Rules of Funding
Posted Thursday, March 11, 2010 by David Castor
US Private EquityThere is a good article on the Mercury News Blog today on How dot-com start-ups have changed 10 years later.  The article addresses the maturity of both technology companies and US private equity investors over the last decade.  It is an interesting read.

There has been a lot of activity in angel investor groups and venture capital investments in Indiana technology companies over the last few months.  2010 has definitely started with a bang at Alerding Castor Hewitt where we have helped five companies secure funding this calendar year.  I am traveling with two technology clients in a couple of weeks to meet with investors in Southern California. 

Still, the same rules apply when seeking funding.  An early stage company looking for funding must prove:

1.    Management Team (including expertise in field and proven financial and leadership ability)
2.    Market Opportunity (including the need, ability to meet the need and scale)
3.    Investment Opportunity (is the expected return worth the risk of investment)


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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.

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Entreprenuerial Law - Finalist Chosen for Purdue Business Competition
Posted Thursday, February 18, 2010 by David Castor
Business LawA few years back, sometime in the mid 1990’s, while an undergraduate business student at Purdue University, a fellow classmate and I entered the Burton Morgan Entrepreneurship Competition.  We were the only undergraduate students chosen as top 10 finalists in the event – an accomplishment for which I am still quite proud. 

I remember the program as being challenging, informative and humbling.  Following rounds of having our business plan reviewed and commented on by professors, we presented to a panel of judges which was made by business owners, private equity investors, and professors.  The judges did not hold back on us.  They told us exactly where our business model issues were.  Most of the issues related to assumptions and implications underlying our financial projections and other business model variables that we had not taken into account.

I remember as a 21 year old being embarrassed by some of the points that we had not addressed in our plan, but the judges’ comments were not degrading – they were taken as a challenge and learning experience.  We did not make the top 5, but the experience was invaluable.

It is amazing that I use these same comments today as a business law / funding law attorney with my business law clients.  I review somewhere in the range of 75 to 100 business plans a year - either for clients seeking private equity or venture capital funding, for due diligence for clients looking to make investments, or for clients creating operational plans to launch out in their own venture.  It is interesting how many of these plans fail to address financial assumptions and implications and business model variables.

Today I am closely connected to two of my three alma maters – Krannert School at Purdue and Butler College of Business where I did my MBA.  Both schools have great entrepreneurship programs.  Last month I guest lectured at Purdue’s entrepreneurship capstone course.  Next month I am serving as a judge in their elevator pitch competition.  I also stay tightly tied in with Butler and have worked on business or private equity deals with certain professors at the MBA program.

This week Purdue announced their top 10 finalists for the Burton Morgan Business Plan Competition.  Our friends at Inside Indiana Business wrote a nice summary of the finalists.  Check out the article.




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Where Have I Been? - 2010 Update
Posted Thursday, February 18, 2010 by David Castor
Business LawI have taken a few weeks off of blogging.  Honestly, I felt like I needed the break, but I am excited about getting back on the saddle and writing again.

Since it has been a few weeks, let me give a brief update on what we have been up to.  Alerding Castor Hewitt has had an exciting beginning to 2010.  On January 1, Bill Boncosky joined us.  Bill is a business attorney / technology and SaaS law attorney working with privately held companies, primarily in technology industries.  Bill has spent the last seven years as General Counsel at ExactTarget.  We all have much to learn from him and are thrilled to have him as part of the team.  The IBJ put out a nice article in January on our firm's focus on entrepreneur law and Bill's joining us in this field.

This week Scott Kreider joined our business litigation group.  Scott adds to a team headed up by Mike Alerding that handles a difficult and necessary discipline for any full service business law firm – handling business disputes.  It is great to have him aboard.  Also, Mike made the IBJ's 40 under 40 the other week.  Good stuff.

Over the last few weeks our firm has helped four clients through capital funding processes - three from angel investors or private equity firms and one from a venture capital firm.  It is always encouraging to see business clients grow, and we count it as an honor to be part of their process.

We have also been involved with many businesses and business owners through customer deals and strategic business growth matters.  We will write more on some of those matters in future posts.  

I was a guest lecturer the other week at Purdue’s entrepreneurship capstone course.  Man I felt old, but I was very encouraged by the enthusiasm, drive and smarts from this class.  

So there is the fire hose version of the last few weeks.  2010 is off to a strong start for ACH.  I am looking forward to what is coming down the pike.


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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
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What Does Your Attorney Know about SEO?
Posted Tuesday, February 16, 2010 by Janet Croswell
SaaS Litigation, SaaS Legal Consulting, Software Litigation, ASP LawKeeping up with software clients can be a challenge for technology legal counsel.  

The software as a service industry evolves quickly, time-lines are condensed, and the playing field yesterday can look decidedly different than it looks today.  The name of the game for a SaaS company is to stay ahead of the pack and become known as THE leader in its industry. 

