All posts by Ryan Roberts

Accelerator Pitch Days and the General Solicitation Conundrum

accelerator pitch day general solicitation

If you’ve been to accelerator pitch days, you’ve likely seen a presentation that either flat out mentions the specifics of a financing round in progress or the details of a proposed financing.  In the last couple years, however, some accelerators have been concerned that their demo days constitute, for their portfolio companies, a general solicitation for purposes of Rule 502(c) of Regulation D under the Securities Act.

Basically, if a startup conducts a ‘general solicitation’ of its securities, it must then comply with additional requirements in order to qualify for an exemption from registration with the SEC for such offering. These additional requirements, while not completely onerous, do present additional transaction costs and associated risks that must be incurred by a startup. Previously, general solicitation was prohibited in certain offerings under Regulation D but this “new” Rule 502(c) permits startups to use general solicitation in connection with their offerings — with the additional requirements/risks.

Yesterday the SEC released an answer whether accelerator demo day presentations are automatically considered general solicitations.  This answer is ‘no’, but they gave a few rules/hints as to what could give rise to a startup’s demo day presentation being considered a ‘general solicitation’.  Here’s the relevant Q&A from the SEC website in its entirety:

Question:  Does a demo day or venture fair necessarily constitute a general solicitation for purposes of Rule 502(c)?

Answer: No. Whether a demo day or venture fair constitutes a general solicitation for purposes of Rule 502(c) is a facts and circumstances determination. Of course, if a presentation by the issuer does not involve an offer of a security, then the requirements of the Securities Act are not implicated. Where a presentation by the issuer involves an offer of a security, the presentation at a demo day or venture fair may not constitute a general solicitation if, for example, attendance at the demo day or venture fair is limited to persons with whom the issuer or the organizer of the event has a pre-existing, substantive relationship or have been contacted through an informal, personal network as described in Question 256.27. If potential investors are invited to the presentation by the issuer or a person acting on its behalf by means of a general solicitation and the presentation involves the offer of a security, Rule 506(c) may be available if the issuer takes reasonable steps to verify that any purchaser is an accredited investor and the purchasers in the offering are limited to accredited investors. [August 6, 2015]

I’ve never really understood why startups want to announce a pending round or give details on what their hopeful round will look like, even at an accelerator pitch day.  First, just by presenting at a demo day it’s 99.7% likely that your startup is interested in a financing round (thus, no need to say it publicly).  Second, if you mention valuation or an amount that you are looking for, it only gives potential investors a reason to question your thought process.  It’s probably best to let the investors come to you with their ideas, if possible.

Regardless, based on the SEC’s answer above, it’s in your startup’s best interest not to mention anything about an offering of securities, including an accelerator pitch day.  It would be asking too much of an accelerator to make sure that everyone in the audience has a pre-existing relationship with each of their portfolio companies.  And, I don’t think you want to automatically lose the chance to use Rule 502(b) (with reduced costs and risks relative to a 502(c) offering).

2015 Upgrade

I am happy to present an upgraded!

While just a soft launch, we added a left-side navigation bar with the intent of making content more accessible.  Early reviews have been positive:

startup lawyer review

About a year ago we released a Glossary.  Now with a custom plugin, we have integrated those defined terms into applicable blog posts.  If a glossary term is used in a blog post, it will be bolded and defined beneath the post.  We’re working to make this even cleaner, but you can see how it works below.

We’re also working on adding formulas to help you calculate common startup-related numbers (pre-money valuation, price per share, # of shares to issue, etc).

Finally, please be sure to subscribe in order to receive updates even if you have done so via a prior version of this site.

Thanks for reading!

The Undercurrent of the Dallas Startup Ecosystem

Dallas Startup

There has been a lot of talk lately that Dallas is a great environment for tech startups because of (1) the very low cost of living (especially in comparison to the California or New York) and corresponding high quality of life and (2) the very high number of tech jobs. However, I think these points make Dallas attractive to larger tech companies but actually create headwinds for smaller tech companies and thus make it difficult if you are a Dallas startup.

