Tuesday, December 16, 2014

It’s Beginning to Look a Lot Like…

Each year, I look forward to two significant commercial events:  the ads during the Super Bowl and the December November October roll-out of things to buy for Christmas. With the Super Bowl ads, it isn’t about the products, but about the presentation. My Christmas thing is about the gadgets.

I don’t necessarily buy them–I give gift cards–but they are fun to look at. Back in the day, this meant marveling over the Mattel® Vacuform™ machine or Chatty Cathy™ doll, an 8-track tape player, or a color TV. Today, it means personal drones, surround-sound chairs, and robots that do everything but clean the dog kennel (which really should be at the top of someone’s development “to do” list).  

For those on your gift list not satisfied with their smartphone camera, there is the Jaunt VR Camera boasting 28 cameras mounted around the perimeter and on the top and bottom of a spaceship-like contraption.  Although it isn’t yet publicly advertised for sale (price is unknown), Wired magazine included it in its list of "15 Futuristic Gifts for the Super-Early Adopter".  For the more price-conscious shopper, there are high definition video recording sunglasses such as those offered by  Lorex and Hammacher Schlemmer. The perfect way to film any activity where your hands are otherwise occupied, such as skiing, sky-diving or surfing, or for the less adventurous, to film your road trip–literally. And while you use your sunglasses to film what is in front of you, the IRIS+ quadcopter (a drone fitted with a camera) can be programmed to shoot aerial views, or film you from behind using the “Follow Me” mode. 

In keeping with one of the trending items this year–speakers/sound systems–Hammacher Schlemmmer offers the Optimal Resonance Audiophile's Speakers ($60,000) that are designed to “deliver optimal sound quality” by, among other things, eliminating the cabinet and thus the unwanted sound that comes from the vibrations of sound bouncing off the cabinet walls. They look cool, but for that price, there must be more to the technology than just the absence of cabinets. For half that price, you can buy the Immersive Audiophile Pod ($32,000)–a semi-enclosed chair with built-in speakers that lets you “feel” the music. It looks like a giant beauty shop hair dryer (think Truvy’s beauty parlor in Steel Magnolias).  Contrast this with The Tranquility Pod that looks like a dog bed inside a big egg, but in fact is a temperature controlled waterbed covered with a memory-foam cushion. This pod is designed to exclude exterior noise while the built-in sound system generates “gentle vibrations and soothing sounds” ($30,000).  

If you’re into “pods,” check out the HI-MACS® Kitchen Pod–a self-contained portable kitchen that looks like a one- or two-person plastic submarine.  It has only a sink, stovetop and a couple of drawers, so doesn’t qualify as a fully functional kitchen, but if it can be closed with dirty dishes in the sink there is some appeal.

On a more practical level, particularly for those of us whose lives are filled with electronic devices, there are the “any device” charging docks, multi-device chargers, car chargers, bike-mount chargers, chargers contained in speakers, clock radios and phone cases, and even a four-device charging paper towel holder “topped with a decorative wine stopper.”  For the person on your list who is completely electronic-dependent but still wants to commune with nature (or whose greatest fear is losing electrical power in a storm), there are portable power stations with solar panels and hand cranks. There are even portable power supplies that not only charge your phones and tablets, but jump start your car without the need of a second vehicle.

For that special person on your list who has everything else, take a look at the Choc Creator V2  (who knew there was a V1?). As the name suggests, it is a 3D chocolate printer. At about $6200, it probably isn’t for everyone–certainly not chocoholics who might be reluctant to eat their fabulous creations–but it would definitely be a conversation piece.

While these items are all interesting, I think that my favorite toy is the Rapid Beverage Chiller/Cooler, a nifty little device that will chill a can of the beverage of your choice in 60 seconds or a 12-16 ounce bottled beverage in minutes. It looks simple to operate, doesn’t take much counter space and you only need to add ice. How great is that?

