unix users association of southern california may 11 2009 l.
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Unix Users Association of Southern California May 11, 2009. Starting a New Business. Overview. Introduction General Why? Getting Started Legal Options Location Options Solo Consulting Practice Legal Issues Accounting and Taxes Finding Clients Shooting for the Moon Incubators

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overview
Overview
  • Introduction
  • General
    • Why?
    • Getting Started
    • Legal Options
    • Location Options
  • Solo Consulting Practice
    • Legal Issues
    • Accounting and Taxes
    • Finding Clients
  • Shooting for the Moon
    • Incubators
    • Resources
    • Investors
  • Other Resources
introduction what do i know
Introduction – What do I know?
  • Consulted for about 10 years, 5 as a solo practice
  • Employee of 5 different startups
    • Eventual IPO: TCSI, Meta-Software, GetThere (Internet Travel Network)
    • On the runway: LeisureLink
    • Failures: TRW spinout
  • But don’t take my word for it – talk to as many people as you can
  • Disclaimer: Use this free advice at your own risk!
getting started first steps
Getting Started – First Steps
  • Formulate a plan and goals
    • Research as much as possible
    • Plan financials
  • Identify (preferably land) first customer
  • Choose a name and legal structure
  • Print business cards
  • Sell yourself (or at least your services)
  • Go to work
legal stuff
Legal Stuff
  • If you used your previous employer’s resources or paid time to develop your idea, your employer owns the idea
  • Legal Structure
    • Sole Proprietor
    • S Corporation
      • Not for those planning venture capital raising or IPOs
    • Limited Liability Company
    • C Corporation
  • Licenses, zoning ordinances, etc.
  • IRS Employer Identification Number
  • Liability Insurance
  • The Legal Guide for Starting & Running a Small Business – Nolo Press (nolo.com)
locations
Locations
  • Your garage/loft
    • Home office deduction
  • Client sites
  • Renting an office
  • Incubators (less of an option for consultants)
accounting
Accounting
  • Track your financials
    • Know all your expenses for deductions
    • Create invoices for customers
    • Record keeping for the IRS
  • Accounting software:
    • Excel or other spreadsheet
    • Quickbooks
    • Peachtree
    • Niche accounting for your specialty
taxes
Taxes
  • You are both employer and employee
    • Pay employer’s Social Security, SDI, etc.
  • 1099 vs. W-2 (Contractor vs. Employee)
    • Affects and affected by your legal structure
    • IRS’ 10 Questions
    • 1099 Pros:
      • Generally more profitable
      • Tax deductions
    • W-2 Pros:
      • Less IRS paperwork,
      • Less likely to trigger an audit
      • Some clients insist you are ultimately paid by W-2
1099 options
1099 Options
  • True, direct outside consultant with 1099 filed
  • Intermediary agencies (pass-throughs)
    • Pay you as a W-2 employee while maintaining a 1099 relationship with your client and numerous other firms
    • Keep a percentage of their services
    • Varying level of services and benefits
      • Some even offer some benefits, but the second you are without a contract, you are unemployed
      • The more benefits, the bigger their cut
  • Part-time employee on W-2
consulting contracts
Consulting Contracts
  • Get it in Writing!!
    • Detail work and requirements as much as practical
    • Rate and Payments
    • Disclaimers, waivers, etc.
  • Sources for examples
    • Canned consulting contracts
    • The web
    • Borrow an existing contract
finding clients
Finding Clients
  • Network, Network, Network
  • Old colleagues and friends
  • If (when) you’re desperate, troll job boards
    • Do not plan to land your first customer this way
  • Agencies, head hunters, pass-throughs
changing gears to launching a tech startup
Changing gears to Launching a Tech Startup
  • So…
    • you’ve got an idea…
    • And you’ve always wanted to own your own company…
    • And maybe you even dream of making it big…
  • But, be prepared to…
    • Work really long hours,
    • Make the coffee, clean the office, buy pencils,
    • Lie awake at night worrying about deadlines, sales, employees, investors, legal stuff, and whether you are getting enough sleep
the business plan
The Business Plan
  • Slides explaining your idea(s), but more importantly, explaining how you will make money with your idea(s)
    • What is your idea, and why will people pay for it?
    • What do you need to do to build or your product(s)?
      • How much money do you need for R&D?
    • Who are your customers, how many are there potentially, and how will you reach them?
      • How much money do you need for Sales and Marketing?
