For many startup founders, what led them into the risky but thrilling world of starting their own company was technology, innovation, the ability to affect the world, and the freedom of being their own boss. Learning the ins and outs of raising startup capital, attracting investors and understanding how to comply with state and federal securities laws is probably not at the top of the list of a startup founder’s most favorite things. But, given that the vast majority of startups will rely on outside financing in their early years while they progress in stages of production and expansion, their founders are going to eventually need to do some real-world study in the basics of how raising capital works in order to grow their business while protecting their vision.

Types of Startup Capital

When we talk about capital raising in the context of startups, we are generally talking about raising money for non-public companies that do not have significant revenue. Oftentimes, these are companies that are developing a new product and/or technology, and so, in the absence of sizable revenue, money is needed to fund the company as it prepares its product or services for market.

For startups, most capital is either equity or debt that is convertible into equity. Equity capital is not debt, like a business loan, but rather an ownership stake in the company, which gives the financier rights to the future profits and value of the company as well as, in many cases, a say in how the business is run. Anyone who purchases stock in a company has capital in that company. Because of state and federal securities laws, it has traditionally been the case that only certain types of sophisticated and/or wealthy investors were allowed to invest their capital in a startup, but some of those restrictions are changing with the onset of crowdfunding equity rules.

Stages of Startup Capital

While no two startups’ path to getting funded is the same, startup financing does tend to have certain distinct stages. These stages may be referred to by a variety of names, but generally, they are as follows:

• Seed Stage/Seed Rounds: This is the earliest stage, and at this point the business may just be the founder and possibly a few co-founders or employees. The startup is still figuring out its product and business plan and needs funds for basic salary, research and operating expenses as it works toward finding a market. Seed stage rounds tend to be small and usually take the form of convertible notes, convertible SAFEs or common equity.
• Startup Stage/Angel Rounds: Here, the startup is moving out of its ideation and planning phase into actually beginning production and/or entering into the market. The startup may or may not be bringing in revenue but, in either case, is most likely operating at a loss, necessitating further capital funding by so-called “angel” investors looking for high potential returns on investment. Angel rounds are the most diverse and can take just about any form: convertible notes, convertible SAFEs, common equity, preferred equity, warrants, or something else entirely.
• Expansion Stage/Venture Rounds: At this point in a startup’s lifecycle, it is finding new business and/or revenue sources and expanding beyond its startup origins. Funding may be needed for increased marketing efforts, new retail locations, increased hiring and recruiting, etc. Venture capital firms and other institutional players often enter into the picture at this stage to provide increased levels of capital. Venture rounds are usually large and take the form of preferred stock.
• Bridge/Pre-IPO Stage: A successful startup at this stage is now moving towards self-sufficiency either in the form of sustainable revenue streams and/or through an exit event such as a sale of the company or an initial public offering (often known as an “IPO”). If the company does decide to go public, the IPO process can be lengthy and expensive, thus financing—often provided through venture capital firms—may still be necessary to fund this process and maintain the company’s growth on through to its next stage.

Founders Have More Startup Capital Options Than Before

For those startup founders who are just getting into the process of seeking outside capital, they are probably more in the seed or startup stages described above—either still developing products and/or services or still finding its bearings in the market. At this point, engaging venture capital firms may be premature, and even angel investors may not be available to provide sufficient capital on agreeable terms. The good news for startup founders is that recent changes in the federal securities laws now make equity crowdfunding (as opposed to rewards-based crowdfunding, a la Kickstarter) among so-called non-accredited investors (meaning those who do not meet wealth/income requirements) a reality for startups.

While these new rules have just been established and we’ve yet to see how they will play out in the markets, they should make the process of raising equity from new investors much easier. Under the Title III Crowdfunding Rules, businesses will be able to raise up to $1 million in a given year from investors (including investors who are not accredited investors) via crowdfunding portals. Crowdfunding strategies may also be used under Rule 506(c) to raise unlimited funds from accredited investors. Many states are also allowing startups to conduct crowdfunding equity within state borders (so-called “intrastate crowdfunding”). And while not technically crowdfunding due to more complicated registration requirements, new rule Reg A+ also gives startups the ability to raise up to $50 million in a given year from unaccredited investors.

Given these new rules allowing startups to reach unaccredited investors and employ new capital-raising strategies, it’s never too early for startup founders to begin assembling a plan to attract outside capital.

This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Let’s Talk Legal: The Founder’s Introduction to Raising Startup Capital appeared first on Startup Southerner.