Dallas and Quality of Life Units

Other than marrying a Texan (which gets most non-Texans like myself here), people move here because the economics just make sense. Dallas is well known for the low cost of living (especially in real estate), low crime, superb public schools, competitive salaries (even higher than Los Angeles!), and the complete lack of state income tax.

To put this into perspective, when I left California in 2003 to come to Texas, I was paying $1,300 a month to rent a 500 square foot apartment outside of San Francisco, but was able to buy a 3,000 square foot house with a mortgage payment less than my California rent. Gas was $1 less per gallon and even everything at the grocery store was cheaper. I may have been making the exact same as I would have in California, but my overall “quality of life” was higher.

For simplicity’s sake, let’s say quality of life can be measured in “Quality of Life Units” or “QLUs”. Pertinent to this post, cheaper housing, less taxes, more purchasing power, better schools and lower crime leads to higher QLUs.

I’d say Dallas offers many more QLUs dollar-for-dollar relative to other areas of the country, especially the most expensive places like San Francisco or New York City. Earn $60,000 in San Francisco? Save up and maybe one day you’ll be roommate-free. That same $60,000 (or even slightly less) in Dallas gets you much more of these QLUs than in California or New York.

Influx of Jobs and Talent

Based in part upon the higher relative QLUs in Dallas, many large companies from around the country have relocated their workforces here so that they can provide their employees with a “raise” (without actually paying them more) based on the low cost of living/quality of life matrix Dallas offers. These employers are able to offer their workforce more QLUs for the same salary.

This has led to a plethora of tech jobs in Dallas and an influx of highly educated and qualified people to take advantage. These job opportunities combined with high QLUs make Dallas a very desirable place to live and work.

But if all this tech talent is here in Dallas and the costs are low, why does seemingly every startup in Dallas have a hard time finding a technical co-founder and/or CTO? Why aren’t people jumping from these large tech companies to startups?

Opportunity Cost

The answer lies in the economic term “opportunity cost”. Think about your decision to read this article. Instead, you could have been meerkating, sleeping, swiping left/right, or anything else. The opportunity cost of reading this article is passing up whatever activity you think is your best alternative. Because of resource scarcity, whenever you make a decision, you must pass up another opportunity.

The opportunity cost of launching or joining a startup (full-time) is likely a good-paying job. This is true for all cities, right? But in Dallas, the opportunity cost is likely the highest in the nation because of the aforementioned QLUs. Restated, workers in Dallas making a decision to go into a startup are potentially giving up more QLUs than a similar person in California or New York. In Dallas, why risk it?

Informal Client Census

At our firm, we are blessed to have a geographically diverse client roster. For example, in Q4 2014, only 35% of our clients were in Dallas with the rest being spread across the globe. And we’ve noticed a pattern that highlights an interesting difference between our Dallas clients and non-Dallas clients. Our Dallas clients are much more reluctant to quit their day job and go “all in” (i.e. full-time) with their startup. Many of them are determined to keep their “day job” as long as possible and just work on their startup at night and on weekends. This is very different from our clients in California or New York. Even worse, once they go all in, our Dallas startup clients are quicker to give up and jump back into the corporate world.

Why is this? Are people in California or New York more determined or more passionate about their startup than those in Dallas? We don’t think so. We think Dallas startup participants give up more when participating in a startup. It’s a calculation leading to higher QLU opportunity cost which presents a higher threshold to join a startup.

This is Bad for a Dallas Startup

The high QLU opportunity cost, in my opinion, slows down each Dallas startup and in turn the entire Dallas startup ecosystem.

You and your co-founders aren’t full time? Good luck asking an investor for his or her full-time money. (And btw, saying that you’ll go full time if you get funded signals to an investor that you don’t fully-believe in your startup.)

And, furthermore, when a founder finally decides to go “all in” he or she may have trouble finding a CTO or other cofounders because they too are having the same dilemma.

It also seems like Dallas startup employees care much less about stock options and incentive equity. This makes sense as they have previously been spoiled with a high salary (QLUs again) from a large tech company.


The lauded perks of the Dallas tech industry do not necessarily help local startups but instead may likely be hurting them – at least until they can pay close to market salaries. While this is true for most areas, there is a more severe consequence here in Dallas.

