Top Ten Mistakes Startups Make Webinar Featuring:

Lisa Chapman, Esq. (lchapman@rroyselaw.com)Fred Greguras, Esq. (fgreguras@rroyselaw.com)

&Chris Chillingworth, Partner (cchillingworth@cfos2gopartners.com)

Located at Royse Law Firm, PCSeptember 23, 2014

FINANCIAL MISTAKE #1: Spending Without a Plan

• Without a Plan:– Decision making is driven by liquidity, not

goals– Staging is ignored– Quantity purchase discounts go unheeded.

• The Planning Process is more important than the Result.

• Run the Company with a “checkbook” mentality.

• Consider contingencies. Always have a Plan B!

FINANCIAL MISTAKE #1: continued

OK, But What Constitutes a Plan?

• Accountable units (e.g., hours, quantities, unit prices, headcount).

• Specific timeframe for each cost.

• Specific goal or milestone to be achieved by the expenditure.

• A belly button to push – accountability.

LEGAL MISTAKE #1: Failing to “Legally” Document Your Company’s Status with Founders, Employers and Employees

• Why should you document your business activities? To avoid personal liability and to create a written record of the decisions of the company and the relationship between the founders/board of directors and third parties.

• When should you document status? When you take any action that creates a risk of potential liability or for which regulatory or statutory compliance is required under Federal, state or local law.

• How does this protect a company’s founders from personal liability?

FINANCIAL MISTAKE #2: Treating Company as a Personal Piggybank

• Particularly young entrepreneurs comingle business and personal expenses – DON’T!

• Utilize separate bank accounts, separate credit cards, and file expense reports for business activities.

• Document use of “listed property” (cellphones, autos, computers) which have both business and personal uses.

• Document Board and Management actions with minutes.

• Treat minority investors as a fiduciary would• Run the business as a business!

LEGAL MISTAKE #2: Ignoring Obligations Under IP and Trade Secret Laws

• What is a trade secret? Information that is not generally known to the public has economic value and is treated as confidential by the holder of the secrets. This includes technical and non-technical information (i.e., customer lists, “know how” and business plans.)

• What is Intellectual Property? Trademarks, patents and copyrighted materials.

• Important obligations to consider when forming a company: - Your defensive strategy

LEGAL MISTAKE #2: continued

- Preexisting obligations to former employers: consider NDA’s and covenants not to compete relating to founders and employees- Dealing with potential investors.

• Important obligations to consider when your company is up and running: - Your offensive strategy- Aggressively protect your property: don’t ignore breaches.

FINANCIAL MISTAKE #3: Failure to Develop a Meaningful Accounting System

• Systems are dirt cheap these days, whether desktop or cloud.

- No excuses for checkbooks or spreadsheets as your primary accounting system.

• Don’t treat the system as simply a repository for receipts until tax time.

• Structure the system to provide meaningful, timely and relevant data on a daily basis.

• Pre-authorize expenses.• Insist that transactions be entered timely.

LEGAL MISTAKE #3: Don’t Ignore Employment Laws and Regulations

• Companies are heavily regulated: you cannot fly under the radar even though it feels like you can.

• What is the scope of Risk in the event of non-compliance? Litigation costs, loss of morale, investors’ concerns and impact on your final exit. Biggest issues: employee determination and wage and hour compliance.

• Should you use forms that are not tailored to your company’s needs? No

• Why you cannot treat your workers as Independent Contracts as a means of avoiding compliance with employment laws and regulations and

LEGAL MISTAKE #3: continued

avoiding payment of payroll taxes.

- Strict (yet subjective) tests apply to the determination of employment status.- Interns.

• Myriad of other laws and regulations that need to be considered: sexual harassment, discrimination and immigration laws.

FINANCIAL MISTAKE #4: Failure to Pay Taxes

• Understand all the taxes you are obligated to pay, and what systems must be in place to calculate them.

• Have a tax professional develop a tax calendar of due dates.

• Use a payroll service that collects, remits, and report taxes for you.

• Understand trust fund liabilities.• Realize substantial penalties and risk of business

forfeiture can result from non-payment of taxes. Treat them as a priority!

