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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Partners in Success - Den of Deliverability
Posted Wednesday, February 24, 2010 by Chris Stephen
Your friendly neighborhood technology legal counsel here:  One of the greatest aspects of our firm is the fact that we, as attorneys, get to partner with our clients to assist in the development of their dreams.  Additionally, while we focus on being the general counsel for all business types and sizes, one of my personal areas of passion is seeing new technology based clients develop and partnering with them to see their success. 

One such emerging company that I'm happy to say we are partnering with is Den of Deliverabilty (www.denofdeliverability.com) ("DoD").  DoD is a start-up for which we've done SaaS legal consulting.  They are focused on assisting their clients in getting their e-mail messages to the end user and drawing the distinction between "ham" (mail that people requested and want to receive) and "spam" (unsolicited commercial electronic mail).  This process can be much more arduous that one might initial think, but luckily, DoD can help any business maximize their marketability through the proper use of commercial electronic messaging. 

I'm very excited to see this company take off.  They have great ideas and really cool software components that I think are going to be essential to any business.  And just for fun legal disclaimer (what do you expect, I'm a lawyer) as I mentioned, I, and this firm, have done legal work for them, but we are not otherwise compensated by them.

So if you think this is something that your business might benefit from, check these guys out.  

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2010 Top 50 Indiana Super Lawyer: Brian Hewitt
Posted Thursday, February 18, 2010 by Janet Croswell
Indiana Probate Litigation, Indiana Entrepreneurial LawCongratulations are in order to Brian Hewitt, the newest parter of Alerding Castor Hewitt, LLP, who was recognized this week as one of Indiana's 2010 top 50 Super Lawyers.

Brian concentrates his practice on estate, trust, and guardianship planning, administration, and litigation; and mediation and business law.

He is a Certified Estate Planning and Administration Specialist, a Fellow of the American College of Trust and Estate Counsel, and a member of the Probate Litigation Committee of the American College of Trust and Estate Counsel.  

Brian has spoken widely at continuing education seminars on estate planning, business succession, litigation, and mediation.

Congrats Brian! 

We are proud that you have chosen to join us as a named partner of Alerding Castor Hewitt, LLP, 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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Please Read Before You Click "I ACCEPT"
Posted Wednesday, February 10, 2010 by Janet Croswell
SaaS litigation, software service level agreement, cloud computing lawHow many times have you signed up for a service on-line, scrolled past all the legal jargon, and clicked "I Accept" or "I Agree" without taking the time to actually read the terms and conditions you're agreeing to? 

Admit it.  We all do it.  

But, just as a warning to be careful the next time you're purchasing that new mp3, or more importantly signing your company up for something on-line... those shrink-wrap and click-wrap agreements have been held by the courts to be binding.

Contracting in cloud computing law doesn't necessarily require a signature these days.  An affirmative acceptance of the provisions of a software service level agreement by an authorized agent can be given with a click of a button.

Take the recent trademark infringement case of Appliance Zone, LLC v. Nextag, Inc. for instance.  Although this case was dismissed on grounds of jurisdiction (which, incidentally, was a term of the shrink-wrap agreement that was held by the court to be an effective document) the court discussed some important software litigation surrounding click-through agreements within it.

In essence, if the facts support a claim that a person (a) is authorized to enter into such a contract, and (b) had the intent to enter into it, then they will be held to terms of service they signed up for, including basic contracting terms such as jurisdiction, venue, etc, etc.

The court in this case cited Gallent Ins. Co. v. Isaac in ruling that there was authorized conduct that clearly demonstrated the acceptance of a valid contract by the 19 year old website manager of Appliance Zone who registered the company as a merchant on Nextag's website and clicked "I accept the Nextag Terms of Service" as part of the process.

While the enforceability of a contract can be destroyed with factors that make it unconscionable (such as inequality of bargaining power, or unreasonable or unknown terms) the court did not find those arguments sustainable in this case for a number of reasons, including the fact that clickable acceptance has become commonplace for on-line retail, and the registration process could not have been completed without the click-through acceptance.

The court in this Indiana technology litigation case fell back on Paper Exp., Ltd., Micrometl Corp. v. TranzAct Technologies, Inc. with the "fundamental principle of contract law that a person who signs a contract is presumed to know its terms and consents to be bound by them." 