The issue here is that people talk about the Dallas tech industry as a whole and don’t differentiate between startups and large tech companies. Yes, Dallas is great place to get a solid tech job and a house, and raise a family. But, for an individual in Dallas, most of the time, life is too good and there is just too much to lose to launch or join a startup.

So what do you do if you are a startup in Dallas? If you can’t afford to offer market salaries (which is likely), then you should be more generous with your equity grants…from co-founders to consultants. You have to increase the upside in order to make up for the larger loss of QLUs.

And before I get hate mail, let me be clear: I think Dallas is a great place to launch a startup; Dallas startups are underfunded; there is no material difference in the quality of founder/CEOs here in Dallas than in California or New York. This post simply details a view that the reasons lauded for why Dallas is great for startups is likely — at least initially — hampering them.


Crowdfunding Should Be Used as a Last Resort

crowdfunding last resort

I recently wrote a commentary piece for the Dallas Business Journal regarding equity crowdfunding titled:  “Here’s Why Crowdfunding Should Be Your Last Resort”  I thought some of my readers would enjoy it. Some of the main take-homes from the article are:

(1) It may not provide the boon of capital some predict

Even if a startup is willing to submit to equity crowdfunding’s increased regulation and incur its significant transaction costs, non-accredited investors may not collectively be the untapped well of investment capital that hopeful startups eagerly anticipate. A lot of attention has recently been given to the top 1% and their share of U.S. wealth, and accredited investors are said to represent about the top 5%.

While the inclusion of non-accredited investors may increase the investor pool by a factor of 20x, the increase in available wealth may not even double, even though any increase would be welcomed by startups. Further, it is likely that the typical non-accredited investor may not have a portion – or any – of his or her wealth readily available or otherwise earmarked for high-risk investments in startup companies.

(2) It May Signal Your Startup has already been passed over

Crowdfunding, at least for the time being under current and proposed regulations, will be less appealing to startups than typical angel or venture capital investment.Those companies that engage in equity crowdfunding may unknowingly signal that they have been passed over for investment by such angel and venture capital funds, leaving the equity crowdfunding companies to represent their leftovers.

Even companies with successful campaigns will be presented with challenges from obtaining routine consents to shepherding hundreds or even thousands of investors through subsequent financing rounds, as raising capital is typically not a one-time event for a startup.


Please know that I *want* equity crowdfunding to be a boon for startups, I just can’t recommend it as a go-to option today.  And, please realize I distinguish this from “rewards-based crowdfunding” which I do believe can be a positive for a startup at this point.


SXSW Happy Hours and Office Hours

It’s that time of year again when a good portion of the startup world flocks to Austin Texas for SXSWi.  This year, I’ll be involved with two events:

Dallas Drops the Mic — March 14th 6pm-8pm

The official blurb about this event is: “Join the Dallas Startup Community in a truly epic happy hour where freestyles and mic dropping are expected. We’ll show you why Dallas is the greatest place to create a company by bringing in our investors, startups, and all of the other pieces that make our startup community awesome.”

I’m not sure if anyone in the Dallas community likes real hip hop (I went there) and if there are any freestyles, they will be more Drake-y and less Mobb Deep.  Regardless, it will be a great event and other co-sponsors besides this blog are LaunchDFW, Tech Wildcatters, Softlayer, Rise, The DEC, and REVTECH.  It’s great to see the Dallas community come together for an event like this.

You also don’t have to be from Dallas to attend — there’s quite a few people from outside of Dallas attending.  Be sure to register if you plan to go.

UP Global Startup Oasis Office Hours — March 15th 2pm-3pm

Like last year, I’ll be holding 1:1 meetings with a few people at the UP Global Startup Oasis.  Feel free to signup and we can chat about anything related to the startup world — and it doesn’t even have to be about boring legal stuff.  Last year, I had some good conversations about the economics of cryptocurrencies (bitcoin)…and of course topics you would expect such as vesting schedules, convertible notes and term sheets.

