Wiggin and Dana to Publish an Article Series titled "Legal Issues for High-Growth Technology Companies"

May 2, 2018

Wiggin and Dana is excited to be publishing an informative article series titled "Legal Issues for High-Growth Technology Companies" in the National Law Review. Wiggin and Dana attorneys have a deep understanding of the many issues facing emerging growth companies. We offer invaluable perspective and deliver enhanced, one-stop services to our clients by leveraging our deep network and multidisciplinary capabilities. Our article series is intended to provide high-growth companies with a roadmap on how to navigate many of the obstacles and pitfalls they might face during their life cycle and help them navigate the rigorous due diligence scrutiny of investors, lenders, strategic partners and underwriters.

To read the articles, click the respective titles.

Choice of Entity: Tax Implications
by Peter Gruen and Amy Drais

This post will provide a high level overview of the tax implications of each type of entity from a variety of perspectives: taxation of the entity, taxation of its owners and employees and concerns of potential investors. The entities to be discussed are limited liability companies, partnerships, C corporations and S corporations.

Risk Considerations in Commercial Contracts with Customers
by Sarvesh Mahajan

As an emerging company goes to market with new offerings, it will need to determine the terms and risk profile on which it will sell its services and products. Many companies develop terms of use (generally for products or services provided or sold through the web) or contract templates. An emerging company will want to have terms that are consistent with market norms for the relevant industry and are "sellable" to customers, but are protective of the company's interests and go-to-market strategy. Having balanced terms can reduce negotiation time and energy, allowing the company to get customers and close sales more quickly. This article focuses on three key area of risk that typically need to be considered in offering services and products: warranties, indemnification, and liability.

Are You an Exporter? You Might Be. The Often Overlooked Controls on Software with Encryption Capacity
by Daniel Goren and Tahlia Townsend

Given the common use of encryption in software today, and an increasingly global market for software products, it is important for companies, particularly emerging ones, to recognize that software with cryptographic functionality is controlled by U.S. export law. The consequences of not recognizing the export compliance obligations associated with encryption products could be costly, and not only because regulators might catch a company breaking the law (and have the power to impose penalties even for unintentional violations). Start-ups being acquired by larger companies may have to disclose non-compliance with export law in the due diligence process leading up to purchase, forcing money into holdback escrows to serve as security for the buyer, which will inherit liability for any violations and understandably look to shunt any successor liability and compliance expenses to the seller in the deal. Luckily, avoiding this outcome is relatively easy, if a company making or selling software expends minimal effort to: (1) know if their product is of the type that concerns the U.S. government; and (2) satisfy their export compliance obligations, which may amount to little more than submitting an annual "self-classification" report to the government by email.

Blinded by the Price: From Enterprise Value to Net Payment at Closing
by James Greifzu and Aaron Baral

In the sale of a business, the difference between the headline purchase price and the net payment to the equity holders can be significant. Seller may have negotiated an attractive multiple to determine enterprise value. But the presence of rollover equity stakes, deferred purchase price, escrows and purchase price adjustments, as well as payments to third parties in connection with payoff of indebtedness and other debt-like items, transaction bonuses, advisor expenses and other deal-specific amounts, may mean that some amounts will come off the top before equity holders get paid. Understanding whether certain items should (or should not) be paid at closing, and why (or why not) is fundamental to structuring the transaction appropriately.

What Type of Security Should You Use to Fund Your Venture?
by Evan Kipperman, Adam Silverman and Lena Bae

You're an entrepreneur looking to fund a new company. How should you finance your venture? In this article, we review the most common types of securities used in financing emerging companies, and highlight key issues worth considering for each.

The Patent Eligibility Battle for Life Sciences Companies in a Changing Landscape
by Sapna Palla and Matthew Burton

While patent eligibility was not a primary focus in the life sciences area, the Supreme Court decisions and their progeny have sent shock waves through the life sciences field.  Numerous biotech and diagnostic patents have been found to be ineligible under the threshold patent statute.  This article addresses the changing landscape and key court decisions, suggests new avenues for companies to navigate the changed landscape and provides practical suggestions for companies in protecting and enforcing patents in the life sciences area.

Emerging Tech Companies: It's Not Your Uncle's Dot.Com Regulatory Environment Anymore for Privacy and Data Security
by John Kennedy

Regulators are issuing new rules that are likely to be cost more when broken by data-driven businesses that like to move fast.  Emerging technology companies that plan to succeed in what's been called the "algorithmic society" and by others the "surveillance economy" should pay attention to this tightening regulatory environment and be prepared for more questions about privacy and security from investors, strategic partners, consumers and, possibly, regulators. 

Wage and Hour Fundamentals: "A Guide for Early Stage Companies"
by Mary Gambardella and Lawrence Peikes

Many emerging companies begin their corporate life without a firm grasp on critical issues related to wage and hour laws.  With limited financial and human capital at the outset, emerging companies have a tendency to take a reactive approach to HR, often with devastating near term effects. With its initial core group of employees, an emerging company may try to keep the purse strings tight and seek an alternative to regular wages.  As it expands, an emerging company might bring on new personnel as independent contractors, or in a joint employment arrangement in lieu of a direct hire model.  Armed with a heightened understanding of the legal landscape, and with adequate preparation, emerging companies can maintain compliance with wage and hour laws and regulations and avoid the expensive hazards associated with transgressions in this complex and ever-evolving area of employment law.

You've Been Sued: How to Avoid Early Missteps
by Joseph Merschman

Litigation doesn't have to be catastrophic for a growing company, but it can quickly spiral out of control if not handled properly. This article explores issues to consider when your company is faced with a lawsuit.

What Start-Ups Need to Know About Intellectual Property
by Michael Kasdan

As any entrepreneur is well aware, the early stages of a new business venture are an incredibly busy time. During this time, it may be a challenge to simultaneously focus on intellectual property issues. However, this early time period is also a critical time for ensuring that a business takes steps to protect its core intellectual property and avoids the risk of third party intellectual property issues. This article includes an overview of the different types of intellectual property and provides advice to start-up companies on how to secure their own intellectual property as well as protect against intellectual property risks from others.

Estate Planning for Founders
by Michael Clear and Erin Nicholls

Founders and entrepreneurs face many pressure points while building their company into their vision. Important decisions must be made relating to the choice of a business entity, how to fund the business, what sort of regulations impact the business, how to protect intellectual property, how to manage employees, and what to do if sued. Most of these points focus on the business.