I recently read an article in Entrepreneur magazine about Search Engine Optimization titled What You Don't Know About SEO. 

What I DO know is that many of our clients could have written this article. 

For those of you interested in Internet marketing, here's an excerpt about targeting keywords to help drive search results that our friends over at Compendium Blogware could have written:


"Google, of course, is the web-search alpha dog. But all the others--Bing, Yahoo, Ask.com, Lycos--are sniffing out the same stuff.

What gets their attention? Good, fresh, focused content. Adding a blog is one of the easiest and most straightforward ways to bulk up on content. If you sell hair-removal devices, for instance, start a blog that explores all aspects of waxing, plucking, threading, electrolysis and so on. Over time, your site will accrue searchable heft.

The trick is to be hyper-conscious of your keywords. For example, if you want web surfers on the prowl for "eyebrow waxing" to find your site in search engine results, organically work the exact phrase "eyebrow waxing" into each blog post (maybe multiple times), and use it on all static pages related to eyebrow waxing. Lather, rinse and repeat with every term and phrase you want to rank for.

Before you start writing content, though, research and plan your keyword attack. Is geography important to finding your customers? Then maybe "California eyebrow waxing" is the phrase you want to home in on."


Just a brief example of the world I'm living in by working in the area of SaaS legal consulting, I have the absolute privilege of working with high-tech, fast growing companies.  Truly partners in success, I and the other attorneys of Alerding Castor Hewitt, LLP who practice in the area of technology legal counsel welcome the challenge of keeping up with the pace of this industry.
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Check Out The Butler Accelerator
Posted Thursday, December 24, 2009 by David Castor
Entreprenurial Law - Accelorator ProgramClosing in on the end of 2009 I have to say that I am quite pleased with the commitment Indiana showed this year to be a State that supports and promotes innovation, entreprenuership and business growth.

This week I had breakfast with Larry O'Connor, Executive Director of Butler University's Business Accelerator.  Larry is a former CEO of Bank One Indiana.  Following his "retirement", Larry became CEO of The IndianapolisMuseumm of Art, and recently took the position to lead theAcceleratorr program.

On the program's website, Larry describes theAcceleratorr as follows:

Operationally, the Accelerator is a consulting business designed to serve middle market companies in Central Indiana. Teams of professional consultants, faculty and students work directly with these companies - helping them to grow and simultaneously providing a living laboratory in which undergraduate and MBA students learn and experience real business problems and situations.

While Butler is continuing its work with mid-market companies, 2009 also showed growth of incubator programs and the birth of new angel investment groups in Indiana.  As an entrepreneurial law / private equity attorney, the health of these groups means a lot to me in terms of support and growth of my clients.

2009 was a strange year for businesses.  Private capital was hard to come by due to economic constraints.  Lending was tight.  The corporateenvironmentt seemed to be mired by corporate fraud (Madoff, Durham).  Despite all of this, Indianapolis proved to be a great place for businesses to launch and grow. 


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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.

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The other cloud hanging over L.A. - developments in cloud computing law
Posted Monday, December 14, 2009 by Chris Stephen
Google announced in its blog today that Los Angeles has officially switched to using Google Apps for e-mail and collaboration.  34,000 city employees will now be using the Google cloud to do their work and, more importantly, their communication.  This is a substantial development in cloud computing law.  This will highlight the pros and cons of cloud computing for the future,and is likely to shape the success of other municipalities going the same way.  Data issues and privacy litigation is likely to start popping up even more predominately related to the cloud.  Plus the bloggers will get to continue to discuss the impact of Google taking over the technology world. 

Overall, I think that cloud computing is the future, but as a technology legal counsel, I can't help but watch this development with youngster-like anticipation.  As goes the cities, so goes the country.  Keep your eyes on the horizon for developments from this jump by L.A..  The litigation that is possible from this decision by L.A. will be delectable.    

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The upside to cooperation in ESI data mining
Posted Tuesday, December 8, 2009 by Chris Stephen
A colleague of mine brought to my attention two recent federal cases in which the courts elected to deny motions to compel electronically stored information (ESI).  In Kay Beer Distributing v. Energy Brands, Inc., the Eastern District of Wisconsin determined that, among other things, Kay's request for every e-mail with their name in it was too broad.  The court also considered in its determination  the fact that Energy Brand's counsel had offered to work with Kay to do more directed keyword searching of the e-mail engine, but Kay declined. 

In my opinion, these cases are indicative of a trend that you'll see more prevalent in litigation, whether you're talking about technology litigation or run of the mill commercial litigation.  When ESI discovery came onto the scene, judges were more prone to let the parties just duke it out and allowed for more expansive discovery requests.  In my opinion, as the frequency of requests increase and judges are exposed to more and more decisions related to ESI, they are becoming more educated on technological capacity and will become less and less likely to allow for expansive discovery.  

