Despite All the Madness, There’s Calm at the Top

Sunday, March 14 was Selection Sunday — the day when the 68 teams playing in the men’s NCAA March Madness basketball tournament are announced. Thirty-two athletic conferences offer basketball, and the winner of each conference tournament gets an automatic bid to the March Madness tournament (the Ivy League cancelled its basketball season due to the COVID-19 pandemic, so only 31 conferences are represented this year). The remaining spots are filled by a selection committee based on multiple criteria.

After the announcement, there is continual analysis from basketball pundits down to everyday people as they work to speculate on the outcome of each tournament game and complete a tournament bracket. With so many teams and conferences participating, it would seem like there would be some variety each year regarding who wins. The reality is that despite the upsets and Cinderella stories, there are a few established powers that take the lion’s share of success.

In this year’s tournament, although there are 31 conferences represented, six conferences (Big Ten, Atlantic Coast, Big 12, Southeastern, Pac-12, Big East) are sending 38 teams. Furthermore, the history of the tournament indicates the same disparity continues throughout each round. There have been 80 tournament champions, and of those champions, a team from the six conferences mentioned above has won the tournament 69 times.

Some People Try to Find Love by Casting a Wide Net; Dating Apps Use the Same Strategy to Get Your Business

Many people recently celebrated Valentine’s Day with that special someone. Others celebrated Singles Awareness Day on February 15. And, although only a few days have passed since Valentine’s Day, it’s very likely there are some recently single folks out there who were not single on February 14. For those single people, after you’ve had a good dose of some classic country heartbreak hits (try Hank Williams – “I’m So Lonesome I Could Cry” or Miranda Lambert – “Kerosene”) to see you through these bleak times, take heart and read on. This article is here to help you understand the lay of the land for dating apps, so you’ll be ready for February 14, 2022.

Numerous iconic brands that surround us on a daily basis are owned by a relatively small number of large conglomerates. The auto industry is a great example. Alfa Romeo, Chrysler, Dodge, Fiat, Jeep and Maserati are just some of the brands owned by Stellantis N.V. Volkswagen AG owns Audi, Bentley, Bugatti, Lamborghini, Porsche and Volkswagen, to name a few. There are large players with huge brand portfolios that dominate the alcohol industry. ABInBev’s massive list of brands includes Goose Island, Michelob and Modelo. The consumer goods industry is no different. Brands that Proctor & Gamble has an ownership interest in include Charmin, Febreze and Tide. Unilever plc counts Dove, Lipton and Ben & Jerry’s as some of the recognizable names under its roof.

Just as these automobile, alcohol and consumer goods conglomerates have a wide spectrum of offerings, so do dating apps. Dating apps have been designed to be inclusive and cover a wide swath of users’ backgrounds. As parent companies acquire dating apps for their brand ownership portfolios, they increase their reach and are able to capture more users. As seen in the examples below, many of the commonly known dating apps are just one of many in a portfolio owned by a parent company. However, there are some key players that are notable exceptions to having a portfolio of many brands. One such exception is Bumble, which was listed on the Nasdaq exchange on February 11, 2021 and was valued at $13 billion.

The Corporate Transparency Act: A New Federal Reporting Requirement for Businesses

Warning: This post is pretty lawyerly, and certainly more technical than is the case for most entreVIEW content, but we thought the potential implications of this new law were worth detailing.

As businesses prepare for the year ahead, that planning should include analysis of compliance with the Corporate Transparency Act (CTA). The coverage of the CTA is very broad and requires certain business entities to submit a report to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Although there are exemptions, those exemptions essentially apply to entities that already have fairly extensive reporting requirements (i.e., banks or large companies), which means that smaller companies not currently subject to such reporting requirements will likely need to comply with submitting the reports. Although the CTA recently became law, FinCEN must issue regulations to implement the new ownership reporting requirements within one year (by December 31, 2021).

I. Main Rule

The main CTA reporting provision requires each applicant forming a corporation, limited liability company or similar entity to file a report with FinCEN containing a list of the beneficial owners of the corporation, limited liability company or similar entity that identifies each beneficial owner by:

1. full legal name;
2. date of birth;
3. current residential or business street address; and
4. a unique identifying number from a non-expired passport issued by the United States, a
        non-expired personal identification card or a non-expired driver’s license issued by a State.

Furthermore, if the applicant is not a beneficial owner, the report must also provide the identification information described above relating to such applicant.