As for your four-legged friends and family members, our border collie wants (in her words) “AniFetchAutomaticBallLauncherandtheGoDogGoG3FetchMachinebecausetheythrowdifferentkindsofballsdiferentdistancesatreadmillLEDcollar(pink)achipactivateddogdooranyofthetrackingdevicesthatmonitoreverythingIdoincludingthePuppyTweetstagfromMattelthatsignalsyourcomputereverytimeIdoanythingandsendsatweettomyTwitterpage.  If you would let me have a Twitter page…”  Our pit bull wants a really big box of Milk Bones, some thermal socks, and rubber caps for the border collie’s teeth.  If anyone knows where I can get the last item, let me know.

Thursday, December 11, 2014

Seed Capital reVIEW—2nd Half of 2014

We just released our Seed Capital reVIEW report analyzing seed and angel capital being raised by early-stage companies in Minnesota during the first six months of 2014. For this report, we analyzed survey responses relating to 84 separate deals completed during the first half of this year. The majority of deal investors were individual angels or angel groups. The sample encompassed a broad range of industries, with a particular concentration in the medical/healthcare, technology, and cleantech/biotechnology industries. 

A few highlights from the survey include:

A significant majority of the deals utilized the Minnesota 
   Angel Tax Credit.

Approximately 72 percent of respondents reported offerings structured using equity
   (68 percent common equity and 4 percent preferred equity), with debt securities 
    comprising the remainder.

The most frequent rights received by equity investors were:

         o Participation rights in future investment rounds.

         o In preferred equity deals, 80 percent reported a 1x liquidation preference.

         o One board seat or board observation right.

For debt-structured offerings:

        o Almost all respondents reported debt with an initial term of at least one year.

        o A majority of respondents reported receiving rights to participate in 
           future financings.

        o Almost 70 percent of debt-structured offerings were convertible 
           to company equity.

To review the complete survey, click here

We hope you enjoy the second publication of the Seed Capital reVIEW and look forward to your support as we collect data for the second half of 2014 (not long after the ball drops on 2015).

Happy capital raising!

Tuesday, December 9, 2014

Why “Here Lies Love” is Worth the Risk

I spent Thanksgiving in New York City, as I have for the last 25 years. While it is nice to see my in-laws (my wife is a native of Long Island, or is it “Lawn Geiland?”), for my kids to get a chance to spend some time with Grami and other family members, to get a peek at the Macy’s parade, and to see the tree at Rockefeller Center (not to mention taking in the best donuts at Doughnut Plant), it is also a chance to feed my musical theatre addiction.
This year, among the eight shows we saw in four days, I decided to take my daughters (ages 8 and 11) to see "Here Lies Love" at the Public Theater. This is a show I saw about 18 months ago and I liked it so much and it was so different that I just couldn’t resist the temptation to take them. Of course, it helps that they aren’t your average kids when it comes to musicals—the younger one has seen over 70 musicals and the older one more than 80!

Watching “Here Lies Love” and thinking about just how unique it is got me thinking about David Byrne, a member of the Rock and Roll Hall of Fame and one of the musical’s co-authors (the other being English DJ Fatboy Slim). “Here Lies Love” is so groundbreaking and risk-taking (more on that in a moment) that it felt like something created by a serial entrepreneur. 

Not surprisingly, I learned in my quick research that Byrne is something of a serial entrepreneur. Not only was he a founder of the Talking Heads, but, in addition to founding his own independent record label (Todo Mundo), he also founded the world music record label Luaka Bop and started his own internet radio station, Radio David Byrne. I guess having had the opportunity to work with so many serial entrepreneurs in my career served me well in being able to spot one in Byrne.  

What’s risky about “Here Lies Love” is that it doesn’t follow most musical theatre conventions. A few specifics:

  • It’s mostly club music (there’s no orchestra, just a DJ) and virtually through-sung.
  • It is rooted in the history of Imelda Marcos (no, there aren’t a lot of shoes) and Filipino politics during the rise (and fall) of the Marcos regime.
  • The entire show is staged in a Filipino night club, with the audience all being participants on the dance floor of the club.  That’s right, there are no chairs!
  • There is no fixed stage at all, just a series of platforms that move (with the audience and the performers) throughout the performance.
Of course, what really makes it such a terrific show (one that I had to see a second time before it closes in January) is a score, written by an entrepreneur, that makes you want to dance. If I’ve piqued your curiosity, take a look/listen here

Taking these risks appears to be paying off. The show extended its original run in 2013 for several months (until the theatre wasn’t available anymore because of prior commitments). It’s been playing at the Public since April, and its entire current run at the Royal National Theatre in London is sold out. Most importantly, my girls rated it as their favorite of the eight shows we saw!