This leads me to the actual point of this post.  For the entrepreneur, there can be significant benefits to cooperation in discovery related to ESI.  Long before I became involved with Indiana technology litigation, I was fortunate enough to participate in some large scale discovery productions that involved searches electronically stored information.  One of the pivotal points of the production involved the necessity to explain to the Court and the opposing party what they search system would and would not do.  Much to the chagrin of my boss at the time, I suggested that we allow the opposing party to have direction in their search by doing it in conjunction with us.  The Court called this an "organic search" (a term that I hated, but that ultimately stuck to what were were doing).  It involve the opposing counsel conducting the searches with us and then directing further searches based on those results.  With a limit on the time to conduct the search, we were able to minimize defense cost on the issue, appease plaintiff's counsel, and make the judge happy.  And all we, as defense attorneys, had to do was the searches that we would have had to do anyway.

My point is that with technological capabilities comes a necessity to think outside of the box.  As a business owner, you may be able to minimize your exposure and costs by simply allowing the other side into your office while you're doing their search.  As an attorney, our jobs are to make sure that the appropriate safeguards are in place to protect our client, but also must be willing to effectuate for them the best result.  Obviously, some areas of law, like privacy litigation, medical records, etc. are going to be less viable for this type of solution, but overall, there can be an upside to cooperation.  Think about it.

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Competitive keyword advertising: Viable cause of action or useless avenue?
Posted Thursday, December 3, 2009 by Chris Stephen
Something crossed my screen today that piqued my interest.  That concept is competitive keyword advertising litigation.  The case that sparked my curiosity is Fair Isaac Corp v. Experian Information Solutions, Inc., 2009 WL 4263699 (D. Minn. 11/25/2009) (www.jurisnote.com/Cases/fair6411.pdf).  For a good analysis of the ruling see Eric Goldman's blog (blog.ericgoldman.org/archives/2009/12/competitive_key.htm).  Interestingly, the case law to date on this issue has found for the defendants in most cases, but it makes me wonder about the legal theory, specifically  why this isn't more widely explored and if the average entrepreneur is even thinking about this.

The concept, boiled down to very brass tacks, is that the owner of a valid, distinct trademark whose mark is being used by another party for use in competitive keyword advertising that cause confusion to the consumer may have an equitable remedy.  This stems from the Lanham Act.  There is some question of whether actual confusion is necessary, but it is obviously going to help if one can show actual confusion.  Thus, the elements are (1) ownership of a valid, distinct mark; (2) use of that mark by another party; (3) in a manner that is likely to lead to consumer confusion as to the source, sponsorship or affiliation with the mark.  Now take those elements and apply them to competitive keyword advertising.  So, if I use a mark as a keyword in order to increase my on-line exposure, but do so in such a manner that it creates confusion, I can be liable to the holder of the mark and the remedy is an injunction against my use.   

Now, to date, courts have found in favor of the defense, but I can see on the horizon a court that does find confusion.  In the Fair Isaacs case, the court discredited the plaintiff's expert (I'd love to know what he said that the court determined lacked credibility and if Fair Isaac's is going to ask for their money back in light of the court's ruling).  But, how far away are we from a case in which the Court is persuaded.  I think it will only take one or two court rulings before this becomes a more readily available and pursued cause of action.  As companies increase their on-line presence and efforts to obtain competitive advantage through mechanisms like keyword search terms, the chances of confusions increase.  As those chances increase, the possible success of this type of litigation increases.

The implication to the entrepreneur is that the knowledge of this principle can be useful in an offensive and defensive posture.  Offensively, if you have a mark, you need to be vigilant in your oversight of how that mark is being used and if you determine that it is being used by other parties in keyword usage that will confuse consumers, you need to make sure you have your evidence and move quickly for injunctive relief.  Defensively, as your business develops its marketing strategy and using keywords you need to be cognizant of the fact that, if you are using a trademarked item, you are doing so in such a way that confusion will not ensue. 

Overall, I think that this another example of the potentials in Internet litigation.  This is a  cause of action that arises, in my humble opinion, only in the technology age.  Because search engines allow for large keyword grabs, this type of confusion can (and likely will) arise, and in doing so, infringement and litigation has (and will) also ensue. 

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Good Metrics
Posted Monday, November 23, 2009 by David Castor
What are your metrics for business success?  I attended a non-profit board meeting this past week where the directors were working through this question  - "How do we measure success?" 

A common metric that was discussed was # of volunteers in the organization in ___ years.  Although this metric does measure growth, it does not measure the quality of growth.  What if the volunteers are under committed, under trained or just plain lousy at their job?  You may meet your metric but find that your organization is under serving the community, or worse, frowned upon by the community it is trying to serve.