Next time, before you click "I Accept" make sure you really do.

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ALERDING CASTOR HEWITT LLP PARTNER NAMED TO FORTY UNDER 40
Posted Thursday, February 4, 2010 by Lainey Scheetz

FOR IMMEDIATE RELEASE
February 4, 2010
Contact: Lainey Scheetz
317.403.9012
lscheetz@alerdingcastor.com

ALERDING CASTOR HEWITT LLP PARTNER NAMED TO FORTY UNDER 40

Indianapolis, IN – Alerding Castor Hewitt LLP is pleased to announce that Michael Alerding, a partner at the firm, has been named to the 2010 Indianapolis Business Journal’s Forty Under 40 list.  The list recognizes local business and professional leaders who have achieved success and excelled in their field before the age of 40. Those honored have demonstrated leadership, initiative and dedication in pursuing their careers, and are likely to continue to achieve in the future. 

David Castor, partner at the firm states, "Michael has served the professional and civic community of Indianapolis for many years.  I am proud to be a partner of his as he brings with him a strong commitment to our vision while balancing that with a solid family life.  Michael represents what we should all strive for - personally and professionally."

Prior to forming Alerding Castor Hewitt, LLP, Alerding was a partner at Sommer Barnard PC and Bingham McHale LLP. 

A 1989 Cathedral High School graduate, Alerding received a bachelor’s degree in journalism from Indiana University before pursuing his law degree at IUPUI.  He was admitted to the state bar in 1997, the same year he graduated with honors. 

Alerding is a husband and a father of three young daughters.  “I don’t need to make a whole lot of money nor do I want to necessarily,” he said.  “The desire to feed my family is what gets me out of bed in the morning, and everything I do is for the sake and purpose of my family.”

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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SCOTUS grants certiori on privacy litigation - City of Ontario v. Quon
Posted Thursday, January 14, 2010 by Chris Stephen
The United States Supreme Court (SCOTUS) has granted certiori on a case  in the privacy litigation arena that focuses on the question of whether a governmental employee has Fourth Amendment rights in the contents of an employer issued pager.  The case is City of Ontario v. Quon (www.ca9.uscourts.gov/datastore/opinions/2008/06/18/0755282.pdf).  In Quon, the Ninth Circuit made several decisions.  It first decided that a third party company that provided texting services to the City of Ontario was a Electronic Communication Provider and not a Remote Computing Provider for purposes of the Stored Communications Act ("SCA").  Given the impact on liability, I think this aspect of the opinion (which was not raised on cert) is very intriguing from a technology litigation / electronic discovery perspective.  If a text message company is a ECP and not a RCP, they are exposed to more liability.  This fact can be used as a sword or a shield in a litigation arena.

The remainder of the 9th Circuit opinion focuses on Fourth Amendment privacy rights in electronically stored information.  The point that was raised on cert is whether a governmental employer has an expectation of privacy in his information transmitted electronically from a government provided device.  This has some implications for Indiana privacy litigation as well as general licensing agreement negotiations.  Interestingly, if SCOTUS agrees with the 9th Circuit, the employee would have a reasonable expectation of privacy in the information, regardless of what state public record acts say.  Thus, I, Joe Citizen, would have more access to the information than the State itself.  This has the potential for interesting results.  Maybe the state will have to ask me to find out if their employees are responsibly using the equipment provided to them.  

Additionally, if the Court agrees with the 9th Circuit, a search that was conducted when there were less intrusive means of obtaining the information would not be reasonable.  This also creates a lot of grey area and room for courts (and litigants) to maneuver.  I think it certainly raises instant triable issues regarding whether a means was intrusive and what less intrusive means existed.  

Overall, this ruling should be fun, even if I personally think the more interesting question was not raised on cert.  (ie whether a third party provider is an ECP or a RCP under the SCA [you have to love acronyms]).  I'll be watching this one.

