Are TV, home phone passé?
Mercury News — Reports on a new survey from the Pew Internet and American Life Project that indicates more and more young Americans are abandoning traditional phones and the television for mobile phones and the Internet.
http://www.siliconvalley.com/mld/siliconvalley/7337477.htm ¿

Study: 21% of cell phone users weigh ending home service
Washington Post — A new survey out from the Pew Internet & American Life Project found that 21% of all people and 27% of teenagers and people in their twenties are considering abandoning the use of landline phones completely. The current percentage of those who are using only cell phones: 3%.
http://www.washingtonpost.com/wp-dyn/articles/A8674-2003Nov23.html ¿

Love in the time of no time
New York Times Magazine — A long article on how the Internet is changing how people find significant others. Noting the fast growth of online personals and personal networking sites, the Times says "the societal reasons for this fury of activity are so profound that it's almost surprising that online dating didn't take off sooner." The article on modern realities: "Improved technology - namely, the proliferation of broadband and the abrupt ubiquity of digital cameras - partly explains online dating's surge in popularity. More critical still is the fact that the first generation of kids to come of age on the Internet are now young adults, still mostly single, and for them, using the web to find what they need is as natural as using a lung to suck in air. They get jobs and apartments and plane tickets online - why not dates?" http://www.nytimes.com/2003/11/23/magazine/23ONLINE.html ¿


The promise and pitfalls of social networking
Darwin — Stowe Boyd on social networking software: "The premises of social networking are simple and intuitive. People are social, and will naturally form groups, share information and contacts, and advance their personal agendas through interaction with others. The Internet is an amplifier for this sort of interaction," says Stowe. He continues: "one of the most obvious applications of social networking solutions is... to find the shortest or best path to another person, whether you are trying to sell soap, find a date or locate a drummer for your new band. And these are exactly the scenarios driving the uptake of social networking solutions."
http://www.darwinmag.com/read/110103/pitfalls.html ¿

Chip implant gets cash under your skin
News.com — The company that implanted microchips in humans is urging Americans to use them for financial transactions. Applied Digital Solutions is touting its ''VeriPay'' RFID technology as a replacement for credit cards. Users would get ''chipped'' with a tiny radio transmitter in their arms that would beam their financial information to readers in stores and ATMs. An ADS spokesman observes that the subdermal VeriPay would be difficult to lose: ''You don't leave it sitting in the backseat of the taxi.'' Critics say thieves could develop devices to intercept the transmissions or even cut the transmitters out of people's arms. http://zdnet.com.com/2100-1103_2-5111637.html ¿

Tech elite' push the most buttons
InternetNews.com — More coverage of the latest data from the Pew Internet & American Life Project which finds more people saying they would find it difficult to do without their computer, cell phone, and Internet than their television and landline telephone. Pew's research categorized these tech enthusiasts as the "tech elite" and says they comprise 31 percent of the American population. The "Young Tech Elites," with an average age of 22, account for 20 percent of the highest adopters, while "Older Wired Baby Boomers," with an average age of 52, represent 20 percent of the highest adopters. So-called "Wired GenXers," with average age of 36, account for 60 percent of tech adopters. http://www.internetnews.com/stats/article.php/3113211 ¿

7 hot projects
Technology Review — Technology Review reports on seven cool technologies that are almost ready to "make their way out of the lab, onto the market — and into our lives." Among the technologies featured: streaming media, chip-to-chip communications, and miniature ultrasound devices. http://www.techreview.com/articles/jonietz1203.asp ¿

Stupid tech tricks
San Francisco Chronicle — Which government numbers should you believe when it comes to predicting the future direction of the U.S. technology sector? After all, government statistics are famously "strange," "misleading," and prone to little-understood "hedonic adjustments" (e.g. marking up the value of goods and services in order to take into account improvements in quality). The article takes a look at the adjustments that economists making when tabulating growth in the technology sector, and how these figures then feed into assumptions about GDP growth and productivity. One anomaly cited in the article: in 2002, there was an 18.3% spike in business spending on tech equipment (due to statistical adjustments) — but total spending on tech equipment in actual dollars was flat for the year. Amusingly, the article hints that Wall Street, the Federal Reserve, IT analysts, and the U.S. Commerce Department are sometimes mixing apples, oranges, pineapples and pears when they compare statistics on the tech sector.
http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/11/21/
BUG5D36N4J1.DTL&type=tech ¿ 