Similar metrics are common in business plans where I often see # of customers as a metric for growth.  I also saw this problem with the prior administration of Indiana's 21st Century Fund where creation of jobs was the key metric for grant opportunities.  The problem there is that there are good jobs and bad jobs - purely measuring # of jobs does not distinguish between the two.  I could create tons of hourly pay jobs today if I wanted, but those jobs would be low wage and temporary.  Not the type that would ultimately benefit the State.  In short, the metric is not a good measure of success.

The difficulty with metrics is that they can come in just about any form you can imagine.  They are simply a way to measure growth.  The key is to tie them in with the ultimate goals of your organization.  Most companies do not want growth at the cost of profitability.  Personally, I would rather run a small shop with higher profit than a large shop with smaller or no profit.  

So, here are a few poor and good metrics for successful business growth:

Poor metrics:
# of employees
# of customers
# of square feet of office space

Good metrics:
Net Profit at $_____, based on Revenue of _____.
% of customers at ___ % margin
___% profitability margin per employee


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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.

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Don't Drink the Kool-aid, Choose Your Partners Wisely
Posted Tuesday, November 17, 2009 by Janet Croswell

Indiana Technology Lawyer, Indiana Technology CounselI saw a great article awhile back in Entrepreneur and thought I should post the article for those in the formation stages of their next business venture. 

I can't stress enough how much time and energy it takes to launch a start-up, and just how much the success or failure of a budding new company rests on the people involved.  I see it everyday as an Indiana technology lawyer involved in Indiana entrepreneurial law.

You can count on spending hours upon hours of the day with your business partners, so consider who those people are wisely.  At the very least, read this article by Scott Gerber, who is a columnist for Entrepreneur.com's Young Entrepreneur and the CEO of Gerber Entertainment.

Partnerships can turn out to be a blessing or a curse. For every thriving partnership featured in Entrepreneur, there are thousands that end up stagnant, dissolving, dysfunctional or worse--in court. More often than not, performing basic due diligence can keep you from ending up in bad partnerships. So, have you done your homework? Are you ready to trust your financial security on someone else’s personality, work ethic and business acumen? Before you drink the partner Kool-Aid, here is a list of the top ten worst business partners for your start-up--along with some tips to help you avoid this cast of characters:

  1. Mr. Employee
    Mr. Employee is a first-time entrepreneur with a pristine resume and an abundance of references. He enjoys collecting a weekly paycheck, health benefits, and eating dinner with his family nightly at 7 p.m. Unfortunately, Mr. Employee isn’t really self-sufficient and doesn’t know how to move the business forward without you instructing his every move. Plus if your investment deal doesn’t pan out soon he is going to need to find a “real job” to pay the kids’ college tuition.  Tip: Risk-adverse individuals who do not share your priorities will not be productive partners. Pass up individuals who cannot commit equal time, energy and financial resources. 

  2. Mr. Perfectionist (also known as Mr. Procrastinator)
    Mr. Perfectionist needs every “i” to be dotted and “t” to be crossed before he schedules an official product launch date. He enjoys researching competitors, building industry case studies and improving his 150-page business plan. Mr. Perfectionist really wanted the     new business to be up-and-running by now, but still feels something isn’t quite right. He plans on putting together another comprehensive survey to send to all of his colleagues, friends and family in the next few weeks to help flesh out the concept further. Tip: A good plan today is always better than a perfect plan tomorrow. Steer clear of excuse-prone procrastinators. Seek out self-starters who run with the ball and make things happen.

  3. Mr. College Buddy
    Mr. College Buddy had a stroke of genius while out at the bar one night, wrote it on a cocktail napkin and asked you to help him “make it happen”. He enjoys bragging about his great idea and giving you directions on how to execute (he’s not into the “heavy lifting” thing). The issue: he’s moving across country to start med school in the Fall. But fear not, Mr. College Buddy will make himself available by phone when he’s not studying, working, in class or on a date. He’ll be sure to forward you the address where you can mail his 50% of the profits.  Tip: Never assume all of the risk in exchange for half the reward. Ideas are worthless without proper execution. Before you bring a co-conceived idea to fruition, make certain that your partner plans to be around for the long-run. Napkins are not legally binding. Always execute an operating agreement.

  4. Mr. Inventor
    Mr. Inventor thinks he’s created the next billion-dollar widget. He enjoys giving two-hour dissertations on Chinese electrical engineering standards to investors and making business decisions based on ‘nice people’ and ‘gut feelings’. Mr. Inventor doesn’t really understand the phrase ‘in the black’, but feels it’s imperative to spend all of the     company’s investment proceeds on research and development.  Tip: Brilliant academics are not necessarily brilliant businessmen. In lieu of a partnership, first consider licensing deals or strategic partnerships. If you decide to go ahead with a partnership, be sure your agreements clearly distinguish the differences between product control and operational control. 