Nested in a quaint, mixed-use development along Lexington Avenue in Asheville, North Carolina lies Mountain BizWorks, a certified nonprofit community development institution (CDFI) that assists Western North Carolina’s founders in the foundation, growth and development of their businesses. The organization has been providing founders with small business loans, educational programs and mentorships for the last 25 years.

“We are certainly… a hub for local business owners and aspiring owners,” says Maggie Cramer, communications and program manager for the organization. “We have an open-door policy, and our clients come and go from our office for services and connection.”

Among its services, Mountain BizWorks offers business coaching from more than 30 successful business owners and mentors. Sessions are not free, but some scholarships are available to entrepreneurs who qualify.

The organization also offers a business planning course through their partner, Birds Eye Business Planning, and a number of other classes that cover subjects from how to use QuickBooks to the basics of marketing, financial tools and business. They even host special workshops requested by clients and alumni, including classes focused on legal concerns, HR issues and how climate change can affect small business.

The organization provides scholarships to those who qualify and wish to attend with the purpose of creating a comprehensive business plan.

In addition to these tools, Mountain BizWorks also features an accelerator called ScaleUp WNC, which assists businesses in the scaling-up phase of growth. The accelerator hosts two cohorts per year, during which 15 businesses are selected through a competitive application process. Accepted businesses are given access to mentorship, a high-quality curriculum around intensive growth strategy development, capital support and a rich network of peer business owners.

But what really sets Mountain BizWorks apart is their lending program. As a CDFI, the organization provides small business loans to those who wouldn’t typically qualify for bank loans or other traditional lending methods. They do this by emphasizing cash flow analysis, considering non-traditional collateral and offering flexibility in the loan structure.

“We also work to ensure our clients’ success by offering highly customized, peer-to-peer business coaching by an extensive network of local, successful business owners,” says Cramer, “It’s this holistic formula of capital plus educational support that makes us unique, and that we believe helps entrepreneurs prosper—achieving personal and financial success and generating quality jobs.”

Mountain BizWorks is currently in the process of expanding its reach to the High Country of Western North Carolina—including Alleghany, Ashe, Avery, Mitchell and Watauga counties—in partnership with the High Country Council of Governments. As a part of this effort, the next Summer cohort of ScaleUp WNC will be held in the Boone area of North Carolina.

Certified B Corporations from the Western North Carolina area and Mountain BizWorks have also recently come together to form the Asheville B Corp Network, with the goal of making WNC a B Corp hub.

“What we know about locally owned small businesses,” Cramer explains, “is that not only do they create jobs, but they create good, quality jobs—often living wage jobs. They’re rooted in their communities, and thus care about their communities. In other words, we know that business can be a force for good. Thus, we want to help local triple bottom line businesses (who care not just about financial profits but also social and environmental performance) become certified B Corporations.”

For more information about ScaleUP WNC, questions about Mountain BizWorks’ lending process or for updates on community impact, sign up for their ENewsletter.

The post Mountain BizWorks Helps Boost Business in Western NC appeared first on Startup Southerner.

One of the highlights of my 36/86 experience was hearing the two-minute pitches from the all of the startups vying for the big prize. One of the most compelling pitches—to me, at least—was SynapseMX, an Atlanta-based startup that is modernizing airplane maintenance by replacing a paper-intensive process with a software platform. It was compelling because I was sitting there thinking, how is this not the norm already? How is it that aircraft maintenance still relies on basically a ream of paper every time an aircraft gets serviced? The short answer: Regulation.

“Aviation is incredibly regulated due to safety concerns, and along with that regulation comes an audit trail for everything,” explains Shane Ballman, founder of SynapseMX and the former lead for maintenance technology for AirTran. “Just about every part can be tracked from birth to death, meaning when it was manufactured to when it gets scrapped. That’s still done on a lot of paper today—and if something happens to those records, wave goodbye to 30 percent of the aircraft’s value. Fax machines are alive and well, and I talked with a prospective customer just this week who still uses microfiche!”

Enter SynapseMX, which provides a platform for commercial aircraft maintainers to track, plan and accomplish maintenance tasks, including writing compliance records, from any device that can get online. But that’s not all it does. “Then, we take that data and help them understand hidden insights,” Ballman says. “For instance, how much time does it take to perform a certain inspection task? Is there variance between their facilities?”