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Non-technology blog entry - Indiana Senate Bill 192
Posted Tuesday, January 12, 2010 by Chris Stephen
I know that as your friendly neighborhood Indiana technology counsel, I usually post wonderful things about privacy litigation (look to see my blog on the Supreme Court taking up a case of privacy expectation in texting) and other fun cyberspace law, but today I'm going to digress for just a bit.  Indiana Senate Bill 192 has recently been introduced by State Senator Sue Errington (D-Delaware County) and would govern how a hospital applies visitation rights in a domestic partnership situation (www.in.gov/legislative/bills/2010/IN/IN0192.1.html)  The bill is not aimed at a distinction based on sexual orientation and does a good job of defining "domestic partnership" without going to the obvious.  Further, it allows a hospital to still govern the needs of the patient and implement rules accordingly.  What it stops is arbitrary and capricious denial of access to a loved one simply because the relationship between them is not familial, marriage, or civil union.

I believe that this law is a direct result of the 2007 Court of Appeals decision of In Re the Guardianship of Patrick Atkins (www.ai.org/judiciary/opinions/pdf/06270701jgb.pdf), which is a heart-wrenching decision that I think is right under the current law, but is a wake-up call to change the law.  It is definitely worth a read.

Regardless of your opinion on same-sex relationships and the rights that they should or should not be afforded, Senate Bill 192 is a logical and reasonable approach to a heated argument.  No matter what rights are ultimately given to domestic partnerships (same-sex or otherwise), a person should have access to their loved ones when they are in the hospital.  So if you are in Indiana, I hope you'll give Bill 192 a read and if you agree with it, call your representative and say so.  If you are not in Indiana, I hope that you'll take a read of Atkins and this law and see what potential pitfalls are out there and if you are so inclined, call your representative. 

I promise to geek out next time.

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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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Consider Profit Interests for Your Key Employees
Posted Thursday, December 17, 2009 by Janet Croswell
Indiana Technology Counsel, SaaS Legal ConsultingEmployers invest so much time and effort into (a) finding and hiring the right candidates for the team, and (b) developing those individuals to work at their most efficient levels for the company. 

Let's face it, it can take years to get a company up and running effectively, and certain key individuals play a huge role in making that happen. 

You don't want to lose them.

While I firmly believe that everyone is replaceable, some employees are just harder to replace than others because they add so much value.

Give them an incentive.  One option is to tie their salary to the success of the company.

Instead of traditional stock options (which could make it difficult down the road should the employee leave the company for any reason) business owners may want to consider offering certain individuals profit interests.

Not only would it build loyalty and increase an employee's desire to see the company succeed, but the company owners would retain all of the equity interest.

A bit simpler than stock options, profit interests are typically tied to employment and end upon the employees departure.   This eliminates employers dealing with minority shareholders and the host of issues that may arise from them.

Alerding Castor Hewitt, LLP is an information technology law firm that has helped dozens of start-ups with their business and legal needs, including documentation for profit interest agreements.



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SaaS Law – Don’t Use The Term “Affiliates” - PART II
Posted Tuesday, December 15, 2009 by David Castor
The other day I wrote a post on my reasons not to use the term "affiliates" in licensing agreement negotiations.  See post here.  My general point is that the term has no common meaning in the law and may create ambiguity in the contact.

I addressed several different definitions of the term in laws, but the term is not only defined differently in law, it is also used differently in business.

For accounting companies, for instance, the Interstate Commerce Commission defines the term as companies controlled by the accounting company alone or with others under a joint agreement.  So, “affiliates” falls outside of typical entity ownership structures and to companies with controlling interests through contractual relationships.

In the banking industry the term is commonly used to refer to an FIB which processes credit card data for other financial institutions or financial institutions that issue MasterCard or Visa cards.  The term here has nothing to do with ownership structures.

In television and radio industries, affiliates are companies not necessarily under common ownership which have contracted with a network to broadcast its programs.

In the Internet world a marketing affiliate refers to a company who links to another company via a weblink which then allows the hosting company to obtain a commission on sales made as a result of user’s clicking through that link.

"Affiliate" is a term that is used in contracts when the parties want to refer to an entity relationship but do not want to take the time (or don't know how) to define it.  Again, it is best to avoid this term, but if you must use it, make sure to define it clearly in the contract. 



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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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Entreprenurial Law - Proof of Concept & Proof of Scale
Posted Tuesday, December 1, 2009 by David Castor
New technology businesses usually face two hurdles to get their product to market.  The first is proof of concept.  The second is proof of scale. 