II. Definitions

The following are some of the definitions in the CTA:

applicant — any natural person who files an application to form a corporation, limited liability company or similar entity under the laws of a State or Indian Tribe.

beneficial owner — means a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise:

1. exercises substantial control over a corporation, limited liability company or similar entity;
2. owns 25 percent or more of the equity interests of a corporation, limited liability company
        or similar entity; or
3. receives substantial economic benefits from the assets of a corporation, limited liability
        company or similar entity.

III. Timing of Reports

It is anticipated FinCEN’s subsequent regulations will describe in detail the timing of reports; however, based on the CTA, businesses should be aware of the report timeframe for the following:

• Existing Entities — Any reporting company that has been formed or registered before the effective date of FinCEN’s regulations is to submit a report within two years of the effective date of such regulations.
• New Entities — Any reporting company that is formed after the effective date of FinCEN’s regulations will be required to submit a report when formed.
• Annual Reports — Not only must entities make an initial filing, but they must also make an annual filing listing the current beneficial owners and the information required in the initial report as well as any changes in beneficial owners during the previous year.

IV.  Exemptions

Not all entities must comply with the reporting requirement as the CTA provides certain exemptions. Those exemptions largely apply to companies that already face existing reporting requirements. However, just because a company meets an exemption does not mean the entity can take no action. The CTA requires an entity claiming an exemption to identify the specific exemption it is claiming, state that the entity meets the requirements for the exemption and provide identification information for the applicant or prospective officer, director or similar agent certifying the above information. There are additional clarifications for the exemptions below, but for brevity’s sake, those have been removed. As such, the listing should be used for purposes of understanding the general nature of the exemptions and not as an authoritative guide for specific requirements of each exemption.

Nobody’s Victim: Fighting Psychos, Stalkers, Pervs, and Trolls and the Fight for Privacy on the Internet

by Leeja Miller and Amanda McAllister

 Nobody’s Victim: Fighting Psychos, Stalkers, Pervs, and Trolls is part memoir, part call to arms by Carrie Goldberg, a victim’s rights lawyer whose Brooklyn law firm, C.A. Goldberg, has seen staggering growth since its founding in 2014. This is due largely to Goldberg’s larger-than-life personality and her fierce and compassionate work representing victims of cybercrime, a notoriously difficult area of law for victims to find any sort of recourse. Nobody’s Victim recounts some of the most grisly cases Goldberg has faced during her career, including her own, as a means to highlight the egregious shortcomings of our legal system’s ability to provide justice to victims of cybercrime. 

Through Goldberg’s tales of hard-fought battles, many of which were lost, the book highlights the feeling of empowerment her clients can find in legal representation, as well as the statutory, technological, and societal obstacles standing in the way of meaningful remedies. Those obstacles include the notorious Communications Decency Act § 230 (“CDA 230”), tort law’s inability to accommodate rapidly-changing tech and the abuse that comes with it, and schools, workplaces, and law enforcement that are woefully undertrained to deal with cyber and sexual abuse. Without well-trained institutions, adequate resources, and well-written laws to hold criminals accountable, victims are left to fend for themselves in a civil law landscape that shields tech companies from liability and provides little recourse against judgment-proof defendants. Despite the bleak picture she paints, Goldberg encourages us all to join the fight, and this book is a testament to the uphill battle yet to unfold.

Deepfakes, Privacy, and Deception

by Amanda McAllister and Navin Ramalingam

A “deepfake” is an ultrarealistic fake video made with artificial intelligence software. The term is a portmanteau of the concept of machine “deep learning” and the word “fake.” Essentially, it is the end-product of a computer program “learning” the map of the target subject’s face, finding common ground between two faces, and stitching one face over the other in a video editing process. 

Manipulating video is not necessarily a recent invention. Hollywood has been doing it many years, such as when film effects were used to make Joseph Gordon-Levitt look like a young Bruce Willis in the film Looper, or the digital recreation of a young Carrie Fisher on actress Ingvild Deila for the Princess Leia cameo in Rogue One. Face-morphing features are also an essential part of multimedia messaging applications like Snapchat.

While the technology may not be inherently illegal or unethical, some manifestations of deepfakes do have the potential to be illegal, to create liability, to spread misinformation, or to violate the privacy of subjects of deepfakes.