Startup Lessons Learned the Hard Way

After spending 18 months validating the idea and determining that it was a viable business, Ballman launched the company in April 2015 with a co-founder who is no longer with the company. Ballman wasn’t new to startups, per se, but he did make a rookie mistake: assigning equity to both founders right away. “Even before you take in outside capital, you need to have founders on a vesting schedule,” he says. “It keeps everybody hungry and aligned in the same direction. Don’t skip it.”

Funding has been a challenge for the company, whose leadership team is composed of aircraft maintenance veterans. The company bootstrapped in the beginning, then received seed funding from 500 Startups as a participant in its Batch 15 accelerator. Its most recent investment was from Dynamo, a Chattanooga, Tennessee-based fund and accelerator that is specifically targeting startups focused on improving the “lagging logistics industry.”

“It sounds like it’s been easy, but it’s been a long, hard climb,” Ballman warns. “When people say it’s damn near impossible to raise funds and run a business, they’re right. You won’t be a special snowflake, so be prepared to hustle on fundraising so you can get back to work. When you pitch (and you’ll pitch a lot), don’t bore people. Tell a story, and make it personal for your listener. People remember stories that have an impact on them.”

The Right Location

One gripe Ballman doesn’t have about the startup life? Feeling isolated from the startup community and the subject matter expertise that is necessary for success. The company started out in Newnan, Ga., an Atlanta commuter town and veritable hotbed of aviation experts. “We started the company there for one specific reason: There are a lot of FAA, Delta and Southwest (formerly AirTran) people who live around there,” Ballman says. “That means lots of subject matter experts to chat with, walk through mockups, talk about business processes, etc.”

After some growth, the headquarters moved to Atlanta. “There’s something contagious about being in a startup environment where people are hustling to make deals, and I like being around that energy,” Ballman says.

When he’s not busy running his own startup, he takes some time to help others who are starting theirs. “There’s an amazing—and free!—Pitch Practice meetup every Friday in Atlanta, hosted by my friend Kevin Sandlin, and I go there when I can to provide pitch feedback,” he says.

Ballman also help out as a mentor to younger companies in how to think about things, such as business models, marketing campaigns, investor outreach and the like. “I’m no expert but I’ve learned a few tricks along the way,” he says.

Clear Skies Ahead

So what’s next for SynapseMX? Ballman points out that Airbus recently forecasted that the maintenance and repair services market will be worth over $3 trillion over the next two decades. “Plenty there to keep us motivated,” he says. The company is also keeping its eye on drones and anticipating a market for drone maintenance.

“Drones are on the cusp of a massive tidal wave in commercial usage, and the FAA is going to ensure the same incredibly high level of safety as manned aircraft,” he says. “That means routine preventive maintenance and the logistics surrounding it. We plan to be helping drone operators in five years like we’re helping manned aircraft operators today.”

BONUS AUDIO:  Shane Ballman speaks with Relationary Marketing during 36|86 in June.

The post #MyStartupStory: SynapseMX Modernizing Airplane Maintenance appeared first on Startup Southerner.

If you watched any lifestyle, cooking or travel shows on television recently, chances are very likely that they are connected to Knoxville, Tennessee, where six global cable networks based there deliver content to over 100 million homes worldwide. But Jonathan Sexton isn’t sure that many in the country or in the South are aware of Knoxville’s economic reach or the tradition of innovation that’s in the mountains of East Tennessee.  

“Very few know that Knoxville is one of the top producers of television and media content in the country, a very vibrant creative community that is anchored by Scripps Networks, Regal Cinemas and dozens of nationally known production companies,“ says Sexton, who is Knoxville Entrepreneur Center’s entrepreneur-in-residence. “The region has rich technology assets like the ORNL Manufacturing Demonstration Facility and the UT-managed Institute for Advanced Composites Manufacturing Innovation. Knoxville’s vibrant downtown has restaurants, cool places to live, and a vibrant nightlife and cultural mix. Plus, the area has plenty of recreational opportunities – from mountains to lakes to biking.”

Many of these assets have been in the region for some time, but in the recent years, the desire to make sure that others know about the entrepreneurial opportunities that are around Knoxville – from technologies to talent – have turned into action, with the first-ever Startup Day in 2013, and its most recent Startup Day 2015 bringing together over 500 people. Sexton and the organizations that have been working hard to spotlight, celebrate and grow entrepreneurship in Knoxville have now formed a more cohesive unit, the Innov865 Alliance, a collaborative effort to put Knoxville on the map as a great place for entrepreneurs to start and grow businesses and increase access to capital.