LEGAL MISTAKE #4: Failing to Document Your Legal Relationships with Third Parties

• Risk: avoiding misunderstandings that can lead to costly litigation. Legal claims should be documented in writing by contracts.

• Contracts with customers and other third parties: use standard forms tailored to your company.

• Maintain thorough records of all contracts.

• Back up all documents electronically.

FINANCIAL MISTAKE #5: Failure to keep some of your Powder Dry

• Do NOT interpret pressure from a VC or other investor to “put the money to work” as a mandate to spend it all.

• Maintain reserves for unforeseen contingencies and delayed timing.

• Understand “Angel” vs “VC” investors.

• Use a financial professional to “stretch” your capital.

LEGAL MISTAKE #5: Corporate Governance

• Risks: confusion between board members about goals and duties and potential litigation.

• Invoke strict rules for corporate governance: hold necessary board of directors meetings, document decisions of board with minutes, follow statutory obligations which govern corporate governance such as notice requirements.

• Don’t act informally when formality is required.

Thank You!Contact Us:

Royse Law Firm, PCPalo Alto Office: 650-813-9700

www.cfos2go.com925-299-4450

500 Ygnacio Valley Road, Suite #410Walnut Creek, CA 94596

SAN FRANCISCO135 Main Street

12th FloorSan Francisco, CA 94105

LOS ANGELES11150 Santa Monica Blvd.

Suite 1200Los Angeles, CA 90025

PALO ALTO1717 Embarcadero Road

Palo Alto, CA 94303

LISA CHAPMAN, ESQ.

Lisa Chapman has represented startup and mid-sized companies for over twenty years in the areas of employment counseling, employment litigation, commercial litigation and trade secret litigation. In her counseling practice Lisa uses her substantial experience as a trial attorney to counsel companies on employment compliance issues, including wage and hour laws, employment policies, hiring policies, sexual harassment training, leave of absence, and other employment related issues. She regularly counsels companies involved in mergers and acquisitions about due diligence issues relating to employment law. Lisa has litigated a wide variety of commercial and employment related matters in federal and state courts and before the Equal Employment Opportunity Commission, the U.S. Department of Labor, and the California Department of Labor. Among others, she has litigated cases involving sexual harassment, discrimination, and class action wage and hour claims. Lisa puts a priority on achieving successful settlements and resolutions for her clients in a timely and cost effective manner.

FRED GREGURAS, ESQ.

Fred Greguras is an experienced business lawyer and entrepreneur. He works with global and U.S. businesses from startup through public company stage with an emphasis on start-up and emerging growth companies. He has helped many foreign companies set up and expand their operations in the United States and represents various types of businesses including software, clean technology, semiconductor and medical device companies. His transactional experience includes equity and debt financings of various types including project financings for energy projects, seed and venture capital and other financings. Mr. Greguras has also advised on many M&A, joint ventures, licensing and other business transactions both in the US and internationally. Fred has substantial experience representing companies with a market focus on, or operations in, China, Vietnam and India, and in supporting investors and businesses from those countries.Mr. Greguras’ background includes work as a partner at K&L Gates LLP and Fenwick and West LLP in the Silicon Valley and the Kutak Rock law firm in Omaha, Nebraska. During his 25-plus year tenure in the Silicon Valley, Fred has also been a venture capitalist, general counsel and CFO for a venture-backed startup. Fred is a graduate of the University of Nebraska Law School and is a Marine Corps combat veteran.

CHRIS CHILLINGWORTH, PARTNER• Entering his 40th year in financial leadership• Started his career at Ernst & Ernst (now E & Y)• Licensed C.P.A. (inactive)• Spent 15 years as an entrepreneur in the Real Estate development business in the 80’s and early 90’s• The balance of his career has been devoted to high tech.• Public company C.F.O. / V.P. - Finance twice (2000 – 2005)• Has been consulting most of the last 17 years (1995 – 1999 and 2006 – present)• Leads CFOs2Go’s financial systems, technical accounting, and enterprise risk management practices• Edits their monthly Newsletter and blogs on issues of topical importance.