For instance, people have been using facial recognition apps and deepfake technology to superimpose faces of well-known celebrities and ordinary people over that of actors in pornographic films or over nude photos to create nonconsensual pornography. The past year has seen several deepfake consumer apps being released permitting its users to create their own deepfakes, including one disturbing app that provided its users the opportunity to create nonconsensual pornography by “undress[ing] photos of women” and making them look “realistically nude.” Fortunately, this app has since been taken down.

Circumventing Subscription Requirements Can Cost Big Bucks

By: Dean C. Eyler, Loren L. Hansen, and Molly R. Littman

You have probably been here before: A colleague tells you to check out an article on [insert your preferred news outlet here]. You click on the link or go to the news outlet’s website, but in order to read the entire article you have to subscribe to the publication or pay $0.99 to view the article. You are genuinely interested in reading the article, but the process of filling out the subscription form with your personal contact and credit card information is tedious and you are busy. So you ask your colleague to send you a copy of the article. She does. As it turns out, she received the article as part of her company’s subscription to the news outlet. You work for the same company. However, she is a part of the company’s limited subscription to the newspaper and you are not.

She has just committed copyright infringement and may be liable for up to $30,000 in statutory damages. If she sent you more than one article, she may liable for up to $30,000 for each article sent. To make matters worse, if she knew that sending the article would be a violation of the news outlet’s copyright, she may be liable for up $150,000 in statutory damages per article. Given that this was a company subscription, it’s unlikely the individual will be sued, but rather the company is likely on the hook for the damages incurred by her sending you the article. You, she, and several others at the company are now embroiled in expensive, time-consuming litigation for something that easily could have been prevented with appropriate employee training.

From 2017 to 2018 copyright infringement lawsuits increased by more than 50%. Under 17 U.S.C. § 504, a copyright registrant who prevails in a copyright infringement lawsuit may be entitled to statutory damages ranging between $750 and $30,000 for each work infringed. Statutory damages are intended to help copyright owners enforce their rights where actual damages are difficult to prove, and also to deter infringers. If the infringement was willful — with knowledge of the owner’s copyright — the range increases to $150,000. If the copyright owner prevails in litigation, it is also entitled to its costs and, in many cases, attorneys’ fees.

Tax Reform to the Rescue?

Over the last several years, entrepreneurs have learned that 409A is not just a different version of a household cleaning product but, rather, an important IRS regulation relating to deferred compensation. If you thought deferred compensation was a narrow and obvious category of compensatory arrangements, 409A helped convinced you otherwise because of its impact on simple things like granting nonqualified stock options.

If you were hoping that tax reform would simplify the issue of deferred compensation for businesses, the bill introduced by the House Ways and Means Committee on Nov. 2, 2017 may fall under the category of “be careful what you wish for.” Effective Jan. 1, 2018, the House bill would repeal Section 409A of the Internal Revenue Code, the often onerous section governing most forms of deferred compensation. Sounds like good news, right? 

Bill Aulet’s 24 Steps to Becoming an Entrepreneur

Guest author, Alice Campbell, Business Analyst at Gray Plant Mooty (and MIT Alumnus)

Last month, an outstanding group of our entrepreneurial clients, together with members and guests of the MIT Alumni Club of Minnesota, gathered at our offices for a time with Bill Aulet, Managing Director of the Martin Trust Research Center for MIT Entrepreneurship. Since 2004, Bill has taught three or four courses each year on entrepreneurship at MIT's Sloan School of Management. He is also the author of Discliplined Entrepreneurship: 24 Steps to a Successful Startup, which has been translated into 11 languages. Bill has raised over $100 million in funding for his companies and directly created hundreds of millions of dollars of market value.

Bill’s presentation provided a snapshot of how he developed the 24 steps, following which he answered questions about all kinds of entrepreneurial activities and education. The energy at the event was palpable, and the event could have easily continued late into the evening. (Sorry to any attendee who planned an evening schedule around our projected ending time, which was off by about 90 minutes!)

Some experts think that entrepreneurship can’t be taught—that it’s a skill with which some people are born. But, for over 40 years, the Massachusetts Institute of Technology has been turning out ever larger numbers of graduates who already are or will become entrepreneurs. The 25,600 companies started by the entire pool of MIT alumni have generated approximately $2 trillion in revenue and have created 3.3 million jobs. If MIT were a country, it would be the 11th largest economy in the world—just about the size of the economy of Canada (but without all the great hockey players, eh?).