The Innov865 Alliance includes the University of Tennessee, which generates inventions and graduates students, some of whom are aspiring entrepreneurs; Oak Ridge National Lab, which is also a generator of cutting edge inventions as well as a partner with UT’s Anderson Center for Entrepreneurship and Innovation; Launch Tennessee and the Knoxville Entrepreneur Center which are focused on growing the entrepreneurial ecosystem; and PYA, a startup itself 32 years ago with a commitment to help others just as others helped it grow and prosper.

Building on the increasing success of Startup Day and pitch competition, 2016 will bring the inaugural Innov865 Week, on September 19-23. The calendar is quickly filling up, but they have already secured two events of note. “Having the Kauffman Foundation host an event during Innov865 Week and Paul Singh bring his ‘North America Tech Tour’ to town are huge,” says Sexton, a founding member of the Innov865 Alliance. “They underscore the vibrancy of the local entrepreneurial ecosystem. Singh’s visit promises to be an exciting opportunity for East Tennessee startups and entrepreneurs to meet and interact with an internationally recognized startup expert, and to show him why Knoxville is such a unique and dynamic place to start and grow a business.”

While these events are important components of the week, Sexton ultimately sees the events that include the local startups to be what captures the soul and spirit of the region, from the 4th annual Startup Day, Demo Day for The Works accelerator teams, to a series of micro events hosted by other organizations on topics ranging from analytics to cybersecurity. “Etsy is also going to be in town, as it has selected Knoxville as one of ten cities to be part of the inaugural Etsy Maker Cities program.”

And speaking of the fourth annual Startup Day, the pitch competition will take place on Sept. 22, and the application process to be considered as one of six startups competing for the $5,000 prize closes soon, on July 25. The pitch competition is open to anyone in East Tennessee with a scalable and investable business model. “This certainly tends to lean tech, but any sort of commerce, fashion, or product that represents a high-growth opportunity should sign up!,” says Sexton.  When asked if there’s a clear definition of what he considers as East Tennessee, Sexton replied, “If you consider [your startup] to be in East Tennessee, apply for the Startup Day 2016 pitch competition.”

The post Knoxville Innovation Is Already in Your Home appeared first on Startup Southerner.

Until a couple of weeks ago, we didn’t know much about equity crowdfunding. (Thanks to Startup Southerner contributor Alexander Davie for fixing that.) And thanks to an informative session at 36|86 yesterday, we now know even more. The rules recently changed, opening up the opportunity for more and smaller startups to leverage this funding mechanism, so here’s what you need to know:

A lot of people are interested in equity crowdfunding.

When moderator Cat Clifford of Entrepreneur.com asked who in the audience knew about equity crowdfunding, many more hands than we expected shot up.

There are three different types of equity crowdfunding.

There’s Title II, Title III and Title IV. In a nutshell, Title II connects high-growth startups with accredited angel investors, Title III is for growth companies (as opposed to high growth) and allows them to semi-solicit investments from friends and family members (and complete strangers), as long as those investors are American. And then there’s Title IV, which is for high-growth companies and requires the filing of a prospectus-like document that has to be reviewed by the SEC and commented on and all of that regulatory stuff that you should probably talk to a lawyer about.

If you can get venture capital, you should probably start there.

Geri Stengel of Ventureneer shared the stark reality that only about 1 percent of all companies will raise venture capital, while only 3-4 percent will raise angel capital. “For everyone else, Title III is a great fit.” Further, she said, before seeking Title III funding, startups should also consider reward-based plans first, like those that can be created through IndieGoGo or Kickstarter.

It’s all very complex.

Doug Ellenoff, a Title III equities lawyer with New York-based Ellenoff Grossman & Schole explained that startups that are interested in equity crowdfunding should not underestimate how complex the laws are surrounding it. “It’s very complex and you have to be mindful of all the rules,” he said. “But there are fewer problems with it than people perceive.” He said that in the last two years with Title II alone, more than $1 billion has been raised, and there were very few problems with the system.

Equity crowdfunding is not for everyone.

“If you’re very stealthy and you don’t want to publicly disclose what the timeline is for your product, then equity crowdfunding is not a good fit for you,” explained Pelli Wang of SeedInvest. She also added that from an investor standpoint, equity crowdfunding opens up an asset class that previously wasn’t accessible outside the super wealthy.

So, general public, what are we waiting for? Let’s invest in startups!

BONUS AUDIO from Relationary Marketing: Cat clifford of Entrepreneur.com suggests crowd equity funding as an alternative for startups and discusses new legislation.