Wednesday, December 3, 2014

Update on Minnesota Angel Tax Credit for 2015

As you are emerging from your Thanksgiving comas and getting ready for the busy holiday season, now is a good time for a reminder that the Minnesota Department of Employment and Economic Development (DEED) is already accepting certification applications for the 2015 Angel Tax Credit. If you follow this blog, you probably are already aware of the popularity of the Minnesota Angel Tax Credit and some of its limitations. If you aren’t a frequent reader or are new to the entrepreneurial scene in Minnesota, below are some highlights of the 2015 Angel Tax Credit program.

  • For 2015, the Minnesota legislature allocated $15 million of tax credits for eligible investments. Until Oct. 1, $7.5 million of that $15 million is reserved for businesses owned by women or minorities, or for businesses located outside of the seven county metro area. Beginning on Oct. 1, any portion of that $7.5 million that has not been allocated will be made available for all other eligible investments.
  • Before Oct. 1, only $7.5 million will be available for qualified investments made in companies that are either located in the seven county metro area or are not woman- or minority-owned. For reference, all of the $15 million that was made available in 2014 was fully allocated by early May (with most of those allocations going to businesses in the metro area). It seems likely that the $7.5 million made available for metro area companies will go well before the beginning of May. Indeed, DEED is expecting the $7.5 million of credits to be allocated by Feb. 1.
  • New for this year, “insiders” (defined to include officers, principals, 20% owners, and their family members) are not eligible to receive an angel tax credit.

If you are planning to use the Minnesota Angel Tax Credit for an investment in 2015, you should plan on becoming qualified now. Many companies are submitting applications now, and some have even delayed financings that would have been completed by now, but are being put on hold until a tax credit allocation has been received for 2015.

As a reminder, the process requires that the company be certified as a qualified business and that the investor also be certified as a qualified angel. Both of these steps require filings with DEED.  Once the company and investor are both certified, they must jointly submit a credit allocation application. Once you have received word from DEED that a tax credit has been approved for the investment, the investment can be made. The investment must be made within 60 days of receiving approval. Within 15 days of completing the investment, the company needs to file a proof of investment form together with evidence of the investment.

All of the requirements for becoming a qualified business or angel investor are listed on DEED’s website, together with links to all of the forms.

So, unless your business is located outside of the seven county metro area or is woman- or minority-owned, in addition to shopping and merriment, you should also set aside time during the holiday season for Angel Tax Credit preparations. Otherwise, you may have to wait until October.

Monday, November 24, 2014

JD, CIPP/US, CIPP/E - The Purpose of Credentials and Examinations?

Last week I passed an examination on European privacy that entitles me to add CIPP/E after my name.

So what?

When I took the Minnesota bar exam in 1985, failing was not an option. The exam took two days and was intended to determine whether or not I was qualified to practice law. The J.D. (Juris Doctor) degree lets the world know that I graduated from law school and attained a professional doctorate in law. Yes, I graduated with a J.D. from the University of Minnesota law school and passed the bar exam.  I have enjoyed almost 30 years of a very fulfilling legal practice where no more examinations or credentials were required for me to counsel clients in my chosen practice areas of intellectual property law, information technology law, e-commerce and internet law, and data privacy and security laws and regulations. 

So what prompted me to spend many weekends and evenings studying for and taking the examinations necessary to become a Certified Information Privacy Professional (CIPP)? Did I really want to subject myself to the same stress and anxiety I experienced in 1985? Or in 2012 when I took the CIPP/US examination

For the CIPP/E exam, I was ensconced alone in a tiny room in a nondescript St. Paul office building with nothing but the computer terminal and a proctor to make sure that I was indeed Michael R. Cohen and that I would have absolutely no help in completing the exam. Upon answering the last question and hitting the submit key, I learned immediately that I had passed the CIPP/E exam. Instant gratification.

What is the big deal about obtaining a CIPP/US and CIPP/E ?