    • Who are your competitors and what are your roadblocks?
    • How much will you make per sale, per year?
  • Tool to recruit employees and most especially, investors
    • How much investment will you need, and how will you spend it, and how long will it last?
  • What is your “exit”?
  • Many books and web sites on writing a business plan
incubators
Incubators
  • Typically not for consultants
  • Share resources
    • Lobby, reception, copier, phone system, network, kitchen, conference rooms
  • Close contact with fellow entrepreneurs
    • Camaraderie, mentoring
    • Share ideas, even partner with fellow tenants
    • Advice from others who have done exactly what you are doing
    • Referrals for lawyers, accountants, consultants, etc.
  • Source of introductions to investors
incubator facilities
Incubator Facilities
  • LA CDC Business Technology Center
    • Altadena
    • County run
    • Economically distressed zone
  • Orange County Digital Media Center
    • Santa Ana
    • Rancho Santiago Community College affiliated
    • Digital music and video oriented
  • Idealab
    • Pasadena
    • Private, for profit
    • Overture, eToys, CitySearch, …
    • Founded by Bill Gross (not the PIMCO Bill Gross)
entrepreneurial resources
Entrepreneurial Resources
  • Incubators
  • Professional Organizations
    • OCTANe
    • Tech Coast Venture Network
    • Orange County Business Incubation Network (UCI affiliated, creates various incubators)
    • IEEE Orange County Entrepreneurs' Network
    • Others
  • Executive Networks
angel investors
Angel Investors
  • You, your relatives, friends, and mentors
  • Wealthy individuals interested in investing in small companies
    • Usually opportunities too early or small for VCs
    • Less capital than VCs
  • Professional angel investors
    • Tech Coast Angels
    • Pasadena Angels
venture capitalists
Venture Capitalists
  • Professional money managers
  • Primary goal is their Return on Investment, not necessarily your success
    • Not even 1 in 10 investments succeeds
    • 10:1 or even 20:1 ROI prospects
    • Structure your pitch and business plan accordingly
  • HIGHLY recommend “High Tech Startup” – John Nesheim
finding angel investors and venture capitalists
Finding Angel Investors and Venture Capitalists
  • Investors scout entrepreneurial groups
    • Incubators
    • Executive networks
    • Entrepreneur Organizations
  • Friends and colleagues
  • Fellow entrepreneurs and business owners
  • Always have your elevator pitch ready
making the pitch
Making the Pitch
  • Present your business plan – 30 minute presentation
    • Review it and practice it in advance
  • The VC wants…
    • A reasonable plan to make him 10:1 on his investment, or 25% annually
    • Smart and passionate management
    • Experienced management – people who have “seen the movie.”
    • Barriers to competition – “the moat,” an “unfair” advantage
    • Exit options
  • 1 in 10 get to pitch, 1 in 10 who pitch get funds
  • Pitch to as many VC as will listen
    • Don’t count on just one investor
    • You can negotiate among multiple deals
  • Typically takes a year from start of process to close
the term sheet
The Term Sheet
  • The investors’ financial and legal terms, including:
    • How much money they will provide, on what schedule, for how much ownership of the firm
    • How many people will represent the investors on your Board of Directors
    • What positions in your firm will be filled by the investors
  • Typically has an expiration date
  • Review with an attorney familiar with term sheets
  • The money isn’t yours until you deposit the check!!
    • VC have been known to cancel signed deals
  • Expect to own much, much less than 50%
    • Less than 4% at IPO is typical
other funding sources
Other Funding Sources
  • Banks generally want 5 years of successful financial history
    • Exception: Silicon Valley Bank
  • Equipment leasing with payment in some stock in lieu of cash
    • Vencore, EMC?
  • Your credit cards, savings, and mortgage
life in a start up
Life in a Start-Up
  • Draw a reasonable salary for yourself once you’re funded
  • Expect tremendous personal reward as you realize your ideas and grow the firm
  • Expect tremendous stress from running the business, from investors, from employees
  • Your personal life will suffer
  • Always seeking to reach/maintain hockey stick growth
  • Beware “Founder’s Syndrome”
    • Investors will take some control
    • Professional managers generally do their specific jobs better than you
  • Find a mentor
the finish line
The Finish Line
  • Initial Public Offering (IPO)
    • Hire a CFO who has done it
    • Relatively tough regulatory climate in the US
  • Acquisition by a industry conglomerate or competitor