The post 5 Things We Learned About Equity Crowdfunding at 36|86 appeared first on Startup Southerner.

On Monday, May 16, 2016, the Title III crowdfunding regulations became effective. This will offer startups a new alternative to traditional channels for raising capital. Instead of restricting investment in startups to wealthy individuals who are personal contacts of the founders, startups will be able to raise up to $1 million over the internet from ordinary investors, subject to certain restrictions and conditions. Keep reading to understand what Title III crowdfunding is and how it works, as well some of the downsides to using it.

What is Title III Crowdfunding?

“Crowdfunding” is the practice of funding a venture by raising many small amounts of money from a large number of people, typically via the Internet. The “Title III” designation comes from the fact that the regulations were promulgated by the Securities and Exchange Commission pursuant to Title III of the Jumpstart Our Business Startups Act (a.k.a. The JOBS Act).

Traditionally, securities law limited startups to raising capital solely from accredited investors. Accredited investors are wealthy investors who meet certain minimum income or net-worth standards. Securities law also placed significant restrictions on “general solicitation” by private companies like startups, which means they were prohibited from publicly discussing or advertising their capital raising. In the past few years, the JOBS Act provided a new option for startups, allowing them to raise money from accredited investors through the internet and other public advertising (this option is often called “TItle II crowdfunding” or Rule 506(c)).

In addition, it also provided an option for established late-stage startups to conduct a public offering to all investor with less legal compliance than a full IPO (this option is frequently referred to as “Regulation A+”). Missing, until earlier this week, was a method for early-stage startups to raise money on the internet from any investors (including non-accredited investors).

To that end, Title III crowdfunding permits a startup to raise up $1 million in a 12-month period. The offering must be conducted on an online platform set up by a registered broker-dealer or funding portal. The startup is still subject to significant advertising restrictions. The offering can be advertised publicly on the portal itself and the startup can promote the offering by distributing links to the platform and certain basic information about the offering. Startups are not permitted to distribute any significant offering literature themselves. In addition, there are limits to the amount that each investor can put into crowdfunding offering each year based upon the income and net-worth of each investor.

Downsides to crowdfunding for startups

While Title III crowdfunding presents an exciting opportunity for startups looking to raise capital, there are some downsides to it:

• You’ll need to get your company’s financial statements in order. The financial statements need to be prepared in accordance with GAAP, and if you are raising more than $100,000, they must be reviewed by an outside accountant. So, the average startup that has a basic quickbooks account to keep track of their finances will need to do some work here.
• The regulations require some significant securities disclosure. Each company conducting a crowdfunding offering will need to prepare a comprehensive disclosure document on Form C, which is filed with the SEC. It can be costly and time-consuming to do this.
• There is some significant potential liability. Investors can sue your company and each of the founders personally for material inaccuracies or omissions in the securities disclosure. So if the company fails to perform as expected, there could be personal liability for those involved.
• There will be additional legal compliance for the company going forward. Your company will need to keep track of all of the new shareholders. It will also need to file annual reports, which will need to contain the same information and disclosure as the initial Form C, including financial statements. Failing to keep up with all of this would have some significant legal consequences (including potentially being forced to register as a public Exchange Act reporting company – a very expensive proposition). So use of this will likely increase company overhead and administration.
• The demand for investments in startups by the general public is untested. We don’t know exactly how many investors will be willing to put money into these offerings. The fact that Kickstarter and Indiegogo, which have been conducting crowdfunding campaigns for some time in which participants donate or receive a free product rather than receive ownership, have been such big successes is a good sign. That said, for now, the success of this model is uncertain.

Starting a Crowdfunding Offering

In order to start a crowdfunding offering, you will need to choose a funding portal on which to conduct the offering. The funding portal must be registered with the SEC and FINRA. A list of such portals can be found at www.finra.org/about/funding-portals-we-regulate. A decision whether to engage in a crowdfunding offering should be done in conjunction with legal counsel to determine if it is a suitable option in light of the company’s overall fundraising strategy and potential other avenues.

The post Let’s Talk Legal: Startups Can Now Raise Capital by Crowdfunding appeared first on Startup Southerner.