Both are intended to solve the “Ability” stage of the business plan process and move the business into the "Meeting" stage:

Recognition of Market -> Recognition of Market Opportunity -> Ability to Meet Market Opportunity -> Meeting Market Opportunity at Profit

Proof of concept is simply the proof that the business can develop a working prototype that solves the market opportunity issue.  For a software licensing company this will be development of a bare bones software program, usually without user interface design or additional back end functionality.  It solves the most basic questions of whether the contemplated design will meet intended functionality. 

Proof of scale is the initial to-market phase that proves the business can scale the technology (or good or service) to satisfy the market opportunity at a profit.  Some of the issues to address at this stage include:
  • Adequate capital
  • Quantifiable customer demand
  • Number of sales force required
  • Adequate supply chain (in terms of cost, quality and time)

After proof of scale is satisfied, a business is usually in a more stable mode with its product (or service) satisfying the market opportunity at a profit.

As an entrepreneurial law / SaaS law attorney, I have helped several clients work through these and many other issues in the “proofs” stages.  I find that few business fail to address the proof of concept stage well, but many ignore issues in proof of scale.  One of the key issues to address early is quantifiable customer demand for YOUR product as many of the other issues spring from this one.



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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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Who Owns My Website?
Posted Tuesday, December 1, 2009 by Janet Croswell
Indiana Internet Litigation, Indiana Technology CounselSo you've launched your company and hired a web-developer to breathe life into the idea you've poured your heart and soul into developing over the past several months, perhaps even years...

Maybe you never even thought to ask the question, but at the end of the day who actually owns "your" website?  You or the web designer?

Indiana software litigation in a ruling by the Supreme Court of Indiana, Conwell v. Gray Loon Outdoor Marketing Group, points to the fact that hiring a contractor for the development of content and programming of a website is considered a service rather than a purchase of a good.

In this case, the Indiana Supreme Court ruled that the independent contractor owns the property, while the hiring party owns a non-exclusive and perpetual license to use such property, unless of course, there is an agreement specifying otherwise.

Looking towards prior Indiana technology litigation the Supreme Court applied the definition of an implied non-exclusive license to the development of a website:

An implied non-exclusive license is granted when (i) a person (the licensee) requests the creation of a work; (ii) the creator (the licensor) makes that particular work and delivers it to the licensee; and (iii) the licensor intends that the licensee copy and distribute the work.

This definition applied to the facts surrounding the website development in this particular case ultimately led the court to its conclusion.  

So, expect this to be the case (at least in Indiana) the next time you hire a webdesigner for your next project: upon final payment, the webdesigner owns the property, while you own the right to use it... forever. 

(Unless, of course, you involve technology legal counsel first and negotiate otherwise.)

For an example of a newly developed Indiana-based website check out: GlobalToaster



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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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E-books for Lawyers: The Future or Flash-in-the-Pan
Posted Friday, November 20, 2009 by Chris Stephen
As an admitted technophile, I can't help but look into all the newest gizmos and gadgets.  Plus, working at an information technology law firm, I can even bill it sometimes.  Thus, I've recently begun a fascination with e-books.  Jason Wilson has  done a very interesting set of blogs looking at the use of e-books (or lack of use) for lawyers (www.jasnwilsn.com/).  Jason's viewpoint is as a counterpoint to a recent set of blogs by Professor Eugene Volokh (volokh.com/2009/10/02/the-future-of-books-related-to-the-law/).  I find this debate interesting for lawyers in general, but litigators specifically.


While I appreciate Jason's point of the importance of cloud computing and web based interfaces for lawyers, I have to admit that I personally think that e-readers are likely to have increasing presence in courtrooms around the country.  I am genuinely intrigued by the thought of turning to my e-reader to "leaf" through a treatise on privacy litigation or ASP law that I've downloaded while sitting in a courtroom.  This is particularly true when the courtroom that I'm sitting in is located in small town Indiana (or any other small town) that is still working on integrated computer systems and look at you askew when you ask about WI-fi.  Web based interfaces are extremely important to the 21st century attorney, but there are still limitations.  And if technology can allow me to carry treatises and law books that I might need before a court while still using my super sleek briefcase, I'm all for it.
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Indiana Is More Than Low Cost Housing And A Good Family Enviornment
Posted Friday, November 20, 2009 by David Castor
There are several business blogs that I follow.  Most of these are written by SaaS law / Internet law clients of mine or other Indiana businesses in technology industries.  Lately I have been falling behind on them.  This morning I am trying to catch up. 