  5. Mr. Right
    Mr. Right will be the first person to tell you that he is never wrong. His favorite phrase is ‘my way or the highway’. He will rarely discuss his decision making process because he views such discussions as a weakness. He enjoys demeaning partners who don’t agree with him and making decisions without telling them. Funny thing about Mr. Right: he always seems to blame everyone but himself when his plans don’t pan out.  Tip: Communication is the key to a successful partnership. Find a collaborator, not a dictator. No one is always right.

  6. Mr. Dreamer
    You’ll hear Mr. Dreamer say this line a lot: “One day, when we’re millionaires…” He loves talking about retiring by 29 and how he intends to spend his hypothetical millions on a gold plated yacht that he’ll dock off the coast of his private island. One small problem with Mr. Dreamer: he doesn’t seem to know how to keep the business above water next month.  Tip: Big paydays come from years of hard work and persistence, not excessive rambling and daydreaming. While it’s important your partner be both positive and optimistic, it is equally important that he or she is grounded and focused. 

  7. Mr. Spender
    Mr. Spender can’t possibly survive without a six-figure salary, lavish office and an in-house cigar roller. Price is no object when it comes to entertaining a client or flying first class. If you’re lucky, Mr. Spender might even invite you to one of the extravagant dinner meetings that he charges on your company’s corporate card.  Tip: There is no such thing as the unlimited checkbook. Partner with fiscally conservative, financially responsible individuals who strive to make every dollar benefit company growth and development--not their personal lifestyles.

  8. Mr. CEO
    Mr. CEO feels compelled to tell everyone that he is a CEO within 30 seconds of meeting him--even if his company is worth less than the paper on which his     business card is printed. He loves cocktail receptions, his name written in fancy fonts, and stacks of luxury car magazines neatly piled on a coffee table in plain sight of customers. The only thing he doesn’t seem to like: real work.  Tip: Successful companies are not built on titles, talking and toys. Keep away from selfish, egotistical individuals who want to talk the talk versus walk the walk.

  9. Mr. Vacation
    I’d tell you more about Mr. Vacation, but I don’t know much about him. He never seems to be around.   Tip: No-shows are dead weight and eat away profits. Make sure that your operating agreement clearly outlines partner responsibilities and vacation days.

    And the partner to avoid like the plague is…

  10. Mr. Personal Issues
    Mr. Personal Issues always has a sad story. On the same day as your company’s keynote presentation at the big conference, his son’s wisdom teeth need to be pulled and his dog died of pneumonia. He would love to attend next week’s investor meeting, but his divorce hearing might tie him up all day. Unfortunately, Mr. Personal Issues can’t afford his legal bills, so he’ll need to pull a little more money out of the company this month to avoid his ex-wife from taking 50% of his equity in the settlement. Thankfully, this will be the last time he needs money… Tip: You’re not in business to be a babysitter or a psychiatrist. Know everything there is to know about a prospective partner before you sign on the dotted line. Discuss everything from business to politics to family life to finances. If a potential partner seems to have a few screws loose, run as fast as you can in the other direction.



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Private Equity Funding For Profit Center Vs. Cost Center Applications
Posted Monday, November 2, 2009 by David Castor
Funding LawI have helped a number of clients pursue and secure capital funding from private equity investors.  For all clients in this process I tell them to approach potential investors as they would potential customers.  Investors come in all types.  Learn as much as you can about the individual, angel investor group or private equity fund before presenting to them; then present to them the information that they want to hear (not falsely, but approach investors on their ground, not yours). 

A few weeks ago I saw a presentation by a couple of young entrepreneurs looking to secure additional capital for their company.  Their company developed a SaaS application that is used as a logistics tool within other businesses.  It is purely a plug in product for a business customer's cost center. 

I had never thought of this before, but for software licensing and SaaS model businesses it seems that there is a big difference, at least from potential investors’ perspectives, between B2B SaaS applications which are tailored for profit centers and those for cost centers.  Tools designed for profit centers are much easier to sell to investors.  You show that if a customer utilizes the tool, they can generate an ROI which will lead to a certain profit increase.  For cost center tools, about the best you can do is show that the tool generates so much operational efficiency that it ultimately frees up resources to generate more profit in other areas.  For obvious reasons I think this is a harder sell to investors who generally want to see direct ROI.

I will write more about this topic in the future as I work this concept.



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Funding Law - Consider Grants As An Alternative to Private Equity
Posted Thursday, October 29, 2009 by David Castor
Emerging Indiana technology companies should consider grant opportunities as an alternative to raising private equity.  The benefits are obvious as you are not giving up a stake in the business in order to secure strategic capital. 

A client of mine this past week engaged my technology law firm to assist in an SBIR grant opportunity.  Other grant opportunities include NIH grants and 21st Century Fund grants.

The 21st Century Fund is a "must" to consider if you are an Indiana technology business.  The Fund is described on its website:

The Indiana 21st Century Research and Technology Fund was created in 1999 by the General Assembly to stimulate the process of diversifying the State's economy by developing and commercializing advanced technologies in Indiana. The Fund is now an integral element of the Indiana Economic Development Corporation's Small Business and Entrepreneurship Division. 21st Century.