Tech Wildcatters Pitch Day 2014

Tech Wildcatters Pitch Day 2014 will be held on Thursday, May 22 from 1 to 3:30pm (Dallas Time) at the Granada Theater. At Pitch Day 2014, the 13 startups of the 2014 Tech Wildcatters class will present:

-Akros Tech Labs
-My Dealer Service

Tech Wildcatters is a mentor-driven seed fund and technology accelerator that invests money and resources in promising B2B startups. The class of 2014 is the largest and most diverse class in Tech Wildcatters history with an acceptance rate of 4%, and the thirteen companies hail from more than six countries.

Register for Tech Wildcatters Pitch Day 2014.

Mock Series A Term Sheet Negotiation

My firm and Tech Wildcatters are co-hosting a live mock Series A term sheet negotiation on April 25th from 1-3pm. The event will take place at Tech Wildcatters at 2700 Fairmount St in Dallas Texas.

Brad Hunstable, founder and CEO of Ustream, will play the role of the startup founder and a “TBD” VC will negotiate from the investor’s perspective. I will moderate the negotiation.

We’ll send out the sample term sheet from which the negotiation will commence to attendees prior to the event or otherwise make it available online.

Click here to RSVP.

This event is one of the events held by Tech Wildcatters during their annual Career Fair and VC Week.

Office Hours at SXSW

If you want to discuss liquidation preferences, vesting schedules, or anything startup-related, I’ll be holding an office hour session this Friday March 7th from 130-230pm at UP Global’s SXSW Startup Oasis.

The office hour portion of Startup Oasis is blocks of time where you can meet with mentors across a diverse range of skill sets. It will be held at the Old School Bar & Grill on 6th Street (corner of 6th and Trinity).

Register for office hours here.

UP Global’s SXSW Startup Oasis includes many other events, so check out their announcement here.

Unintended Consequences of a Long Additional Closing Period

Some financing rounds close on one specific day. That is, all investors fund the full investment amount of the financing round on the same day. This is usually the case when a financing round has a small number of investors who can coordinate with the startup on a closing date (wires, exchange signature pages, etc.). As the number of investors in a financing round increases, herding all such investors to close on one exact day becomes increasingly difficult, if not impossible.

To facilitate closing a financing round with multiple investors, the deal can be structured to allow the startup to hold multiple closings. The first such closing is known as the “initial closing” and subsequent closings are called “additional closings.”

The deal documents will generally fix a date that is the last day a startup can hold an additional closing. This “additional closing period” usually falls in the 30-90 day range, measured from the date of the initial closing. But the additional closing period can be longer (i.e, 120 or even 180 days). Investors do not like long additional closing periods primarily because it can allow late-to-the-table investors to invest on the same terms they originally did — 30, 60, or even 90 days later.

The general consensus is that a longer additional closing period is a company-favorable term. The startup is simply allowed to close certain investors who are ready, and then work on closing the rest of the investors in the short period thereafter.

However, elongating the additional closing period could tempt investors to wait or otherwise hedge investing until the latter part of the additional closing period. They may think “Why would I invest now when I can invest X months down the road and get the same terms?” Since optics and signaling tend to matter, a very long additional closing period may signal lack of demand to finance a startup (even if it’s not the case). Of course, any investor choosing the wait and hedge approach would balance it against the probability that the round closes without them.

The wait and hedge approach is problematic as a startup needs the investment ASAP. It’s likely the startup has been working on obtaining financing for 6+ months prior to the date of an initial closing. Thus being delayed another 60-90 days can be brutal.

Determining a proper additional closing period, if any, is very situational. If your startup already has a sufficient amount of money lined up, then extending the offer period beyond 30 days may not be necessary. Though, if you are still very far from your goal or have a very large number of investors, it may be essential to have a long additional closing period. Regardless, extending the additional closing period for as long as possible just because a startup can may have negative consequences.

Introducing the Startup Law Glossary

In case you didn’t know, this blog contains a glossary of terms that startups may encounter anywhere from their initial startup to sale/IPO. You can reach it at the top of each page by clicking on ‘glossary’ or directly via

We started out with about 150 terms but now we’re just shy of 500. Please let me know if you think any other terms should be added.