’s S-1 registration statement, the most recent rounds of funding over the last year or so were sold at a price of $20.85 per share of Series A common stock. This places the valuation used for those raises somewhere in the neighborhood of making Facebook worth $86 billion, without taking into account any convertible preferred shares or option exercises. Some other items of interest are the consolidated financials. Facebook shows that as of 12/31/2011, it has close to $1.5 billion in cash, cash equivalents, and marketable securities. In addition, it also lists net income of $1 billion for 2011. Clearly companies have learned since the dot-com era on how to have real revenue recognition from an online company.We will have to see where the investment community puts for the initial share price, but I have heard rumors of somewhere in the $30 range putting the market cap well over $100 billion. To put that into perspective, that could approach or go beyond the valuations of Google and General Electric. It is funny to see reports on the news about all the “instant millionaires” or billionaires after the IPO. Anyone familiar with securities knows that it is not that easy. There are SEC rules, federal and state laws, as well as contractual restrictions on the ability to sell any stock that someone at Facebook may own. It appears the terms of any lock up and market standoff agreements exempt Mark Zuckerberg, but most executives, officers, directors, and employees will be restricted in when, how, and how much stock can be sold off. In addition, Mr. Zuckerberg still has to comply with securities laws when selling any stock. So, yes, there will be instant millionaires on paper, but someone has to own a large number of shares and be able to sell them to realize the status of a millionaire. That being said, more than likely, some founders, venture capitalists, early investors, and early key employees will do very well off their early involvement in the...

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Facebook Files $5B S-1 Registration Statement (Ticker: FB)

Today, as was much anticipated, Facebook filed its S-1 registration statement with the SEC. Their proposed ticker symbol for trading is requested to be “FB”. For a link to the actual S-1 filing, click here.The filing is for a public sale of up to an unknown number of shares of common stock for a proposed maximum raise of $5 billion. Their listed corporate strategies are: Expand Our Global User Community. We continue to focus on growing our user base across all geographies, including relatively less-penetrated, large markets such as Brazil, Germany, India, Japan, Russia, and South Korea. We intend to grow our user base by continuing our marketing and user acquisition efforts and enhancing our products, including mobile apps, in order to make Facebook more accessible and useful. • Build Great Social Products to Increase Engagement. We prioritize product development investments that we believe will create engaging interactions between our users, developers, and advertisers on Facebook, across the web, and on mobile devices. We continue to invest significantly in improving our core products such as News Feed, Photos, and Groups, developing new products such as Timeline and Ticker, and enabling new Platform apps and website integrations. • Provide Users with the Most Compelling Experience. Facebook users are sharing and receiving more information across a broader range of devices. To provide the most compelling user experience, we continue to develop products and technologies focused on optimizing our social distribution channels to deliver the most useful content to each user by analyzing and organizing vast amounts of information in real time. • Build Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile products and experiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Facebook experience on mobile devices and make Facebook available to more people around the world. We believe that mobile usage is critical to maintaining user growth and engagement over the long term. • Enable Developers to Build Great Social Products Using the Facebook Platform. The success of our Platform developers and the vibrancy of our Platform ecosystem are key to increasing user engagement. We continue to invest in tools and APIs that enhance the ability of Platform developers to deliver products that are more social and personalized and better engage users...

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