I came across a very good, brief video on Kristian Andersen + Associates' blog.  

The video is from the Bigger Ideas/Smaller Indiana conference this past summer.  In the video Kristian Andersen shares his feelings on central Indiana's business environment and our tendency to minimize our solid business culture by holding ourselves out as having two strengths to attract businesses and entrepreneurial ventures to Indiana:

#1 - Indiana has low housing costs.
#2 - Indiana is a great place to raise a family.

Don't get me wrong, these are great attributes of our region, but I agree with KA that they do not create cultural excitement or substantive value for businesses.  If you look at top tier business environments, they certainly do not market themselves in this way.  They sell value.  They sell cultural significance.  They sell networks and incentives.

Kristian, very nicely done!


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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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Negotiating Tips
Posted Monday, November 16, 2009 by David Castor
Business LawThe following post by Pat Horgan of Palidan Associates was printed on the E-Sourcing Forum a couple of weeks ago.  Even though the post applies particularly to sourcing professionals, the concepts are excellent for most contract negotiations.

NEGOTIATING TIPS

Contract Document Control

In contract development, the party that controls the physical production of the contract document and the wording changes during negotiations generally has a distinct advantage.  This is particularly true in long or complex contracts.

Subtle or undetected changes can possibly be introduced into the document by the “controller”, but without the other party’s knowledge.  Sometimes seemingly innocuous, but subsequently important terms and conditions on someone else’s paper can escape notice.  To the extent that one party’s language is used, subsequent legal interpretation of precedent, meaning, or industry practice may favor that party.

The party that controls the contract document has a leg up in the negotiations.

Controlling Terms and Condition

Similarly, both the Buyer and the Seller have to be careful that they are not inadvertently accepting unknown or non-negotiated terms and conditions that may exist on the other party’s standard paper, contract documents, invoices, or purchase orders. Often terms and conditions on a Seller’s standard invoice are different than those on the Buyer’s standard purchase order, and both may differ from specific contract language.  Often, simply paying an invoice means the buyer has “accepted” the Seller’s terms. In a more recent complication, agreements may refer to Terms and Conditions that reside on the Seller’s website.  This is sometimes difficult to manage because the website can be readily changed, enabling the Seller to change prices and terms at their discretion.

Often the Buyer firm, or the larger firm, or the firm that has better legal representation wins this negotiating element without the other party even realizing the issues involved.

Some things Buyer’s can do:

Buyer’s can generally insist that contracts be written on their paper, that they control and modify the physical document during negotiations, and that their terms and conditions prevail. Include terms and conditions early in the RFX process to identify and address these issues at the point of greatest leverage.  Vendor invoices should always be reviewed, matched against purchase orders and/or contracts, and checked for inappropriate terms or conditions.  Suspect invoices can be referred to properly trained Accounts Payable personnel or legal counsel for resolution.



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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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SaaS Law - Market Growth
Posted Friday, November 13, 2009 by David Castor
SaaS Law / Business LawAccording to a recent Gartner research report, worldwide SaaS revenues are expected to grow 18 percent in 2009 to reach $7.5 billion.  The report further stated an expectation for SaaS industries through 2013 when worldwide revenues are expected to top $14 billion for enterprise application markets.

Gartner listed the top SaaS market segments for 2009 as follows:

1. Content, Communications and Collaboration (CCC) - $2.6 billion
2. Customer Relationship Management (CRM) - $2.3 billion
3. Enterprise Resource Planning (ERP) - $1.2 billion
4. Supply Chain Management (SCM) - $826 million
5. Office Suites - $68 million
6. Digital Content Creation (DCC) - $62 million
7. Other SaaS offerings - $472 million

My business law / Internet law practice focuses on representing technology businesses as general counsel through their business lifecycle.  A number of my clients that are seeing rapid growth are in SaaS markets, primarily in CCC, CRM, and SCM markets.  This report is encouraging news for SaaS businesses in Indianapolis.


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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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