Thursday, April 10, 2014

Minnesota Cup Begins 10th Season

As a friendly notice to all of our aspiring entrepreneur readers, the Minnesota Cup recently kicked off its tenth season. If you don’t know, the Minnesota Cup is a statewide business plan competition for entrepreneurs and small business owners. Gray Plant Mooty has been a long-time sponsor of the Minnesota Cup (and the high tech division). We have posted about the competition many times over the past few years, including herehere and here.  

The Minnesota Cup added a new division to its format this year (food/beverage/agriculture) to go along with the other six division categories from last year – energy/clean tech/water, general, high tech, life science/health IT, social and student. Each division will produce one winner, who then will compete for the overall grand prize awarded on September 10th (hopefully after a nice warm summer to reward us all for the Polar Vortexes we endured this winter). Each division finalist and runner-up will be awarded cash prizes, and the grand prize winner will receive $50,000 in seed money. You can visit the Minnesota Cup's website for additional details and information about the competition.

In addition to the prize money awarded to winners of the competition, there are many good reasons for entering the Minnesota Cup. 

Participants will have access to several programs throughout the year regarding various areas of business development (marketing, raising capital, accounting, legal, etc.).  

There are many good opportunities in the program to network with other entrepreneurs and those who serve the entrepreneurial community (investors, advisors, lawyers, accountants, etc.).  

Semi-finalists are also assigned mentors who can help with the development of their business plan. Just participating in the Minnesota Cup will create great impetus for you to refine your business plan and move to the next phase of development.

The fact that finalists from the last 5 years have raised nearly $75 million in financing is one measure of the impact that the Minnesota Cup has had on its participants. 

Best of luck to this year’s participants, especially those who are regular readers of entreVIEW!

Tuesday, April 8, 2014

What: Julie Zauzmer, Conning Harvard: Adam Wheeler, the Con Artist Who Faked His Way into the Ivy League (Guilford, Connecticut: Lyons Press, 2012)

Why: A fascinating cautionary tale of overweening ambition that trumps honesty and fair play.
  
Full disclosure: Although for a while I was in the running, I ultimately failed to gain admission to the Harvard class of ’79, and so in the back of my mind there’s always been the nagging question of what more I could have done to push my application across the finish line at the Neon H. I ended up at what by anyone’s standards are good schools (Carleton CollegeStanford Law School and Oxford University), so it isn’t a case of wondering what went wrong with my life, but what was it about me that Harvard didn’t like?

Fast forward almost 40 years.  I’m browsing in the library stacks on a Saturday afternoon and Conning Harvard catches my eye. I flip the book open and read the first sentence: “It is hard to get into Harvard nowadays.”  This appeals to my acquired English sense of understatement. I check the book out. It turns out to be a fascinating story.

20th-century fascist dictator (think mustache) once said, “If you tell a big enough lie and tell it frequently enough, it will be believed.” The subject of Conning Harvard, a kid named Adam Wheeler, really took this to heart. A public school kid from Delaware, he initially focuses on venerable Bowdoin College in Maine, which does not require SAT scores for admission. He acquires a copy of a compilation of successful college application essays, and, instead of using them as inspiration for his own essay, simply lifts an entire essay, changing a few details here and there. Presto! Next stop Bowdoin!

The technique worked so well in gaining admission that he starts to plagiarize, not always well or skillfully, other people’s work in his classes. Sooner or later a professor gets suspicious, but by that time Wheeler has successfully transferred to Harvard as a result of an application that contains fake recommendations, altered transcripts, and plagiarized essays. His cheating escalates, and he wins prestigious awards based on the superior but little-known work of others.  Finally, on the cusp of obtaining Harvard’s endorsement for the Rhodes Scholarship, everything unravels (and even then, he is in the process of transferring to Stanford). At the end of the book, Wheeler has been prosecuted for defrauding Harvard, and has just violated the terms of his parole by submitting another doctored resume for—of all things—an unpaid internship.

This is clearly a smart, resourceful kid. Unfortunately, we are left with no clue as to what motivated him, but by the end the wheels have definitely come off. In any event, his story presents a cautionary tale for those who aim for big things but are unwilling to pay their dues or play by the rules. Is it so difficult to imagine this guy as a midlevel executive at Enron, or the founder of a technology company hell-bent on exiting at the top? 

Wednesday, April 2, 2014

Lessons Entrepreneurs Can Learn From Comedians

I haven’t gone to a comedy club in at least five years, but that changed this past weekend. I went to the Acme Comedy Club in the North Loop and over the course of 90 minutes watched four different comedians perform. 