If you want a few of the benefits of MIT’s classes without the >$60k per year cost, MIT is one of the founders of www.edX.org, a website at which some of the finest universities have put courses online as massive online open courses (MOOCs). MIT’s entrepreneurial courses are well-represented among the MOOCs, including:

• Entrepreneurship 101: Who is your customer? 
• Entrepreneurship 102: What can you do for your customer?

Out of the 54,856 students who took Entrepreneurship 101 online, MIT selected 47 to participate in the inaugural MITx Global Entrepreneurship Bootcamp last summer. A similar number have confirmed for this August. If you thought MIT was hard to get into for an undergraduate degree (7.9%), the competition for bootcamp was even more brutal (0.086%), or slightly more than 100 times less likely.

George R. R. Martin—the Entrepreneur Who Created “Game of Thrones”

George R. R. Martin—the Entrepreneur Who Created “Game of Thrones”
 

The Lannisters, the Night’s Watch, and the Red Wedding—does this sound familiar to you? In case you’ve been living in a cave, Season 5 of "Game of Thrones" recently premiered with the launch of HBONow and I could not wait for the season premiere this past Sunday.

 

As many of you know, the show is captivating in every respect. The music, the characters, the scenery, and the costumes—how can you not get caught up in the world of the Seven Kingdoms?! Even though “Game of Thrones” is now a world-wide phenomenon, it wasn’t an easy path for George R. R. Martin, the author of A Song of Ice and Fire, to become the success he is today.

 

Martin started his career by writing science fiction short stories and books. His fourth book, The Armageddon Rag, wasn’t a commercial success. This led Martin to seek a career in television. Martin then worked as a writer for “The Twilight Zone” and “Beauty and the Beast.” During this time, Martin continued to write movie scripts and science fiction books. In a recent interview with Barbara Walters, Martin shared that, while he received praise for several scripts he had written, producers thought the scripts were not feasible from a business perspective. If you’re an avid “Game of Thrones” viewer, you know that Martin invents intensely detailed fictional worlds that would be costly to create. Martin decided to memorialize these fictional worlds in books. This way, no one could limit his imagination or how extensively he described these fictional worlds. 

 

A few lessons to be learned from Martin’s path: 

• Determine what is essential and non-essential to your product or service. Understand what you are willing to give up for financing or greater commercial success.

• Stay true to yourself and continue to differentiate your product or service. If Martin had modified his scripts, his fictional worlds would be less unique and less likely to stand out in the saturated commercial book and television market. As they say on “Shark Tank,” is your product or service disruptive to the marketplace?

• Trust your gut and be prudent about what advice you take from others.

As “Game of Thrones” has been so successful, the series will outpace Martin’s production of the books. HBO has stated that nothing will stop the series from finishing its version of A Song of Ice and Fire. While HBO’s concern is focused on the bottom line, avid fans (like myself) care more about maintaining the authenticity of Martin’s vision.

 

It is always a challenge to balance the uniqueness of a product or service and keeping costs low. You should endeavor, like HBO, to maintaining control, authenticity, and the artistry of your product without giving up its differentiating factors due to financial constraints.

 

That’s why you know where I will be next Sunday at 8 p.m….

 

 

 

MN Cup: Second Annual Women in Entrepreneurship Conference

Last week, I attended the second annual Women in Entrepreneurship Conference hosted by the MN Cup. I found the panel on financing to be the most inspiring. There were two panelists who shared their path to fundraising with the group. Maia Haag, the co-founder and president of I See Me!, self-funded her company through bank loans and a small inheritance that she had received. Katie Jasper, the co-founder and CEO of Prescribe Nutrition, used crowdfunding (indieagogo.com) to raise $40,000. The other panelist, Chris Mahai, a partner at Aveus, shared insights into her experience within the angel investment community.

As the three panelists discussed their experience in the capital raising world, a few themes became clear:

• Be purposeful in your decision to raise funds. Make sure your company is ready for outside investors. Be certain that you have a proven concept before you take too much money from investors.
• Be tenacious. Whether you are pursuing bank financing, crowdfunding, or seed/angel investments, dive into it. Once you decide that financing is necessary, be ready to work to get others to invest. 
• Be honest with yourself and with others. Be realistic and don’t overpromise to investors, especially if they are family members. 
• Seek good advice. Find mentors that will be brutally honest with you.

