Federal law prohibits "unfair or deceptive acts or practices" and broadly covers advertising claims and marketing and promotional activities, whatever medium in which they appear. Accordingly, the Federal Trade Commission ("FTC") exercises a role in protecting consumers from unfair or deceptive trade practices in online advertising, marketing, and sales. Earlier this year, the FTC published guidelines for making clear and conspicuous online disclosures in an effort to avoid deceptive trade practices that may result in FTC scrutiny.
Last month, in Assurance Data, Inc. v. Malyevac, (Va. Sept. 12, 2013), the Supreme Court of Virginia published an opinion holding that a trial court cannot decide on demurrer whether restrictive covenants in employment agreements are overbroad and thus unenforceable if an employer argues in opposition to the demurrer that it intends to produce factual evidence to demonstrate reasonableness.
Generally speaking, companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Rule 506 of Regulation D is the most commonly used exemption; it permits the sale of an unlimited dollar amount of securities to an unlimited number of “accredited investors” and up to 35 non-accredited investors without federal Securities Act registration, provided the requirements of the rule are satisfied.
In April 2012, Congress passed the Jumpstart Our Business Startups Act (the “JOBS Act”). At the time, most commentators believed that the JOBS Act would create tremendous new opportunities for emerging growth businesses.
On July 10, 2013, the SEC adopted final rules implementing part of the JOBS Act and relaxing some of the restrictions on offering securities under Rule 506 of Regulation D. These new rules lift the 80-year ban on general solicitation and advertising ofprivate offerings of securities under Rule 506 of Regulation D. However, the ban is only lifted on Rule 506 offerings if: (1) sales of the securities are limited to accredited investors; and (2) an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors.
Last month, Daniel Ingersoll joined me on Power of Attorney to discuss the process of starting an Internet business. As part of that discussion, Daniel outlined a number steps that are often overlooked by new entrepreneurs, who may have a great vision for their fledgling business but lack experience in the logistics of starting a new endeavor. After forming an entity for the business, Daniel advises that a new entrepreneur:
Last month, I had the pleasure interviewing a number of experts about starting, operating, and exiting an Internet business. Among those experts were two Erics: my partner, Eric Horvitz, and Eric Koefoot, the co-founder and Managing Partner of PublicRelay and the former CFO of Washingtonpost Newsweek Interactive (WPNI).
Though they view the issue from different perspectives, one being an attorney and the other an experienced Internet entrepreneur, both men highlighted choosing the right business partner as one of the first and most important decisions a budding Internet entrepreneur must make. Given the time spent together in both good times and bad, a business partnership is often compared to a marriage, so to find the right business “spouse,” a new Internet entrepreneur should give careful consideration to his or her potential partner’s:
Technical Expertise. Obviously, it’s important that partners in a business endeavor each provide a skill set useful to the new business.
Integrity. Trust is absolutely vital to any close relationship. Eric Koefoot noted that, early in his experience as an entrepreneur, he experienced the negative consequences that result from partnering with a person lacking in integrity when his partner embezzled from their fledgling business.
Work Ethic. As Eric Horvitz pointed out, “[t]here’s always one person [in a business partnership] who cares more. There’s always one person who works harder.” But, that’s fine, accordingly to Eric Koefoot, as long as the business owners have work ethics that are compatible with one another and have a clear understanding of the expectations going into the relationship.
Personality. Starting a business requires a lot of work, which translates into a lot of togetherness for business partners. Eric Horvitz stressed the importance of knowing how well you get along with your business partner before starting the relationship.
Like a marriage, a business partnership requires a lot of work to keep it going, even after you’ve found “Mr. or Mrs. Right.” A dispute between partners can easily become a distraction from the business’s focus on its customers, which Eric Koefoot calls the “biggest risk” for any new business. However, such a dispute can absolutely destroy a business if the partners violated Eric Horvitz’s cardinal rule of never starting a business in which two partners each own 50%. After more than twenty years of practice, he says, “I always advise my clients never to start a business 50-50 because it leads to immediate deadlock.”Do you have tips for choosing the right business partner for an Internet business? Follow @JonathanFrieden on Twitter and tweet your tips using #pickingapartner.
Last week's episode of Power of Attorney has been posted to the show's website. Listen to Eric Koefoot, co-founder and Managing Partner of Public Relay, discuss funding and exiting an Internet company.
Power of Attorney airs again on Saturday at 10 a.m. on Federal News Radio (1500 AM and 820 AM in the D.C. Metro Area and everywhere at www.federalnewsradio.com). Over the next two episodes, we'll continue our series on starting, operating, and exiting an Internet business.
This week, our guest is Chris Meade, founder and CEO of Genetipetz, a crowd-funded e-commerce site selling unique stuffed animals and accessories.