Ricardian Contracts

Ricardian Contracts are really a stepping stone to Smart Contracts.  They are a way to link a contract to another system, typically an accounting system.  Ian Grigg came up with the Ricardian Contracts some time ago.  He first published about it in Financial Cryptography in 7 Layers in 1998.  Ricardian Contracts were initially used for Ricardo (hence their name), a bond platform.

They are a melding of a traditional contract with a contract that can be read and executed by machines. A Ricardian Contract can be defined as a single document that:

  1. is a contract offered by an issuer of some item of value (think of a bond, coin, token, currency, etc.) to a holder of such item;
  2. for a valuable right held by the holder, to be managed by the issuer;
  3. can be read in plain language by humans (so like a normal contract);
  4. can be read by programs (and is parsable like a database);
  5. digitally signed;
  6. carries the keys and server information; and
  7. is allied with a unique and secure identifier.

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Considerations When Buying a Website or Blog

If you have some disposable funds and are looking to get into the online world, buying a content based website and/or blog that throws off a revenue stream may be something that could interest you.  There are a number of sites that act as clearinghouses for domain names, websites and blogs, but probably the most well known one is Flippa.  No matter where you are looking, when purchasing a website or blog then the following are important considerations. Read more

Funding Portal Rules for Regulation Crowdfunding a/k/a Equity Crowdfunding

The JOBS Act from way back in 2012, set forth the Crowdfunding exemption to the securities laws, and required that any Funding Portal that engaged in Crowdfunding registered with the SEC and became a member of FINRA.  In late 2015, the SEC came out with the Regulation Crowdfunding Final Rules and forms to permit companies to offer and sell securities through Crowdfunding and to regulate the intermediaries which can sell the crowdfunded securities.  The latest Funding Portal rules have been finalized by the SEC and FINRA. Read more

Using “Tested” or “Market” Contract Language

This is a response to a post by Ken Adams of Adams on Drafting.   In one of my earlier posts about the desires of certain clients to have as short a contract as possible, I stated that it was beneficial to draft an agreement a certain way, including certain terms and language, because judges have seen similar items before. Ken identified this and he reiterated his position that a contract drafter should not rely on what he deems “tested” contract language. Read more

SEC Releases Proposed Equity Crowdfunding Rules

Yesterday the SEC released its long awaited crowdfunding rules.  The Proposed Rules are available here (and SEC’s press release here), and at 585 pages will make labored reading.   I’ve seen plenty of press coverage on the topic and most stories have taken the premise that equity crowdfunding (which the SEC is calling “Regulation Crowdfunding”) is something that the SEC is “considering” allowing.  I want to dispel that notion, and as I’ve discussed before (and here), the JOBS Act passed by Congress directs the SEC to promulgate regulations to allow equity crowdfunding.  The SEC has no choice in the matter, although it did take its time (these proposed rules were supposed to be issued by the end of last year – 2012).  And unfortunately the SEC can make compliance with the Regulation Crowdfunding rules so difficult that very few issuers will choose to use them to raise capital. Read more

The Marketplace Fairness Act of 2013 a/k/a the Internet Sales Tax Act

As you may have heard, the Senate is working on a bill which looks like it may be passed on May 6th called the Marketplace Fairness Act of 2013.  If passed into law (it looks like the House will also approve it, but we’ll see) it would allow state governments to force Internet retailers to collect sales tax from their customers and remit the proceeds to the state and local governments where the purchaser lives. The States would have to provide free software to Internet retailers which would allow them to do the calculations, and Internet retailers with revenues under $1M would be exempt.  That’s some small relief.

There are seemingly two goals of the legislation.  The first is to fund state and local governments which are, for the most part, starved for cash and seeking any new revenue sources (ie tax moneys) they can find. Second, brick and mortar retailers claim that they are at a disadvantage because customers can come in and look at items in their stores, check the price of the item on their smart phone and then order the same item online and not have to pay any sales tax on it.

My thought is that the effect of the legislation, if passed into law, would be more economically stifling (from a nationwide perspective) than it would actually serve the goals it presumes to address. Read more

How do I Value my Company?: Startup Valuation

One of the most important issues when raising money from investors is the valuation of the company. This will drive all of the other financial terms of the deal: how many shares will be sold, at what price per share, and how much equity the investor will own in the company after the transaction.

In essence, for early stage (pre-revenue) startups, the company’s valuation is whatever the market deems it to be.  I’m not being glib, that’s actually how it works.  For example, say that I have a flat screen TV that I want to sell, if someone offers me $800, and then someone else offers me $900.  I’m selling it for the $900 and that’s the TV’s market value.  If an investor values you at $1M, then that’s your market value.  Now he could be undervaluing you, but probably not by a large amount, and if the investment goes forward at that valuation then it’s the de facto market price.  Now that doesn’t mean that there is no room to negotiate.  That’s why it’s always said that early stage company valuation is an art and not a science.

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Convertible Debt Financing 101

One way that a startup can take seed or angel investments is by doing a convertible debt financing, sometimes called a bridge loan or bridge financing.  It is essentially a loan the company receives which allows the investor to later convert the amount due into a certain number of preferred shares upon the company’s next round of equity financing.

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