Ann Winblad, the keynote speaker and the co-founder and managing director of Hummer Winblad Venture Partners, reiterated the importance of finding mentors that will support and challenge you. She noted that if you find a mentor that is going to be brutally honest with you, it’s better for them to be brutally honest in the beginning of your capital raising process. 
As you consider fundraising options, know what terms are standard for raising funds in Minnesota. Avid readers of the entreVIEW blog may know that Gray Plant Mooty’s Entrepreneurial Services Group has published two reports that analyze seed and angel capital that has been raised by Minnesota start-up and early-stage companies. Information like this can be extremely helpful to determine what terms investors expect to receive in a financing deal. Click here to review the report that covers financings in the first half of 2014.

Of course, you’re always welcome to contact your friendly, neighborhood member of the Gray Plant Mooty Entrepreneurial Services Group. We’re always glad to share our knowledge and help out however we can.  

In the meantime, happy capital raising!

To Work with Family, or to Not Work with Family?

Working with family members can be a double-edged sword. It may seem easier to start a business with family members because you already know and trust them, but if things go awry, the disputes can be even more personal and intense. Think about it–if things go bad, instead of losing a business partner, you may ruin a relationship with your sibling, cousin, or in-laws. I’ve even seen situations where siblings sue each other and children sue their parents when the business isn’t as successful as planned. Family members shouldn’t have to turn to litigation to resolve their business disputes. So, what can you do to prevent the worst from happening?

Below are a few suggestions from Andreas Scott (a financial advisor at Total Wealth Advisors, LLC) and me regarding common issues faced by family businesses. Andreas has extensive experience in advising family businesses and his goal is to help his clients create and control their total wealth picture.  

Ownership vs. Management

Ownership and management are two different functions that are often lumped together. When including family members in your business, consider if they would be more effective as an employee, a member of management, a board member, and/or an owner of the company. Each of these roles provides the family member with different responsibilities and rights to the business. For instance, if you give the family member an equity interest in the company, consider if it should be a non-voting equity interest. This would give the family member the benefit of having economic rights, but prevent the individual from having governance rights. Also, if a management transition is necessary, we recommend having open conversations with family members to discuss your future involvement in the company and how that would impact their economic and governance rights and roles within the company.

Going External

A significant decision that many successful family businesses will face is whether to bring in external management. When a family business reaches the second, third, or fourth generation, there will be differing views on whether it is appropriate to bring in professional external management or to continue to keep all management within the family. It may be beneficial to have an independent party weigh in on important decisions, but it’s important to understand the implications of bringing in external management from an estate, wealth, and ownership standpoint.

Differences in Generational Views

It may seem obvious, but the first generation and the third generation will have different views of the family business. If left unaddressed, opposing views can cause significant tension within the family. If Grandpa doesn’t believe his grandson has the same respect for the business that he does, it could cause challenges not only at the dinner table, but also when it comes time to run the business and do the estate planning. To resolve these issues, it’s important to work with professionals (e.g., an attorney, accountant, wealth manager, etc.) who are both subject-matter specialists and who understand the underlying family dynamics.

Although it may seem easier to work with family members, remember to tread carefully because conflicts in the work place will inevitably follow you home.

Seed Capital reVIEW—1st 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!

Grumpy Old Venture Capitalists

Last week I attended a panel session entitled “Grumpy Old Venture Capitalists” which was hosted by Club Entrepreneur, a local club that hosts semi-monthly lunches for those in the entrepreneurial community. Norm Dann, Andy Greenshields, Richard Perkins, and John Trucano (a.k.a. the Grumpy Old Venture Capitalists (GOVCs) shared stories about their best deals and what they have learned from their investment failures over their past combined 100 years in the venture capital world. The event was extremely well-attended–I mean who could resist learning from venture capitalists who have seen the good, the bad, and the ugly (and I don’t mean the movie)?!?

Several of the questions during the panel session inevitably focused on what the GOVCs look for when determining if they are going to invest in a company. Not surprisingly, the response was unanimous—they look for a company with the right people. They want to see a company comprised of people who are passionate about the company’s product or service and are working non-stop to make the enterprise a success. One panelist added that he’s not going to be impressed if he meets with an executive who has a nice tan or boasts about what a low handicap he or she has. They want to see executives who live and breathe their businesses.