We’re sort of torn on the concept of startups choosing a location based on its startup tax incentives. We did hear from one business that moved from the Ohio side of Cincinnati to the Kentucky side of Cincinnati because Kentucky had better tax breaks. But outside of the Kentucky-Ohio border, we’re not sure it’s happening all that much. After all, there are myriad other factors that go into a decision like starting a business. One thing we are certain of? All sorts of startup tax incentives exist all over the South and you’d be smart to make sure you’re taking full advantage of what your state offers. In the following list, we provide some highlights of startup tax incentives in each state and links to the state government pages that outline their tax incentive programs in whole.

Alabama

• Hiring credits, including for veterans and full-time employees
• Tax credits for starting a business in “new markets” or economically disadvantaged communities.

http://www.edpa.org/location-assistance/taxes-incentives/
http://revenue.alabama.gov/taxincentives/incentivesum.pdf

Arkansas

• Job creation incentives
• R&D tax credit for research done in conjunction with Arkansas universities
• Capital Investment credits for projects valued at $250,000 or more
• Equity investment tax credit to encourage outside investment
• Targeted business incentives for high-wage, knowledge-based industries

http://www.arkansasedc.com/incentives/incentives

Florida

• Targeted business incentives for high value-added industries
• Incentives for starting or growing a business in a rural community
• Incentives for starting or growing a business in an urban area

https://www.enterpriseflorida.com/why-florida/business-climate/incentives/

Georgia

• Multiple jobs tax credits, including one for high-wage jobs
• Digital media tax credit (film, television, interactive games and animation)

http://www.georgia.org/competitive-advantages/tax-credits/

Kentucky

• Incentives for expansion and business creation, including enhanced incentives for business activity in certain zones
• Direct loan program
• SBIR funds matching
• Incentives for high-tech, environmental and energy independence
• Tax credit for angel investors

http://thinkkentucky.com/Locating_Expanding/kybizince.aspx

Louisiana

• Digital interactive media and software development tax credit (link to startup southerner article)
• Angel investor tax credit
• R&D tax credits
• Enterprise zone tax credits
• Louisiana Technology Park for high-tech startups

http://www.opportunitylouisiana.com/incentives

Mississippi

• Jobs tax credits
• Growth and Prosperity Program for economically disadvantaged areas

https://www.mississippi.org/home-page/our-advantages/incentives/complete-incentives-list/

North Carolina

• Tier designations encourage development in less prosperous areas of the state
• Job development investment grant’
• Inventory tax exemption
• Interactive digital media tax credit

http://edpnc.com/relocate-or-expand/incentives/

South Carolina

• Research and development credit
• Corporate headquarters credit
• Job tax credit

http://sccommerce.com/node/2315

Tennessee

• Job tax credits for at 25 new hires
• Sales and Use tax exemptions

http://www.tnecd.com/advantages/incentives-grants/

The post Startup Tax Incentives by State appeared first on Startup Southerner.

Two years ago, Cole Kinchler was still a student at Alabama’s Auburn University. Today, he’s the COO of Simply Prose, a collaborative writing platform for writers and editors that is getting some serious startup love. In addition to taking the startup scene in Alabama by storm, Simply Prose was invited last year to demo at Tech Crunch Disrupt’s Startup Alley in San Francisco.

In 2014, Kinchler and two partners, also students at the time of Auburn’s Harbert College of Business, knew they wanted to start a business, but they took their time coming up with a concept they thought would work.

“We saw the inefficiencies clearly: writers were bogged down with a seemingly infinite number of options on how to move forward with their work, publishing was decentralized, and professionals felt distant,” Kinchler explains. “Timelines seemed to remain the same or lengthen each year, even as technology improved. The costs of editing still surged, even as sharing information becomes simpler every day.”

Kinchler’s team saw the benefits of merging real-time collaboration and the community that writers have built in existing infrastructure of writing forums and self-help pages. Additionally, they wanted authors to be able to share and promote their work in order to gain experience and build an audience.

“We thought through software that would help the publisher too; collaboration and project management tools could cut down on costs and reinvigorate their followings,” says the Opelika, Alabama-based entrepreneur.

As the partners put their heads together to figure out how to solve issues that writers and editors were facing, Auburn was planning Tiger Cage, its inaugural entrepreneurship competition. Fast forward to last April and SimplyProse took the stage as one of the winners at the event.

“That gave us the initial validation that we were looking for,” Kinchler says.

In the past year, Kinchler and his partners have continued to receive validation. Following its Tiger Cage success, the company entered Alabama Launchpad, a statewide entrepreneurship competition sponsored by the Economic Development Partnership of Alabama (EDPA).

“After several more pitches and nervously waiting to hear our names called at the finale, our team became the youngest to win money through the competition,” Kinchler says.