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Funding Law - Know Your Assumptions
Posted Thursday, October 22, 2009 by David Castor
Funding LawWhen presenting to an angel investor group or private equity investors, two rules of thumb should be followed:

1.    The investment opportunity should be easy to understand (Focus on the investment opportunity, the market opportunity and why this particular management team can pull this off). 
2.    Know your numbers and your assumptions.

I read a business plan this past week that segmented cash flow projections into four options, each with a weighted probability of occurrence.  They were referred to as Strike Out, Base Hit, Home Run and Grand Slam.  For example, Strike Out means the business tanks – this was assigned a 5% probability.  Base Hit was a conservative projection – assigned a 45% probability.  Home Run was a more aggressive projection – assigned 40% probability.  Grand Slam was a highly aggressive projection – assigned a 10% probability. 

There are a few problems with this.  Where did the probability stats come from?  It appears they were pulled out of thin air.  There were no assumptions stated that the reader could rely on.  All projections have assumptions.  Make sure to state them.  Sophisticated investors will be looking for them.

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Funding Law - Plan Your "To Market" Strategy
Posted Tuesday, October 13, 2009 by David Castor
SaaS Law - Funding InnovationI had a meeting with an Indiana technology client this week who is interested in pursuing US private equity funding for a roll out of a new SaaS product (actually a 7 year old successful software product converted to a new SaaS model).  The capital will be used primarily for additional sales staff with a small portion being used to hire an additional developer.

I am always happy with this structure – focus investors’ money on revenue generating activities rather than product development.  I see many early stage companies prepare for a capital raise which is only intended to cover product development.  There is nothing necessarily wrong there, but it may not be the best approach. 

Think about getting the product to market, not just getting it done.  Companies that pursue capital from private equity investors to only cover product development often end up with a great product in hand but no resources to get the product to market.  The idea that if we build it customers will come is a myth.  

Savvy private equity investors will see this as a weakness in a business plan.  You have to know your “to market” strategy.



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SaaS Law - Iasta Morphs And Grows Part II
Posted Monday, October 12, 2009 by David Castor
SaaS Legal ConsultingThis is the second part of a four part series from the SpendMatters blog on the rise of Iasta as a global leader in eSourcing markets.  The article is by Jason Busch, a Founder and Managing Director of Azul Partners, a boutique advisory firm. He is also Editor of the highly trafficked sourcing, trade and supply chain blog www.spendmatters.com. Jason is regarded as one of the leading technology pundits and thought leaders in the trade, procurement and operations worlds.


I recently just completed Ronald Cohen's book, The Second Bounce of the Ball (hat-tip: Greg Mark). The book is a great study in what it takes to be a successful entrepreneur. Perhaps most important in this regard is being able to read what Cohen refers to as the "the second bounce of the ball". After all, when we enter a market for the first time, it's easy to anticipate initial demand, interest, expectations, etc. But after the ball bounces a second time -- as it always does -- it's not always as clear which direction things will go in. Iasta is one of those companies that successfully read not only the second bounce of the ball, but the third as well. After migrating successfully from being a low-cost full service auction provider into a SaaS vendor with a strong e-sourcing mousetrap, they've once again listened to and read the market, moving in a new but logical direction.

Iasta's latest foray is into the world of what I'll term value-added sourcing and procurement services. Relatively speaking they're not breaking any new ground here. But just as they did in the past, they're copying and adapting an existing business model and delighting customers with both their price points and level of service. And they're doing so successfully, down to working with customers on broad- scale procurement transformations. Yes, you read that correctly. Iasta, that niche Indianapolis sourcing vendor, is competing against the Accentures and AT Kearneys of the world in the area of procurement transformation. And they're doing so successfully.

One of the secrets of their model is maintaining a relatively small full-time consulting team. In fact, nearly all of their team members are contractors with excellent reputations from past roles as consultants at major firms. Iasta is giving them far more autonomy and marking up their services significantly less than what other firms tend to do (e.g., I spoke with one of their procurement transformation leads with significant Big 5 experience who had also worked as a contractor for Denali and Accenture doing similar engagements). With Iasta, he was able to take home a significantly larger percentage of the overall client billings for his time and was also able to save the client material amounts over what bigger name firms would have charged (most likely to put in place more junior resources).

But what class of new services is Iasta offering specifically? For one, they're looking to define and bring to market offerings that, in their words, can help "new customers who aren't in a position to successfully use our software for 12 months until we can get them up to speed". If this requires dropping in more senior team members to drive initiatives in almost an interim management capacity, they'll do it. They'll also do more traditional opportunity and organizational assessments and follow through with customized programs designed to bring companies up to the next level of maturity (interestingly on this note, a number of other services providers in the market use Iasta as their sourcing platform and I suspect they might begin to see Iasta as potentially competitive -- the same problem that Ariba has had with its channel partners in the sourcing area).