The bottom line: if you’re running a start-up, it better be the focus of your team members’ lives. If you’re an entrepreneur, take a moment to think–do you have the right people in your organization? Does each person contribute something unique to the organization? Do your team members execute their ideas effectively and successfully? It’s the right people that drive innovation and create success. As the GOVCs highlighted, it’s the people that can make or break your company.

Are you willing to bet your company’s future on your current team members?

Should You Consider Forming A Public Benefit Corporation?

Did you form your business to benefit the public and is it designed to operate in a responsible and sustainable manner? Does your business focus on pursuing a net material positive impact as well as making a profit? If so, you may want to consider forming a public benefit corporation, which is a business form that accommodates both a public mission and private commercial ambition (e.g., TOMS or FEED Projects).

The Minnesota legislature recently enacted legislation that allows for the formation of public benefit corporations. The Minnesota Public Benefit Corporations Act will become effective on January 1, 2015, and the Minnesota secretary of state’s office will not accept filings of organizational documents for a public benefit corporation until then. An entity organized as a Minnesota corporation can elect public benefit corporation status and a Minnesota limited liability company may merge into a newly created public benefit corporation at the beginning of the next calendar year.

Types of Public Benefit Corporations

There are two types of public benefit corporations: a general benefit corporation and a specific benefit corporation. A general benefit corporation is a public benefit corporation that elects in its articles to pursue a general public benefit, and it may state in its articles a specific public benefit purpose that it elects to pursue. A general public benefit means a net material positive impact from the business and operations of a general benefit corporation on society and the environment. A specific benefit corporation is a public benefit corporation that states in its articles a specific public benefit purpose that it elects to pursue. A specific public benefit means one or more positive impacts–or a reduction of negative impact–on specified categories of natural persons, entities, communities, or interests other than shareholders.

Requirements

Each public benefit corporation that is organized in Minnesota is required to file an annual report with the secretary of state that details how the corporation pursued its general or specific public benefit goals in the previous year. The annual report must refer to an independent third-party standard selected by the board of directors (although no audit or certification is required from the third party that created the standard). The Act authorizes the secretary of state to revoke a corporation’s public benefit status if it fails to file an annual report. 

The Act does not set forth a uniform standard or set of standards by which public benefit corporations must operate, nor does it create a standards board or any other review body to evaluate a public benefit corporation’s compliance with its stated mission.

Board of Directors

In making decisions on behalf of the corporation, the board of directors of a public benefit corporation must consider the public benefit purposes set forth in the corporation’s articles, the interests of shareholders, and the interests of non-shareholder constituencies. The Act provides that shareholder profits are not to be given presumptive priority over the other considerations.

Tax Status

A public benefit corporation will be taxed as a regular business corporation, either as a C corporation or–if it qualifies and makes an election–as a Subchapter S corporation. 

Shareholders’ Right to Enforce Compliance

The Act does not grant any government body or third party the right to enforce a public benefit corporation’s compliance with its stated public benefit purposes. However, shareholders have a right to bring an action if the corporation fails to pursue its public benefit purposes, and the annual report filed with the secretary of state is subject to penalties of perjury if it is not accurate. 

Summary

In traditional corporations, prioritizing a public benefit over profits would violate the fiduciary duties owed to the company’s owners. A public benefit corporation modifies this, allowing the board of directors and officers of the company to prioritize a social benefit over profits. If the purpose of your company is to have a positive impact on society, then forming a public benefit corporation may be the right entity form for your business.

Will you still be an “accredited investor”?

The Securities and Exchange Commission (SEC) is considering changing the accreditation standards used to determine eligibility of investors to participate in private offerings. The current definition of accredited investor was created in 1982 and states that an individual must meet one of the three following criteria:

1. Have had an individual annual income of $200,000 for the past two years with an expectation that it will continue;

2. Have had a household annual income of $300,000 for the past two years with an expectation that it will continue; or

3. Have a net worth of at least $1 million, excluding a primary residence.

Since 1982, the SEC has made two changes to the requirements listed above. In 1988, the SEC added the $300,000 household annual income qualification, and in 2011, the SEC added the exclusion of one’s primary residence to the $1 million net worth threshold. If the current levels of income are adjusted for inflation, then an accredited investor would need (i) an annual income of approximately $500,000, (ii) a household with an annual income of approximately $700,000, or (iii) a net worth of approximately $2.5 to $3 million in assets.