As I was thinking about what I should write about for this blog post, it came to me: What can entrepreneurs learn from comedians? As one of the comedians noted, most people’s greatest fear is public speaking—and what do comedians do for a living? They speak in front of a group of strangers, and even worse, they try to make them laugh. Some would rather walk barefoot on hot burning coal, eat a live millipede, or sky dive before they would speak in front of a group of strangers. So, there must be something we (entrepreneurs) can learn from comedians…right?

Here are a few lessons entrepreneurs can learn from comedians:

1. Be bold. Comedians must go big or go home. They must own their jokes and deliver them without hesitation. Entrepreneurs must be the same way about their businesses. Live and breathe your business. If you don’t believe and put everything you have into your business, no one else will.

2. Practice your pitch. Comedians practice their jokes several times over. They practice delivering them in front of friends, other comedians, and audiences until they have perfected the timing, tone, and delivery of the joke. It’s important for entrepreneurs to perfect their pitch as well. Deliver your story in a simple and confident manner. Know the ins and outs of your company and be prepared to answer any question.

3. If something doesn’t go over well, acknowledge it and move on. If a joke doesn’t go over well, comedians acknowledge that fact to the crowd (avoiding the awkward silence in the room) and move on to another joke. Similarly, if a product or service isn’t received well in the market, identify the issue and fix it. There’s no benefit to you or your investors denying its existence. 

4. When something does go well, milk it for all its worth. You may not think that catheters are a humorous topic, but one comedian I saw last weekend literally spent over ten minutes on catheter jokes. The first couple of catheter jokes were a hit with the audience and he just kept going, until he ran out of catheter-related jokes. As an entrepreneur, if your product or service takes off, figure out how you can capitalize on that success.

5. Be thankful. After performing, comedians always thank the audience. Similarly, entrepreneurs must value their customers. If you don’t have customers, you don’t have a business. Listen to and appreciate the people that keep your business alive.

Wednesday, March 26, 2014

Details on Amendments to the Minnesota Angel Tax Credit

Regular readers of entreVIEW are no doubt aware that the Minnesota Angel Tax Credit, a frequent topic of interest here, ran out of funds a few weeks ago. The $12.2 million available for issuance had been used up by early March, as predicted in a prior post.  

You’re probably aware that Governor Dayton just signed a tax relief bill passed by the legislature last week. I’d like to think that the reason for bipartisan action on tax relief so early in the session is because of all the contacts made by entreVIEW readers who were encouraged by my prior post to contact their legislators to support the Angel Tax Credit. (I’m sure it didn’t have anything to do with political wrangling in an election year.)

The good news, as you may know if you’ve been reading the Business Journal, is that, buried in the tax relief measure’s 50-plus pages, an additional $3 million of Angel Tax Credit funding was allocated for this year. According to the article, the Minnesota Department of Economic Development will begin accepting applications for this year’s additional funds on March 31st, and expects to have all funds allocated by May 11th.  Obviously, this won’t fully satisfy the demand for this year, but it may help those who just missed the funding cutoff earlier this year. 

Also, the legislation extends the angel tax credit program through 2016, with $15 million in credits available for each of 2015 and 2016. If the past is any guide, this amount is likely to be far less than the demand (as $15 million in total credits will probably be allocated this year by mid-May), but it is better than nothing and is evidence that the legislature is beginning to view the angel tax credit as an important factor for Minnesota start-ups trying to raise capital.

There were other changes made to the Angel Tax Credit in the new law, a few of them notable:

Of the $15 million allocation in 2015 and 2016, $7,500,000 will be reserved (until October 1 of each year) for allocation to qualified greater Minnesota, minority, or women-owned businesses.

An investor who is an officer or principal of the qualified business or who owns or controls 20% or more of the voting power or shares of such business will no longer be eligible for credit on investments made in that business.

The three-year holding period for investments won’t apply to a qualified investor who dies before the end of the three-year period.

Fortunately I haven’t had any clients or contacts who would have benefitted from the third bullet above, but I do know several who would have been impacted by the first two bullets.

I’m glad to see the program survive because it has helped facilitate the raising of angel capital. We’ll have to wait and see how these other modifications affect the program over the next couple of years.

Given past activity, more posts on the Angel Tax Credit this year are inevitable. We can only hope the weather will warm up before we’ve got something more to write…. 

Monday, March 24, 2014

HOW MUCH ARE YOU WILLING TO PAY FOR PRIVACY?

How much are you willing to pay for personal privacy? 50₵ off a McDonald’s hamburger? 20% off groceries? Participation in the $1 Billion NCAA Tournament Bracket Challenge?

As users of Facebook, we exchange our personal details in order to connect with anyone and everyone. We sell our privacy to the supermarket when we allow loyalty programs to track purchases and reward us with frozen vegetables and gasoline discounts. We relinquish our privacy to airlines when we download their app to our smartphone to get more efficient service and better information. We disclose personal financial information to Quicken for a chance to win $1 billion in a NCAA basketball pool.  

