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Lessons Learned by Los Angeles Business Attorneys

October 8, 2019

With access to skilled talent, and seemingly unlimited venture-funding, it is no surprise that California leads the nation in the number and successful launching of companies.  Over the last several years, California healthcare and technology startups have raised almost $10 billion annually.  California has Silicon Valley, Silicon Beach, incubators, accelerators, coworker spaces, and leading venture capital firms.  Each week, business attorneys are busy guiding entrepreneurs from idea to implementation and from startups to emerging growth companies.  They connect creative individuals with savvy consultants and corporate strategists.  At Citron & Deutsch, we pride ourselves on being the go-to law firm for technology and healthcare startups for local entrepreneurs.  Having provided effective, timely, and comprehensive counsel to 1,000s of companies, our startup attorneys are able to leverage that experience to guide and connect nascent companies en route to successful funding rounds and sustainable expansion.  Through our decades of representation, we noticed trends and learned lessons.  Now, we embark to offer some of those to our clients. (1) Business Plans: Critical Component of a Promising Startup As one of the first critical steps in any startup endeavor, business plans and decks should be carefully crafted.  Founders should be continuously involved in the drafting and polishing of these plans and solidify their “elevator pitch.”  Our firm is often used as a sounding board to review business plans, draft business plans, and provide early-stage advice. The process of drafting the business plan is crucial because it forces the participants to look at the business in an objective, critical, and unbiased manner. Entrepreneurs must analyze all the elements, from different angles, that are necessary to make the business successful.  They must then articulate the need that the product or service aims to meet or the problem that it seeks to solve – preferably in a straight-forward and concise manner.  The process of preparing the business plan will showcase missing components in the organizational structure, require a deep analysis of competitors and the market, and project expenditures, such as for selling, general, and administrative (SG&A), research and development (R&D), and intellectual property protection. The process of creating and refining the plan of the owners or founders of the business leads to a realistic appraisal of the business’s chance of success before committing time and money to it. (2) Importance of Compensation Allocation: Set Reasonable Salary and Equity Expectations Compensation decisions may have a serious impact on a startup’s ability to attract investors and raise capital. Based on our experience, most founders of startups are paid less than $100,000 in annual salary, with many receiving $50,000 or less.  Therefore, those who start companies should bear in mind the savings required to adequately sustain the early phase of a company’s evolution.  To lead by example, lower salaries for founders and senior executives set similar expectations for other employees. Before any substantial fundraising may start, business owners should determine the nature and amount of compensation for founders and management executives, considering that the lower salaries and overhead will be more attractive to investors.  At the same time, what attracts talent are equity grants, incentives compensation based on milestones, and other […]

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CAPITAL STRUCTURE OF A NEW CORPORATION

April 5, 2019

The founders of a new corporation must address the crucial issue of structuring the capitalization of the corporation. After determining the amount of money the corporation will need for fixed assets, materials and operating expenses, the founders must then decide whether to finance the corporation with debt or equity, the proportion of debt and equity, and the rights, preferences, privileges and restrictions of the stock. This Newsletter shall discuss the advantages and disadvantages of debt vs. equity, and the various features of each.

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TO LITIGATE OR NOT TO LITIGATE?

April 5, 2019

That is the question most frequently pondered in the area of dispute resolution. Litigation is an imperfect process at best. Winners are often left with pyrrhic victories; losers sometimes lose that which they have struggled to achieve over the course of a lifetime. This Newsletter explores the considerations that are taken into account when deciding whether to litigate; in future Newsletters we will explore alternatives to litigation and preventive measures by which disputes can be resolved before the question of litigation ever arises.

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THE BENEFITS OF INCORPORATING

April 5, 2019

One of the first decisions to make when starting a new business is the selection of a business entity. This Newsletter will discuss the advantages of the conducting business as a corporation. 1. Limitation of Liability. A corporation which is validly formed, adequately capitalized, and which complies with necessary corporate formalities, protects the owner’s personal assets against business liabilities. This is particularly important if the nature of the business results in potential liabilities which cannot be adequately covered by insurance, or if the owner of the business has substantial net worth or income outside of the business. However, it must be kept in mind that landlords and bankers may require the owner of a small business to personally guarantee the corporation’s obligations.

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RECAPITALIZING YOUR BUSINESS

April 5, 2019

Finding money for your business, once you are in business, is a very different process than funding a startup. You already have an ongoing concern and a track record to show your potential sources of capital. And, there is a process that works. Our interpretation of that process:

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