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Denver Business and Commercial Law Blog

Planning is key to entrepreneurial success

Analysis and preparation are key points of focus for any successful Colorado entrepreneur or business owner. Planning, in all its forms, is vital for business owners, and yet many turn their eyes and efforts toward the next challenge without proper examination. It does little good to jump in with both feet if the jumper doesn't know where to land.

In a business environment, planning means acknowledging measurable factors to the extent that they're available. Delving into a detailed analysis of threats and potential pitfalls, crunching numbers and examining likely benefits increase the likelihood of success for new and established endeavors alike. Business owners who fail to take the planning steps seriously are setting themselves up for underperformance or failure.

Increasingly tough times for venture capitalists

Many Colorado residents are aware that it's never been tougher to operate as a venture capitalist firm. Lots of new opportunity seekers means more competition in chasing good ideas, and the ever-increasing difficulties are widely apparent to both new and veteran investors.

A mid-year report from Fenwick and West found that 2017 is on track for the highest number of new funds formed in more than 10 years. With more financing options available, these new funds will create massive competition to get in on the ground floor of the best deals. The report also noted that even though opportunity will be greater, there will be less money offered for investment compared to 2016.

Exit strategies are more important than most people think

Many Colorado entrepreneurs think of exit strategies as being merely paragraphs that make up obscure sections of their original business plans. As such, exit strategies are often forgotten even though they should be treated as legal concerns with growing a business. One of the reasons why exit strategies become nothing more than an afterthought is that they are seldom formalized. Instead, they are often included in business plans as boilerplate for prospective investors and lenders to review.

Exit strategies should be given careful and realistic consideration. Sole proprietors will have an easier time formulating an exit strategy; however, this may not be the case with when people decide to form more complex structures such as a limited liability company or a sub-S corporation. From a managerial point of view, there are three main exit strategies: autopilot, investment and option to sell.

Newer companies having problems getting funding

Startup businesses in Colorado and throughout the country are finding it harder to get capital compared to established companies. This is the case even when both startups and mature companies have the same credit profiles. That was a key finding from a Federal Reserve survey that was published on Aug. 8. Despite this, 43 percent of small businesses that had been around for five years or less and had employees were growing revenue. This was compared to just 22 percent of more established small businesses that had employees.

According to one member of the New York Fed, some startup business owners were discouraged from even applying for financing despite a strong demand. Of small business startup owners who replied to the survey, 55 percent said that it was difficult to get a loan while 69 percent had experienced funding shortfalls. Among companies that had been in existence for more than five years, those numbers were 39 percent and 54 percent.

Funding and business names

Entrepreneurs in Colorado should know that the type of name that they have for their startup could be a factor in the amount of funding they are able to obtain. Startup names that are easy to pronounce are favored by investors in the early and late stages of a startup's development. Angel investors, venture capitalists, crowd funders and IPO investors tend to provide more funding to these companies.

A two-part study to assess the effect the name of a business has on funding was conducted by researchers from the business schools at Drexel University, Villanova University and Stony Brook University. For the first part of the study, 131 crowd-funded projects were analyzed by the researchers. For the second part of the study, 1681 IPOs were examined.

How entrepreneurs can build low-cost marketing campaigns

Colorado startup companies are often initially cash-strapped, and as they struggle to find the revenue to stay afloat, some owners decide to cut back on their marketing and advertising expenses or eliminate them entirely. This can be a mistake, because a strong marketing program can drive sales and bring a consistent revenue stream into the start-up. Entrepreneurs may instead want to develop a low-cost marketing strategy that can help their businesses grow.

A great way for startup companies to market themselves is by asking satisfied customers to refer them to their friends or family members. Surveys have shown that people are four times more likely to purchase a product that has been recommended to them by a friend. Entrepreneurs may also get free advertising by talking to local news outlets and sending out press releases. Many are happy to profile local businesses.

Venture capital expands in an unlikely industry

Innovative companies in the insurance industry have enjoyed significant growth in venture capital over the past two years. Some Colorado investors may notice an obvious contradiction between the insurance industry's focus on risk management and venture capitalists seeking speculative high rewards. However, the recent turn should not be a shock, according to analysts.

From 2014 to 2015, insurance startups had a large gain of nearly 50 percent in venture capital funding to $420 million. This rush of growth and seed capital for what is essentially a loss-mitigation services industry was enormous, but it paled next to 2016's growth. Venture funding shot up to $830 million in 2016, and it has nearly hit that already in 2017, with $740 million so far.

Growth in Colorado 2017 venture capital

Businesses seeking seed capital from investors may need to redouble efforts in light of second quarter data in 2017. In Colorado and the nation as a whole, numbers point to larger amounts of venture capital pouring into a smaller number of firms. Appeals to international investors resulted in big gains for businesses in certain sectors. These gains over 2016 increases follow similar ones in the first quarter.

Venture capital funded 31 Colorado businesses in the second quarter. The three leading recipients were a cybersecurity company in Denver, a robotic toy manufacturer and a software developer. The most lucrative sectors receiving outside capital for the first half of 2017 followed suit, including robotics, cybersecurity and mixed reality.

The future of venture capital in the United States

Venture capitalists and angel investors often provide entrepreneurs in Colorado and around the country with crucial startup capital when traditional banks will not. The venture capital industry has changed noticeably with the emergence of micro funds that concentrate mainly on initial seed money, and most industry experts expect the focus of venture capitalists to continue to evolve in the years ahead.

Historically, most American venture capital money has remained in the United States, and investing in foreign markets like China was virtually unheard of just a decade or two ago. However, the industry has become far more international in recent years, and financial analysts expect this globalization trend to continue into the 2020s and 2030s. This overseas focus has prompted many leading venture capital firms to diversify their information gathering and decision-making processes, and companies that have traditionally concentrated on narrow market sectors have begun to broaden their outlooks as a result.

Cannabis trademark considerations

Entrepreneurs and business owners in the Colorado cannabis industry have unique motivations to protect their intellectual property. A strong strategy in many cases requires securing trademark protection for new strains of cannabis as well as cannabis-related products. Trademark protection is available for visual features, such as phrases, symbols and words, that consumers associate with a particular company or product. It grants exclusive rights to the owner to use it in commerce.

Trademarks are governed by both state and federal law. Protections are available in many cases even without registration, so long as the mark is used in commerce and the intention to protect it indicated with the familiar TM. Registration at state and federal levels may confer a number of advantages, however. Registering a mark with the federal government, for example, gives the owner exclusive rights nationwide and the right to bring infringement actions in federal court.