While we have become used to the idea of giving up a certain amount of privacy in exchange for a service or discount do we really understand what that means? How much does our personal privacy mean to us?

Earlier this month, the issues surrounding data privacy and security were discussed and debated at the Global Privacy Summit in Washington DC, sponsored by the International Association of Privacy Professionals (IAPP). [My prior post on becoming a certified privacy professional through the IAPP can be found here].  The three days at the Summit were filled with topnotch sessions covering a variety of privacy issues, including a particularly compelling talk by Julia Angwin about the cost of personal privacy. 

Following are some highlights of the Summit:

1.  The Cost of Privacy: Julia Angwin described how she spent $2,200 and countless hours trying to reclaim her privacy.

Ms. Angwin stopped using google and gmail. No longer was she going to have her gmail scanned with selected information offered to advertisers. She unfriended her friends on Facebook, started using DuckDuck Go, a privacy protecting search engine, purchased the OFF Pocket, a cellphone case that blocks signals to and from the phone, subscribed to Trusted ID – a company that promised to opt her out from large data brokers, added a privacy filter to shield her laptop screen from voyeurs in the coffee shop, and purchased other privacy related services. Her efforts and the price paid for enhanced privacy are detailed in her recent New York Times editorial, Has Privacy Become a Luxury Good? She analogized privacy to organic food. Consumers may now be willing to pay a premium for privacy and businesses would be wise to jump into this market for privacy sensitive products and services. Her book, Dragnet Nation: a Quest for Privacy, Security, and Freedom in a World of Relentless Surveillance, was also released at the Summit. 

2.  FTC Activity: Edith Ramirez, FTC Chairwoman, discussed FTC plans for the development of guidelines for data de-identification, the upcoming release of a FTC report on data brokers, and the need for new federal data security legislation. She supports stronger rulemaking authority and enforcement capabilities for the FTC relative to data security with more FTC efforts to come in mobile location tracking issues. 

Ramirez also appeared with officials from the U.S Department of Commerce, Canada, and the European Union to announce efforts to help businesses ensure compliance with global data privacy rules. This was clearly in response to EU criticism of the Safe Harbor approach that has allowed US businesses to self certify compliance with EU privacy regulations. Ms. Ramirez pointed out that the FTC has recently brought 13 actions under the Safe Harbor.

3. EU Data Protection: Data protection regulators from the UK, France, and the Netherlands discussed the intense debate going on in the EU over the potential overhaul of the entire data protection regime. One of the key elements of the overhaul is a “one stop shop” approach that would allow multinational companies to deal with one data protection regulator rather than multiple regulators in each member state. 

4. Privacy at the NSA Rebecca Richards, the newly appointed and first ever Civil Liberties and Privacy Officer (CLPO) at the National Security Agency (NSA), made her first public appearance at the Summit. Her job is to provide expert advice to the Director of the NSA and oversight of NSA’s civil liberties and privacy related activities. Her appointment was one of the reforms specifically called upon by President Obama. Ms. Richards identified the enormous challenge she faces of being the voice of privacy and supporting an agency with national security issues at stake.  

5. Digital Medicine: George Savage, the Chief Medical Officer of Proteus Digital Health, demonstrated his latest innovation- an ingestible smart micro sensor. The size of a grain of sand, the sensor is co-formulated with a pharmaceutical product.  When swallowed, it emits a signal like a digital heartbeat that is detected by band-aid like patch monitor worn by the patient. The patch tracks the heart rate, sleep pattern, and other activities of the patient. Dr. Savage ingested the micro-sensor and as he spoke we watched as the data was transmitted in real time through his smartphone to a colorful display on a television screen. While this tracking capability holds enormous potential benefits for healthcare research and medical treatment it also raises significant privacy issues.

So how much do we value privacy? Can the free market save us and give us choices that protect our personal information and privacy? Will government step in with more regulations? Will we follow the European model and make personal privacy a human right?

Stay tuned as the discussion and debate promises to become even more amplified and interesting. 

And, watch out for the drones!

Tuesday, March 18, 2014

Phillip Seymour Hoffman’s Last Wishes—I Want My Son to be Raised as a New Yorker

Phillip Seymour Hoffman’s life tragically ended far too soon for movie fans, and I’m sure for his three children as well.  His will left his reported $35.0 million fortune to his long-time girlfriend, and if she did not survive him or disclaimed any amount, to his 10 year-old son, Cooper. The couple had another two children after Cooper, but they were not specifically mentioned in the will since it was prepared shortly after Cooper was born and never updated.  Even though his lack of planning—and likely large tax bill (over $15.0 million)—are both very interesting, it is Cooper’s trust and directions regarding is upbringing that warrant this blog post.