In addition to procurement transformation offerings, Iasta is embracing the term "cloud sourcing" to describe a range of other services they bring to bear. These include what they're calling strategic initiatives in the form of energy sourcing and management, green supply chain consulting, MRO transformation and procurement outsourcing. But they're also productizing other cost reduction services based around what they're terming Zero Budget impact programs. These are, in Iasta's words, "8 indirect categories that are difficult to source and are not conducive to auctions".

Zero Budget categories include pharmacy benefits sourcing (delivered via a coalition / GPO model) which delivers, on average, 8-10% savings). They also include non-medical benefits and telecom (both delivered via sourcing events with 7-22% and 15-30% average savings respectively). Other categories that fall under this umbrella include software contracting, MRO/safety supplies, print, fuel management and relocation services.

Iasta has not abandoned more discrete service programs in the least, however. They continue to deliver what they term "tactical sourcing" programs in the form of spend analysis services, sourcing services, optimization services and user training. They're also offering spend analysis as service (including data classification, report and spend assessment surveys), fully managed source services, and staff augmentation around category-specific opportunities. To deliver all of these capabilities, Iasta is leveraging a network of "some 100 consultants" many of whom bring either specific category experience (e.g., print) or other areas of expertise.

Stay tuned for additional analysis of Iasta -- including software enhancements and pricing trends / observations / levels -- as this series continues.


Iasta is a software and global service provider of cost effective Supply Management solutions. As a leader in On Demand / SaaS eSourcing software and services, they have helped companies of all sizes and locations make better purchasing decisions. Iasta provides sourcing software for companies who want to analyze, source and optimize business decisions. Companies use Iasta’s product platforms to automate their strategic sourcing processes and provide buyers with the ability to collect and analyze a wide range of supplier or corporate information. Led by a team of talented individuals with experience in building viable companies, the leadership team's expertise and enthusiasm drive Iasta's superior product and service performance.


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See Also: 
SaaS Law - Iasta Morphs And Grows Part I



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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
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Disruptive Innovation in Technology and Entrepreneurial Law
Posted Friday, October 2, 2009 by Chris Stephen
Last Tuesday, I attended the TechPoint Innovation Summit.  In addition to meeting some great entrepreneurs and technology business people, I was fortunate enough to hear Clayton Christensen speak about his disruptive innovation economic theory.  I have to admit that this was my first exposure to this particular theory, but it highly intrigued me and made me think about its applicability to the practice of law in general and to business law firms specifically.

In a nutshell, Christensen's theory describes the impact of new technologies on a given market.  Essentially, in any given market, there is first a push for centralization. This centralization actually results in a higher cost to the consumer as the centralized firms compete with each other for top billing.  Following that centralization, new technologies emerge that allow for businesses to do things cheaper and simpler.  These new technologies lead to innovations in the market that eventually force change or failure of the centralized companies.  I know that I've put together the 100,000 foot view of the theory, but you get the gist.

Applying this model to business law firms, you see the implementation of centralized firms, in the advent of the big law firm.  These big firms then compete with each other and ultimately drive up the cost to the end-user.  Following Christensen's theory, now is the time for disruptive innovators in the legal field.  This reality is evident in the hard impact that big firm's suffered in the recent economic times.  

In my humble opinion, this theory is why firms like Alerding Castor Hewitt are competing well in these markets and will not only continue to be effective, but will thrive.  Through the willingness to embrace technology and focus on cost-effective, simpler representation, firms like ACH can focus on the entrepreneurs that need this representation, but aren't willing to endure the big firm costs. 

Why is this important?  Because as the world continues to change and technology law and innovation comes to the forefront, the innovators will be leading the pack and will want representation that understands both their needs and their spirits.  While this new business reality continues to develop, those of us here at ACH will continue being disruptive innovators (which incidentally would also be a great name for a band).   

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Funding Innovation in Indiana
Posted Wednesday, September 30, 2009 by David Castor
Funding Innovation in IndianaYesterday I had the honor of moderating the plenary panel on Funding Innovation in Indiana at the TechPoint Innovation Summit.  This was just a great event. 

The panel members included Michael Brown of Battery Ventures - Boston, Michael Arpey of Credit Suisse - New York, Steve Hourigan of the 21st Century Fund, Mathias Schilling of BV Capital - San Francisco, and Bob Compton, a serial entrepreneur most recently founding Vontoo, LLC.  I want to thank the members once again for their participation.  

The panel members represent private equity investors, angel investor groups, and grant funding organizations which look for funding and investment opportunities in Indiana technology companies.  Each came with unique perspectives and advice for businesses and business owners seeking funding.  Each has been a part of funding innovation in Indiana in the past, and each are looking for opportunities in the future.

My firm focuses on SaaS law, Internet law and funding law for technology companies.  We serve as general counsel to companies in these industries and have walked with several businesses through the funding process.  I am very proud to have shared in the event this week with such a prestigious group.