Under the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC must review the definition of “accredited investor” every four years.  The SEC uses the income and net worth thresholds as a measurement for whether an individual has the ability to understand the inherent risks of investing in a private company. There seems to be an ongoing debate on the SEC’s role in regulating who can and cannot invest in private offerings. Should the SEC’s role not go beyond fraud? Is the SEC going too far and actually trying to protect investors from themselves?

Many in the capital raising community are against any changes to the current accreditation standards, and even some argue that there should be an additional qualification solely based upon one’s education or work experience. There are others who argue that there shouldn’t be any qualifications based upon income and net worth; rather we should allow individuals to make their own financial decisions regardless of whether they currently meet the standards or not. Their argument is based on the premise that one’s net worth isn’t directly connected to one’s financial sophistication. 

A change in the qualifications of an accredited investor could significantly decrease the number of eligible investors, and thus render capital raising for businesses much more onerous. According to the CEO of Mission Markets, Ken Marienau, approximately 7% of the United States population currently qualifies as an accredited investor. The General Accounting Office and the SEC estimate that an inflation-based adjustment to net worth would eliminate approximately 60% of the current accredited investors. Consequently, only approximately 3% (a 57% reduction) of the US population would qualify under the new accreditation standards. Increasing the income and net worth qualifications of an accredited investor could have a detrimental impact on startups, jobs, and the economy.

If you are interested in commenting on how or whether the SEC should revise the definition of “accredited investor”, click here. 

Have You Scheduled Time to Think Lately?

How often do you look at your calendar and feel overwhelmed by the meetings that take over your day? Do you ever wish you could ignore your phone and email for the day to try to get a few simple tasks completed?  

Due to everyone’s overscheduled day and the constant bombardment of calls, emails, texts, instant messages, LinkedIn messages, and tweets (you get the picture…), there is a shortage of time to think creatively and strategically about one’s business. In response to this struggle, Jeff Weiner, the CEO of LinkedIn, purposefully schedules time in his calendar to think. He describes this tactic as his “single most important productivity tool”. 

In an article in Fast Company, Weiner explains that “as [a] company grows larger…[it] will require more time than ever before to just think: Think about what the company will look like in three to five years; think about the best way to improve an already popular product or address an unmet customer need; think about how you can widen a competitive advantage or close a competitive gap, etc.”  
                                                                               
Weiner states that his “thinking time” involves:

• Uninterrupted focus;
• Thoroughly developing and questioning assumptions;
• Synthesizing all of the data, information, and knowledge that’s incessantly coming your way;
• Connecting dots;
• Bouncing ideas off trusted colleagues; and 
• Iterating through multiple scenarios.

Weiner adds, “If you don’t take time to think proactively you will increasingly find yourself reacting to your environment rather than influencing it. The resulting situation will inevitably require far more time (and meetings) than thinking strategically would have to begin with.”

 The importance of taking time to think creatively and strategically about your business is critical to its and your success. If you are bogged down in the daily monotony of your business and not thinking about its future, then who is?

It’s A New Season…

Spring is finally upon us, and to other self-proclaimed foodies out there, that only means one thing – it’s food truck season! I cannot tell you how excited I am to stroll down Marquette Avenue and 2nd Avenue to try new food trucks and visit my old favorites. Click here for a map with the locations of various food trucks in Minneapolis and St. Paul.

For my first food truck stop of the season, I went to a favorite of mine – The Moral Omnivore. Their wild rice sliders are topped with rosemary pickled radish and a lingonberry wine reduction and are ridiculously good. My other two favorite food trucks are Hola Arepa and Vellee Deli. Hola Arepa serves Latin cuisine and specializes in Venezuelan stuffed arepas. As some of you may know, the owners of Hola Arepa are opening a brick and mortar restaurant on Nicollet Avenue and East 35th Street. Unfortunately, their food truck will not be making the rounds until a few weeks after the restaurant opens, but don’t worry—if you are like me, you can get your fix at the new restaurant next week! Vellee Deli specializes in the fusion of Asian and Mexican cuisine. Their truck can generally be found outside of Capella tower on 2nd Avenue and 6th Street. 

As we enter food truck season, the ongoing conflict between food trucks and skyway restaurants will likely become more evident. In particular, some of you may remember when the owner of Peter's Grill asserted that the primary reason his restaurant closed was due to the popularity of food trucks. As Andrew Zimmern stated, it is the great food that food trucks serve that drives customers away from the skyway restaurants. One can just look to the number of food trucks that have developed into brick and mortar restaurants to see their success. For example, in the past few years, World Street Kitchen (another favorite of mine!), Smack Shack, and Hola Arepa have all opened restaurants due to the success of their food trucks.