Hoffman’s will specifically leaves instructions for where Cooper should live.  Cooper’s trust will own Hoffman’s New York apartment, and provides for Cooper to live there. Later in the document, when discussing a guardian for Cooper, Hoffman states:

“it is my strong desire…that my son, COOPER HOFFMAN, be raised and reside in or near the borough of Manhattan in the State of New York, or Chicago, Illinois, or San Francisco, California, and if my guardian cannot reside in those cities, then it is my strong desire, and not direction, that my son, COOPER HOFFMAN, visit these cities at least twice per year throughout such guardianship. The purpose of this request is so that my son will be exposed to the culture, arts, and architecture that such cities offer.”

Such provisions of direction are not necessarily legally enforceable, but they can be persuasive to the recipient and, in some cases, a court.  

I have assisted clients in giving such informal direction (essentially, making known their “hopes and desires”) when it comes to the management of assets or the raising of children, but not necessarily in this way.    Often clients include provisions like this when they want the trustees to hold on to a specific asset (so as, for example, to enable the children to continue to use a family vacation home), and I have even had clients spell out appropriate school districts for their children in a separate letter to a guardian.

This provision is interesting mostly because Phillip Seymour Hoffman crafted it, but it is also a reminder about what belongs in and out of a will.  This will was written ten years ago, and he may feel dramatically different today.  Further, this direction is very specific, making compliance potentially difficult for both the guardian and Cooper.  Hoffman lived in New York and owned an apartment there, but seemed to have no connections or real estate in either Chicago or San Francisco.

If you have specific hopes for your children or the assets they will inherit, you can certainly prepare something that accompanies your estate plan and gives guidance to trustees and guardians.  These writings can be very helpful to those who manage your assets or raise your children.  However, be careful with where you include this language of direction, and revisit it often as your personal and financial life changes.

Wednesday, March 12, 2014

“Private Equity and Angel Investment”

As a new author to entreVIEW, I wanted to write about a topic near and dear to the hearts (and pocketbooks) of entrepreneurs—money! While private capital raising remains tough, there has been a shift to alternative asset classes and the “private equity” landscape has been robust.  

Depending on the type of business and on the amount of money needed to begin or continue operations, equity financing may be the only capital available for your start-up. However, it doesn’t hurt to know and understand a little about private equity funds, which could be a source of later stage capital or an exit. What follows is a summary of what we mean by private equity. 

Simply put, a private equity fund is a collective investment vehicle used for making equity or debt investments. Some common attributes: 

Usually structured as Delaware limited partnerships. Under this framework, the fund is not subject to taxation on its income or gains but limited partners (“LPs”) are taxed based upon their share of the fund’s profits or losses.

Managed by a general partner (“GP”) with capital raised from institutional investors, universities, insurance companies, foundations, endowments or high net-worth individuals. 

Key economic incentives for the GP are the management fees and the carried interest, which is a share of the profits of the fund’s investments (typically 20%), usually with some minimum rate of return (typically 8-12%) before the GP shares in the success.  

The key economic incentive for an LP is the opportunity to earn a high rate of return on their invested capital through access to a diverse portfolio of investments that are made by experts. 

As with so many things, there are a host of regulations that apply to these funds, including the Investment Company Act of 1940 and possible registration under the Securities Act of 1933, if there isn’t an available exemption like Regulation D, which is often available in offerings to accredited investors.

Investing in private equity funds allows groups of sophisticated investors to pool their resources to mitigate the customary risks associated with investing while attempting to maximize the synergy created by the collective “thought equity” of the LPs. These investors are known as “angel investors.” Angel investors are accredited investors who invest in businesses in exchange for convertible debt or an ownership stake in the business. These individuals or institutional investors conduct their own due diligence and make their own determinations about individual investments (like the “Sharks” on “Shark Tank,” without millions of people watching).  Like “Shark Tank,” angel investors will often make investment decisions based upon a personal interest in the business or the entrepreneur. 

Of course, nobody should take money from angel investors without their eyes wide open about the potential perils. Alignment of interests between the entrepreneur and the angel is critical (e.g., what type of exit in what timeframe?). For this reason, remember that raising angel capital can be like getting married. Make sure that each side has done their due diligence so their eyes are wide open to problems (like whether to leave the toilet seat up) and defined their rights and obligations (sort of like a pre-nuptial agreement) to ensure that everyone is on the same page. At the risk of sounding self-serving, getting your lawyer involved early in the dialogue is a good idea.

Taking on the right angel investors can actually have many positives in addition to securing capital needed to build your business. The ideal angel investor will be someone who has experienced success before (and has not just been born with a Silver Spoon) and who brings contacts and relevant expertise. With interests aligned between investor and entrepreneur, all parties should have the incentive to see the business succeed.