My colleague, Janet Croswell, mentioned to me afterwords that our panel set-up looked much like Kramer's talk show on Seinfeld.  See the picture above.  She may be right!







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Today is the Innovation Summit
Posted Tuesday, September 29, 2009 by David Castor
The TechPoint Innovation Summit 2009 is finally here.  I have been looking forward to this event this year (which has not necessarily been the case in past years). 

This year's focus is more tailored to helping seed and emerging stage Indiana technology companies pursue excellence in developing their innovation, marketing their innovation and seeking funding for their innovation.  As an Indiana tech lawyer these topics hit right at heart of the needs I have wrestled through with my clients.  

I am moderating the plenary panel this afternoon on Funding Innovation in Indiana.  The panel includes representatives from angel investor groups, private equity firms, and state sponsored innovation grant organizations.

Clayton Christensen is the keynote speaker at lunch.  I just finished reading his book The Innovator's Dilemma - a "how to" book on business development for innovation companies.

My firm is hosting a booth at the event.  Also, keep an eye out for Iasta, who will be hosting a booth near ours. 



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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.




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TechPoint Innovation Summit 2009
Posted Monday, September 21, 2009 by David Castor
Funding Law / SaaS Legal Counsel - TechPoint SummingNext week is the TechPoint Innovation Summit.  This will be an exciting event for Indiana-based technology leaders.

This year I am pleased to moderate the plenary panel discussion on "Funding Innovation".  As an Indiana tech lawyer / SaaS law attorney who helps clients set capital structures and meet capital goals, this is a topic I live and breath and am always striving to see fulfilled.  Thus, I am thrilled to take part in this discussion.

The panel consists of venture capital and private equity investors from all over the nation - all with experience in funding innovative companies in Indiana.  I have met a ton of technology business owners seeking capital investors to fund their innovation initiatives, but I have met very few who know how to navigate the process well (or even where to begin).  This panel will address questions for early-stage, mid-stage, and later stage companies looking for capital infusion.

A bit on TechPoint:

TechPoint promotes technology-based enterprise and economic development through lobbying and government advocacy, educational and networking programs, and strategic economic development initiatives. TechPoint seeks growth in Indiana's emerging technology clusters, including advanced manufacturing, logistics, health and life sciences, and information technology.

The entire summit will be a great event.  Many of the topics of the summit are going to be those that I have addressed with my business law / SaaS law clients.  Check out the website and the agenda and consider attending.



 

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Entreprenuerial Law – Financing Myths
Posted Thursday, September 17, 2009 by David Castor
Funding LawI read an interesting post yesterday on Small Business Trends by Professor Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve University.  It is a good read for current entrepreneurs and those daring to dream of starting their own company. 

Here is the post:

Most entrepreneurs believe a bunch of myths about financing new companies that hinder their efforts to raise money. Here are a few:

Myth 1: It takes a lot of money to finance a new business. Not true. The typical start-up only requires about $25,000 to get going. The successful entrepreneurs who don’t believe the myth design their businesses to work with little cash. They borrow instead of paying for things. They rent instead of buy. And they turn fixed costs into variable costs by, say, paying people commissions instead of salaries.

Myth 2: Venture capitalists are a good place to go for start-up money. Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and 72 percent of the companies that got VC money over the past 15 or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about 1 in 4,000. That’s worse than the odds that you will die from a fall in the shower.

Myth 3: Most business angels are rich. If rich means being an accredited investor — a person with a net worth of more than $1 million or an annual income of $200,000 per year if single and $300,000 if married — then the answer is “no”. Almost three quarters of the people who provide capital to fund the start-ups of other people who are not friends, neighbors, co-workers, or family don’t meet SEC accreditation requirements. In fact, 32 percent have a household income of $40,000 per year or less and 17 percent have a negative net worth.

Myth 4: Start-ups can’t be financed with debt. Actually, debt is more common than equity. According to the Federal Reserve’s Survey of Small Business Finances, 53 percent of the financing of companies that are two years old or younger comes from debt and only 47 percent comes from equity. So a lot of entrepreneurs out there are using debt rather than equity to fund their companies.

Myth 5: Banks don’t lend money to start-ups. This is another myth. Again, the Federal Reserve data shows that banks account for 16 percent of all the financing provided to companies that are two years old or younger. While 16 percent might not seem that high, it is 3 percent higher than the amount of money provided by the next highest source — trade creditors — and is higher than a bunch of other sources that everyone talks about going to: friends and family, business angels, venture capitalists, strategic investors, and government agencies.


As a business law, SaaS law/ASP law and private equity attorney, I see early stage technology business owners encounter these myths regularly.  When looking at developing an early stage technology business, key is to consider market opportunity and your ability to meet the opportunity based on your constraints (including capital constraints and founding team abilities).


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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.



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