Balancing Business and Law Blog

Finding Investors and Pitching Your Idea

May 20, 2009

I attended a program this morning by Nate Silverman of Silverman Consulting LLC at Seattle Community Capital Development on the topic of how to successfully find and present to outside investors. He clearly laid out the differences between angels, angel groups, and venture capital firms and how approaches differ for each. A critical element is that each type of investor and each group is going to have different expectations and demands. It is important to do a lot of research into the groups you plan to pitch to and know their expectations going in. Another interesting factor is that some groups want your proposal and terms to be well laid out, while others, like VCs, tend to negotiate the terms later in the process.

An attendee brought up the question of non-disclosure agreements and Nate confirmed that generally these groups are not going to sign an NDA until later in the process. It is important that you pitch the concept without disclosing the key intellectual property behind it. The fact that you've invented a better mousetrap and can show the pro forma financials behind why the better mousetrap is a money maker is usually sufficient to get you in the door if the idea is compelling enough. How the mousetrap works should not be part of initial pitches and conversations.

From a legal standpoint, regardless of the type of investor, be it a friend or family member, an angel, an angel group or a VC, when you are offering equity ownership in your company in exchange for cash, you are selling "stock" in your company and your actions are subject to the Federal and State securities laws. You must understand the requisite requirements for compliance with these laws and cautiously move forward with a private placement/offering to accredited investors with clear documentation of the offering. These transactions are very specific to the individual offering so it's important to have an attorney, CPA, and experienced business advisor on board to help you ensure compliance.

Role of Apologies in Settlements

May 10, 2009

I recently read a statistic that piqued my interest regarding the role of apologies in settlement discussions. The figure came from an article entitled "Navigating Apologies with Clients" by Jamila Johnson in the DeNovo publication of the Washington State Bar Association's Young Lawyer Division. The article discusses the difference between a "full apology" and a "partial apology which is simply a statement of "I'm sorry." A study conducted by Professor Jennifer Robbennolt in 2002 at Missouri University found that in settlement discussions, where no apology was given, 53% of the participants accepted a settlement while 73% of participants accepted a settlement with a full apology and only 35% accepted the settlement with a partial apology.

We tend to be extremely cautious with respect to apologies because of the fear that the apology will suggest liability and be held against them in litigation proceedings. Washington State does not allow statements made as part of settlement discussions to be admissible in proceedings under Rule 408. Similarly, RCW 5.66.010 protects statements or gestures expressing sympathy from admissibility in civil proceedings. However, if the statement is demonstrative of fault, it may be admissible.

Although we must be careful as to how such statements are communicated, there is a way to apologize to the harmed party without exposure to liability. Not only will such an apology be respectful to the party and create goodwill for you, it also might put money back in your pocket by settling claims quickly and at a lower cost.

Proposed New Seller's Permit Program

May 07, 2009

SB 6173 is currently being considered in the Washington State Legislature. It changes the current Resale Certificate Program to a Seller's Permit Program beginning January 1, 2010 with a goal of increasing sales tax compliance. The bill requires each reselling business to apply for the seller's permit with Dept. of Revenue and receive eligibilty for use within 60 days of application. It also forces the resellers to pay the sales tax upfront and then seek a rebate or refund when filing taxes. The bill also increases penalties for non-compliance with a purpose of helping to balance the state's budget. The implications to many small businesses, especially manufacturers, is that it will increase costs to businesses by about 10%, the accounting systems required to maintain this program will be difficult and costly to implement, current contractal relationships will be modified and made more complex, and more mistakes by businesses learning the new system will likely occur, resulting in increased penalties. The Dept of Revenue or legislature could implement more efficient and effective mechanisms for enforcement of the current program instead of creating a new program adding complexity and cost to businesses. For more information on SB 6173, click here.

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