The CIPP is the global standard in privacy certification. Developed and launched by the International Association of Privacy Professionals (IAPP) with leading subject matter experts, it is the world’s first broad-based global privacy and data protection credentialing program. The CIPP/US demonstrates a strong foundation in U.S. private-sector privacy laws and regulations and understanding of the legal requirements for the responsible transfer of sensitive personal data to/from the United States, the European Union, and other jurisdictions. 

The CIPP/E is the first professional credential specific to European data protection professionals that is part of a comprehensive, principles-based framework and knowledge base in information privacy. The CIPP/E encompasses pan-European and national data protection laws, the European model for privacy enforcement, key privacy terminology, and practical concepts concerning the protection of personal data and trans-border data flows. 

By reviewing the extensive IAPP course materials, I confirmed what I already knew and filled in gaps as necessary. To pass these CIPP examinations, you must know a lot about data privacy and security law. And with our global economy and expanded use of e-commerce and the internet, few businesses today can safely say that they only need to be concerned about privacy laws in the United States. To me, the knowledge gained through preparation for the CIPP/E exam was equally as important as what I learned preparing for the CIPP/US. 

With confidence, I can now help my clients successfully navigate their business through our global data-driven global economy.  I can now help organizations manage rapidly evolving privacy threats and mitigate the potential loss and misuse of information. And I am not finished learning. I continue to monitor developments in privacy law daily to make sure I know what is happening and that my clients are getting the most current advice relative to this ever-changing legal landscape.

So you tell me–are you in compliance with all federal, state, and global privacy laws and regulations? Ready for changes in the EU directive relative to the collection and use of personal information? In compliance with the European “right to be forgotten” and the California eraser law (effective January 1, 2015)? Prepared for the onerous penalties for noncompliance with the new Canadian anti-spam law?  Do you have a plan in place for when a data breach occurs?

If you do not yet have a plan in place for dealing with a data breach or don’t know whether you are in compliance with data privacy and security laws, you may want to consult your favorite lawyer. It should be comforting if you see them wearing a little gold CIPP pin on their lapel.

Michael R. Cohen

Monday, November 17, 2014

How Does Moving Impact Your Financial and Estate Plan Health?

I'm moving. So moving (and packing, hauling, and unpacking) is on my mind. It occurred to me that many clients have questions about what moving means for their financial and estate plans. 

In the context of your estate plan, there are a few things to consider if you are moving. If you are moving to another state within the United States, your will is likely valid in that new state as long as it was validly executed in the initial state. This means that if you executed a will in Illinois that complied with all Illinois requirements, it is most likely still valid in Minnesota.

That being said, it is still important to consider the meaning of that will in the context of the laws of your new state. Your new state may have different estate tax laws, and therefore your plan may not be the most efficient under the laws of your new state. Your new state may subject your property to community property laws, so your estate plan may no longer be appropriate. Your current health care directives and powers of attorney may require a legal opinion before they are respected in the new state. Because these documents apply when you are alive, but incapacitated, waiting for a legal opinion may waste valuable time. Updating these documents upon moving to a new state is a good first step.

If you are moving to another country, there are a number of things in your financial and estate plans that probably need review and changes. First, the requirements for executing a will and other documents may be dramatically different.  For example, in Germany, many legal documents have to be executed in the presence of a notary public—who receives a percentage of your transaction cost as a fee, and has to read the legal document in a very loud voice before you execute it. Additionally, some countries have required heirship rules, especially for real property, so it may or may not be possible to transfer certain property to certain beneficiaries. Finally, it is important to understand the taxing impact the new country makes and whether you would be subject to that country’s estate tax system instead of, or along with, the United States.

Any move should trigger a review of your financial and estate plan health. Make sure you investigate the impact of your move, and ensure that all of the careful planning you have in place still works the way you intended.

Thursday, November 6, 2014

Highlights of the New Minnesota LLC Act

A new LLC Act is coming to Minnesota. In early 2014, Governor Dayton signed a modified version of the Revised Uniform Limited Liability Act, sometimes called RULLCA, into law as Chapter 322C of the Minnesota Statutes. Since it was promulgated by the Uniform Law Commission in 2006, RULLCA has been adopted in 10 states, including California, Florida, and New Jersey, and is continuing to gain acceptance.  