SimplyProse took home $40,000, which he says put them in a good position to begin development on the product.

Quickly following the Launchpad win, the company was invited to demo at Startup Alley, becoming the first company from Alabama to ever attend the event.

“After returning from San Francisco with new perspectives on startup culture, we began ramping up production on our beta,” he says.

The product is now in open beta, and the team has capped sign-ups at 250 so that they can gather feedback, fix bugs and make important improvements.

“The initial response has been exciting, to say the least,” Kinchler says. “We are hoping to continue expanding our connectivity to writing communities through focusing on increasing collaboration opportunities based on location and interests, developing tools for literary professionals and creating avenues to get in touch with publishing houses. We are excited to continue growing and providing the best solutions for authors and writers online. Financial and networking limitations should not prevent a writer from pursuing a dream.”

The post #MyStartupStory: Alabama’s Simply Prose Exits Validation Stage appeared first on Startup Southerner.

K. Clarence Lawrence, a Little Rock, Arkansas-based entrepreneur, launched ecommerce product video provider Prodeo360 nearly two years ago. His four-person executive team brings a combined 30 years of experience in both tech and video production. The company’s first year was marked with incredible growth—it worked with brands like Casio, OverBack.com and MadeInMars.com—which has prompted Lawrence to move the business out of a garage and into a large space in Bentonville, Arkansas. Oh, and they’re hiring more than a dozen full-time workers to wear various hats. He’s proud of the growth that his startup has experienced, but along the way, he dealt with some roadblocks. We talked to Lawrence about the challenges of securing funding for minority-owned startups.

Q: First of all, let’s talk about Prodeo360. How does Prodeo360 work? Who are your target customers? What makes Prodeo360 unique and competitive?

A: Our mission at Prodeo360 is to make the process of getting premium, professionally made, custom 360-degree videos simple and affordable—specifically for eCommerce stores selling physical products online. Currently, it’s a three-step process. Our customers go to our site and select the quantity of product videos as well as the style. Next, they decide whether they want the products picked up or if they’d like to drop it off to any local FedEx, USPS or UPS. Lastly, once we receive the products, we produce the videos in our studios and then send the completed, custom digital files to them for them to use on their website, social media, email marketing and more.

As you can imagine, dealing with thousands of large video files, customizing them all and delivering a high-quality product within days is not something that normal production houses face. Prodeo is about high-volume, low-priced video services. So to pull this off, it takes a lot of proprietary technology to make this happen. Our internal technology is just as important as our video production skills to be competitive. It’d be impossible to do what we do without our technology.

Q: Before we talk about funding, do you face unique challenges as a black founder that a white founder might not face? If so, what are they?

A: I think all founders face an uphill battle due to the risky nature of startups in general, regardless of their background and skin color. But also, by being African-American, I think it’s a little tougher to be taken seriously and trusted because there aren’t a lot of proven African-American companies out there. I think it’s the same for women-run companies, too. It deals a lot with the terms of how the due diligence process works and giving founders the benefit of the doubt. One of my mentors from college taught me long ago, “Investors don’t invest in ideas; they invest in people.”

For instance, I know some peers who were able to secure large amounts of funding with literally no revenue coming in. Which means that the investor trusted their vision enough to back them without any real evidence of demand. In my experience, we had to present everything from income statements, pro formas and more to show that there was not only a demand, but also that we could also sell our value to customers. This in itself isn’t a bad thing, but again, most founders I know were not required to do all of these things to get investors behind them.

Investors by nature are very pragmatic, which in some ways they should be—but it does bother you a bit when you have a clever idea that you’ve proven through bootstrapping before fundraising and hearing about others who have zero revenue securing twice the amount you need in half the time.

Q: When did you start trying to find funding, where did you ultimately get funding, and at what point did you realize it was going to be more challenging because you’re black?

A: It goes back to the nature of investors and investments and being taken seriously. Also, with investors being pragmatic. I can’t say that being African-American was the exclusive reason why it was tough to get funding because I know a lot of caucasian founders who are having trouble raising funding as well, but I can say that we were turned down by all of the major funds in my state. Some would say “You’re too early” or “You need more revenue”—the same funds that were investing in firms with equal revenue and sometimes no revenue at all.

We were never turned down based on the idea being bad or inconceivable in terms of potential growth. It was always along the lines of “Come back later when you have more proof” when in reality that’s not how startups work. Startups are about seeing an idea at seed or early-growth stage and believing in the team to grow it into maturity. So to say the least, it was very frustrating to hear how good the idea was but not have anyone write a check at the end of the day.