As with most things, customers are driven to the product that provides them with the most utility. Food trucks offer a wide variety of excellent food nearby with prices that are comparable to skyway restaurants. Think about it – on one block, you can choose among Mexican, Indian, Contemporary American, Italian, or Asian food, all more innovative than your standard salad or sandwich that you can get in the skyway. Not to mention how great it is to see the sun while enjoying good food with friends and colleagues after being in hibernation mode all winter.

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.

The Games HR is Playing

Let’s face it. The HR department isn’t typically filled with the go-to techies in your office. Usually HR lags more than a bit behind the curve on technology adoption – primarily because HR isn’t usually a profit center so acquiring new technology can be an uphill battle from the get-go. But there’s some really, really cool stuff happening in HR tech.  My favorite is gamification.

Gamification is starting to pop up everywhere in HR, and that should be no surprise. With everyone from my 6-year-old to his grandma playing Angry Birds or Candy Crush, new and established companies are finding gaming as a way to transfer detailed information to a wide variety of employees. By using a game, companies can engage employees and potential applicants in something fun and educational. Just like Where in the World is Carmen Sandiego? (and its catchy theme song by Rockapella) taught me geography.

How about using a game like Farmville to attract your next Restaurant Manager? Marriott Hotels did just that.  By placing a game on their Facebook careers page permitting potential applicants to test their restaurant managing skills – complete with purchasing ovens, hiring chefs, and selecting produce – Marriott engaged thousands of potential applicants before they even submitted an application. Plus, applicants could self-evaluate whether they’d even be good at the job. (I’m awful and should not apply.) 

But gamification isn’t just coming from big companies, entrepreneurs are developing games too. Imagine training folks on ever-changing and complex concepts using a video game. Cool, right? That is exactly what VitalSims is doing – using video game simulations to teach doctors and nurses how to treat the chronic disease of diabetes. Because diabetes treatments are evolving, training care givers can be tricky. With gaming, the sometimes tedious task of reading scientific journals can be supplemented with gaming simulations providing richer and more meaningful training. By partnering with HealthPartners and the University of Minnesota, VitalSims has developed their gaming simulations to be as up-to-date as possible so patients receive the best possible care.

If you think gamification will only work on your young, male employees, think again. Video gamers are much different than you think. The demographics are astounding: 45% of gamers are female and 68% of gamers are over 18. In fact, almost twice as many females play than teenaged boys. Female gamers are not mythical creatures!  While not everyone may be tracking down drug dealers in Grand Theft Auto V, you may hear your HR department advocating for some gaming soon.

A Post by Kate Bischoff, Guest Blogger

Follow-Up on Food For Thought

In my first entreVIEW post, I wrote about the Kickstarter campaigns of Travail and Birchwood. The New York Times recently published an article on the increased skepticism toward crowdfunding. The article highlighted two small business owners in Brooklyn who needed funds to relocate their business because their landlord increased their rent by more than 500%. To help alleviate the financial stress, they decided to start a crowdfunding campaign on Kickstarter. The business owners did receive some support, but a majority of the responses they received were negative.

Some of the critics of crowdfunding disapprove of business owners asking customers to provide funds for their projects, arguing that they are asking for “hand-outs” when they may have other means to achieve their financial goals. But others defend the practice as providing the opportunity to financially support a business that adds value to the local community in exchange for a gift and/or service from the business. In the conclusion of the documentary “Food, Inc.,” the narrator states that we vote three times a day on how we want to have our food processed. The same rule applies here—we can vote with our wallets to reward the businesses we value. 

I’m glad that the Twin Cities community has shown that it values Birchwood. Birchwood surpassed its goal and raised $112,126 in its Kickstarter campaign. The purpose of its campaign was to raise money for a much-needed expansion of the restaurant. I recently went to Birchwood for dinner (I had the black bean quinoa burger and a slice of key lime pie – yum!) to have one last meal before they close for the next ten weeks. Before they closed this past weekend, they asked customers to “leave your mark” on a piece of the original Birchwood that will be torn down during construction (see above). If you can’t wait until the renovation is complete, Birchwood will be operating a pop-up at nearby Verdant Tea on March 1st.

I look forward to visiting Birchwood when it reopens this spring!