Why in Minnesota? Minnesota’s current LLC Act, Chapter 322B, mirrors the Minnesota Business Corporation Act, Chapter 302A, and takes a very corporate approach to LLC governance. This is at odds with nearly every other LLC Act in the U.S., so attorneys for non-Minnesota parties typically advocate using the Delaware LLC Act. But the complexity of that law, and the potential obligation to litigate disputes in Delaware, can make it inconvenient and costly for Minnesota parties. Chapter 322C, which will replace Chapter 322B in its entirety, adopts a partnership model for LLCs, consistent with most other states’ approaches, and will hopefully reduce the need to go to Delaware.  

How is it different? Chapter 322C differs in a number of ways from Chapter 322B and RULLCA. For example, Chapter 322B’s default rules establish a corporate structure with members, a board of governors, and managers–analogous to shareholders, a board of directors, and officers–whereas Chapter 322C takes a partnership approach and permits three different types of governance structures: member-managed (default), manager-managed, and board-managed. RULLCA does not provide for a board-managed governance structure, but the concept has been maintained in Chapter 322C to support the large number of existing board-managed entities in Minnesota.  

Under Chapter 322C, an LLC’s operating agreement serves as the foundational contract among the LLC’s owners and is the agreement, whether oral, written, implied, or in any combination thereof, of all of the members of an LLC, including a sole member, concerning (i) the relations among the members as members and between the members and the LLC, (ii) the rights and duties of a person in his, her or its capacity as manager or governor, (iii) the activities of the LLC and the conduct of those activities, and (iv) the means and conditions for amending the operating agreement. Thus, it is a hybrid of two traditionally separate documents used by Chapter 322B LLCs–the bylaws and the member control agreement. Moreover, whereas a member control agreement must be in writing, the operating agreement may be an oral agreement or may be created by the course of dealing among members.  

Pursuant to Chapter 322C, unless the operating agreement provides otherwise, distributions by the LLC (before dissolution and winding up) must be made in equal shares (i.e., per capita) among members and dissociated members. Upon dissolution and winding up, any distributions of surplus are made (i) to each person owning a “transferable interest” (i.e., economic interest), in an amount equal to the value of any unreturned contributions, and (ii) in equal shares amongst members and dissociated members. There is no provision specifically addressing the allocation of profits and losses. This differs from Chapter 322B, where distributions, profits and losses must be allocated in proportion to the value of each member’s contribution(s), unless the entity’s organizational documents provide otherwise. (These differences will not affect most LLCs that address these matters in an effective agreement among the members.)    

Unless otherwise provided in an operating agreement, in a member-managed Chapter 322C LLC, each member has equal rights in the management and conduct of the LLC’s activities, i.e., voting is on a per-capita and not per-capital contribution basis. However, in a Chapter 322B LLC, unless otherwise provided in the entity’s organizational documents, members’ voting rights are in proportion to the value of each member’s contribution(s). Finally, whereas Chapter 322B provides statutory dissenters’ rights, Chapter 322C has no statutory dissenters’ rights. Any dissenters’ rights must be contractually-based.  

When do I have to comply? Chapter 322C will become effective on Aug. 1, 2015, for all LLCs formed on or after that date. Any LLCs formed prior to Aug. 1, 2015, may elect to be governed by Chapter 322C, but any Chapter 322B LLC that has not previously elected into Chapter 322C will automatically become subject to Chapter 322C on Jan. 1, 2018.  

What can I do to prepare? For LLCs formed under Chapter 322B, the extent to which documentation may need to be revised for consistency with Chapter 322C will depend on each entity’s specific facts and circumstances. Generally speaking, documents that have been highly customized will require fewer revisions. You may want to consider (i) simplifying your articles, (ii) consolidating the substantive provisions of your existing articles of organization, bylaws, and member control agreement into a single operating agreement, and (iii) eliminating your reliance on any of the statutory defaults contained in Chapter 322B. If you are considering forming a new LLC, include a provision in your operating agreement whereby you automatically elect to be governed by Chapter 322C effective as of Aug. 1, 2015. Your attorney will be a great resource in helping you understand and work through the nuances of Chapter 322C.

You can find the full text of Chapter 322C here.