Q: How did it make you feel to know that you were facing additional roadblocks based on the color of your skin? How did you respond?

A: I won’t act like it didn’t bother me, but I’m blessed to have had a father who, before he passed, taught me a lot about being focused and having conviction in what you believe to be true. I also have a few mentors, like Jeff Amerine, CJ Duvall, Jeff Stinson, Ted Dickey and Mike Smith, who saw potential in me and Prodeo and were always open to talking and advising. Lastly, I had the feedback from our actual customers, and while raising funding seems like the only way to grow, paying customers who value you and your service or product is always enough motivation to keep on going after you get a no. After each no, I would try to understand why they said it, learn as much as possible and keep it moving.

Q: As part of our #entrepreneuriALL initiative, we’re trying to understand the difference between diversity and inclusion. Do you think there’s a difference, and what is it?

A: Both inherently mean having a range of different skill sets, but I think inclusion implies actual effort in trying to have a range of skill sets and backgrounds. Diversity is more so the consequence of that effort. I think diversity is too passive because there’s no real implication that you have to try, whereas Inclusion is measured by the effort you put into having a range of skills, races, genders, etc.

Q: Is the entrepreneurial ecosystem that you’re a part of diverse and/or inclusive enough? Why or why not?

A: It’s actually both Little Rock as well as Fayetteville-Bentonville for me, which interestingly enough just got ranked as the second best place for minority founders by Fast Company. I think they are getting there for sure and it’s understood by the important people in this ecosystem like Jeff Amerine, Jeff Stinson and the guys over at Innovate Arkansas. I don’t think it’s a standard just yet, but it goes both ways. Just as there needs to be more efforts from the investor and supporter side to find diverse companies for both female and ethnic minorities, diverse companies also have to put themselves out there to be seen so that they can be included. And more importantly, create valuable ideas that people can get behind.

The post Funding for Minority-Owned Startups a Challenge, Says Arkansas Founder appeared first on Startup Southerner.

Let’s Talk Legal will be a recurring column written by Alexander Davie, co-founder and member of Nashville-based Riggs Davie PLC. Davie advises startups and emerging companies in all areas of business law.

Founders have a lot to think about when starting a new company, such as finding the right team, developing their strategy and getting the company’s legal structure in place. One item that should not be left out is ensuring the company owns the intellectual property to its content, such as software code, written works and audio/visual material. A key part to this is to ensure that everyone—from founders to independent contractors—working on this content has signed invention assignment agreements.

Such agreements are frequently overlooked in the early stages, but are critical later when the company is seeking capital from outside investors or when the owners of the company are looking to sell it. While they are easy to put in place at the beginning of relationships, they can be difficult and costly to secure later on.

An invention assignment agreement (also known as a “proprietary rights assignment” or a “developments agreement”) is intended to ensure that the company actually owns its intellectual property rather than the employees or contractors who worked on it. Such an agreement is a contract between the company and an individual founder, employee or contractor, requiring that person to assign over all intellectual property rights conceived in the course of that person’s work at the company. This agreement is needed because, by default, intellectual property is not assigned automatically to the company. For example, if the company hires an outside developer to write software for the company, absent an assignment of inventions, in most cases the copyright to such software remains with the developer. The company merely receives a license to use the software.

A lot of people often rely on the work-for-hire doctrine, thinking that this obviates the need for an invention assignment agreement. The problem is, the work for hire doctrine is very limited. It covers copyright, but not patents or trade secrets. In addition, absent a written agreement, it only applies if the person doing the work is an employee of the company acting within the scope of his or her employment. Most startups rely extensively on independent contractors and have very few or no employees. Therefore, the work-for-hire doctrine does not apply in most cases and, when it does, it only protects a subset of intellectual property rights.

The lack of an invention assignment agreement with a person that created important IP for the company could create a stumbling block when a potential investor conducts due diligence on the company. If that happens, the investor is likely to demand that the company obtain one. But if the person is no longer working with the company or, even worse, left on bad terms with the company, it might become expensive or impossible to obtain such an agreement. In addition, if the person still owns the copyright to their work for the company, they could reuse it again in other situations, possibly competing with the company.

The bottom line is that any startup should have its legal counsel develop a form invention assignment agreement for the company that it can have each founder, employee and contractor sign.

The post Hiring a Programmer? Get an Invention Assignment Agreement appeared first on Startup Southerner.