You can raise your own funding the crowdfunding way now

Wefunder, a crowdfunding platform*, announced Our crowdfunding round:

So, we ate our own dog food. Using current state “blue sky” laws (which prohibited advertising), we raised $533,800 from 58 investors in amounts ranging from $100 to $100,000. Half of these investors were un-accredited.

It’s still not legal to use a crowdfunding platform in the U.S.  So how did they do it?  Wefunder shows you in How To Legally Crowd Invest…. Now.  A summary:

• Only up to 35 un-accredited investors may invest.
  To remain in compliance with the law, the total number of unaccredited investors – across all states – can not exceed 35. But, with the exception of investors in Massachusetts, the start-up can raise from an unlimited number accredited investors (in CA and NY).

• Investors must be a resident of CA, NY, and MA.
  These states have “blue sky” laws that allow un-accredited investors to invest, without requiring a costly investment prospectus (a few other states have laws that may possibly work, but you’d have to confirm with your lawyer).

• No advertising or general solicitation is allowed.
  You can’t broadcast your offering to the world. You can’t post your deals on Facebook, Twitter, get mentioned in the press, put out an ad, etc.

• Companies must comply with various State laws.
  CA and NY require filing a notice and paying a small fee. MA has no filing or fee, but has different compliance issues.

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Cracks in the Patent Wall

Patents have been broken for 30 years since the rise of software and the improper extension of patent law to the digital domain.  The dysfunction has accelerated with the rise of the Internet and mobile access that make the digital realm a fundamental part of modern life.

The large  incumbent tech companies have been so bureaucratized that they’ve integrated IP in their operations, much like companies in other countries think nothing of paying bribes or playing whatever regulatory, legal, or illegal games are part of the cost of doing business.   Patents are amassed by the thousands and deployed like troops in offensive and defensive formations as a strategic weapon against hostile or encroaching enemies. Companies continue to form to buy patents or outsource their management and prosecution.

And so the status quo has continued, while lone wolfs like the EFF howl in protest. Renegade billionaire Marc Cuban says your company’s largest risk is that you WILL get sued and not once but by dozens or a hundred lawsuits.

This permissive business-as-usual attitude is changing. Startups are starting to adopt ‘patent hacks‘ that give individual inventors certain rights.  The goal is to share and use patents purely for defensive purposes so that companies can compete without the overhang of legal action.

If you’re an entrepreneur I urge to incorporate these patent provisions in your IP docs.

Twitter has signed on to this practice. VCs are jumping on board as well.  So perhaps this is a growing trend and not a brief fad. There is hope yet that a  tech industry that finally united to kill SOPA and push the JOBS Act can continue to work together to contain, if not reform, an innovation-stifling part of the legal system.

Protect innovation and your online rights

It’s that time of the year again. Because once more, on virtually an annual basis, big media lobbyists have succeeded in getting Congress to fast track legislation to turn the government into their personal cops. Apparently they didn’t get the memo that Occupy Wall Street pertains to all corporate overlords, not just banks.

The Senate bill is called Protect IP. In the House it’s E-Parasites. Of course it’s big business’s IP that they seek to protect and the parasites are them for transforming your friendly neighborhood ISP into their direct attack dog.

Once more they overreach in the name of online piracy, which is getting old. This legislation chills innovation, compromises online security, and strips consumer rights. It was written with no input from the technology industry or consumer advocates.

Please take direct action now. Tell your representatives in Congress to keep their slimy hands off your Internet through the EFF Action site.

Free legal documents for startups

I’ve been publishing sites with free legal documents for startups at DallasBlue Entrepreneurs.  These have been compiled below. A current list of these docs will be kept here.

These documents are an excellent resource for entrepreneurs to familiarize themselves with what to expect in starting a company and seeking funding.

There is an imbalance in power between entrepreneurs with no money and investors with millions or even billions of dollars.  It’s resulted in agreements with complex terms that give investors great power in the relationship and generate huge legal fees that average $50,000 per funding round.

These documents are typically written to simplify agreements, slash fees, and protect founders.

Note that we are not attorneys and are not providing legal advice. These documents should be used with caution and in consultation with your own legal counsel.

TechStars

Model Seed Funding Documents. Created by Cooley Godward Kronish, LLP. Includes Term Sheet, Restated Articles (of incorporation), Bylaws, Subscription Agreement, and Board Member Election Consent.

TheFunded Founder Institute, Adeo Ressi

Plain Preferred Term Sheet. This doc eliminates aggressive investor terms, such as participation with preferred stock, a 1x liquidation preference, and single trigger vesting acceleration on acquisition.

Wilson Sonsini Goodrich & Rosati

Term Sheet Generator. Generate a venture financing term sheet through an interactive questionnaire. It also has an informational component, with basic tutorials and annotations on financing terms.