How to stay motivated in your new business
Startup Journal — Seven tips for maintaining the all-important "entrepreneurial urge" during difficult or unproductive periods. One of the best tips: "Figure out which things suck you dry, then find ways to minimize their impact." In addition to pampering themselves for good work ("a nice meal, a bump to first class"), entrepreneurs might also re-think their fitness regime ("athletes keep themselves in shape — why shouldn't you?") or encourage friendly competition from others ("a little external pressure can sometimes stoke your fire").
http://www.startup.wsj.com/columnists/newventure/20031121-nva.html ¿

Finding bounty hunters for science
Business Week — InnoCentive.com, which launched in mid-2001 under the auspices of Eli Lilly’s e-commerce initiative, provides monetary compensation to scientists who can solve tough R&D problems. Quite simply, "the site posts the problems and then offers a bounty to whoever comes up with the best solution." The Web site is unique since it basically relies on "freelancers" who may have arcane knowledge of certain areas in biology or chemistry; most importantly for Eli Lilly, people only get paid if they have the right answer. Since 2001, 45 people have received over $600,000 in prizes. It’s not only Americans who are solving these problems — the site is also translated into Russian, Mandarin, German and Spanish, making it accessible to approximately 40,000 scientists in 150 countries.
http://www.businessweek.com/technology/
content/nov2003/tc20031121_1327_tc024.htm ¿

On the web, research work proves ephemeral
Washington Post — Electronic archivists "are playing catch-up in trying to keep documents from landing in history's dustbin," say the Post. Research published in the journal Science last month found that footnotes from scientific articles in three major journals - the New England Journal of Medicine, Science and Nature – included many Internet references that were no longer valid links. "Another study, published in January, found that 40 percent to 50 percent of the URLs referenced in articles in two computing journals were inaccessible within four years." Brewster Kahle, digital librarian at the Internet Archive in San Francisco: "It's a huge problem. The average lifespan of a Web page today is 100 days. This is no way to run a culture."
http://www.washingtonpost.com/wp-dyn/articles/A8730-2003Nov23.html ¿ 

Frugal dot-com hopes new name will Tickle recognition
Silicon Valley/San Jose Business Journal — Provides an update on the status of Tickle, formerly known as eMode.com, noting that it raised its capital before the dot-com bubble burst but that "by the time it started spending, eMode had quickly learned by example the importance of making those dollars stretch." That timing, says the Silicon Valley/San Jose Business Journal, "may have helped make Tickle the hottest Silicon Valley startup you've never heard of." http://www.bizjournals.com/industries/high_tech/e_commerce
/2003/11/24/sanjose_story6.html?f=et169 ¿ 

Online retail sales build, poised for record holiday season
MediaPost.com — The latest forecast for online retail sales during the holiday season suggests that strong sales in the third quarter point to "a potential record-breaking holiday season and finish to the year." The forecast is based on data from the U.S. Department of Commerce's quarterly measure of online retail sales.
http://www.mediapost.com/dtls_dsp_news.cfm?newsID=227355 ¿

E-shoppers are now e-spenders
Business Week — Business Week says online retailers "are learning to give Web customers." Online retail sales are forecast to rise 21%, to $16.8 billion, this year, while overall retail sales are forecast to rise around 5%, compared to last year, according to Jupiter Research. "That discrepancy largely reflects the fact that it's easier to grow faster from a much smaller base. Yet something deeper is at work. Online shopping's lure isn't just dirt-cheap prices, flashy web graphics, or even free shipping.... It seems that the virtual world's top retailers are succeeding because they've learned the simple and time-honored tradition of keeping their customers satisfied." http://www.businessweek.com/technology/
content/nov2003/tc20031125_6802_tc136.htm ¿
 

Developing nations begin to embrace Internet commerce
New York Times — A fascinating report on how online commerce "is starting to find a place in some of the world's emerging economies." Says the Times: "Developing nations have begun building the infrastructure needed for online commerce, according to a report released Thursday by the United Nations Conference on Trade and Development." Angel Gonzalez-Sanz, a UN-CTAD economist: "Governments are more and more aware that this can be a tremendous boon to their economy. They're starting to recognize that policy choices matter; the attitude of the government, the business community. When you tackle issues like infrastructure and lack of awareness, results come." http://www.nytimes.com/2003/11/24/technology/24ecom.html ¿
 

IBM takes ‘on demand’ to the community @ New York
IBM is pushing its ‘on demand’ computing initiative to the non-profit world. A new IBM program will empower 25,000 employees to act as volunteers and "help evangelize the message" of on-demand computing to nonprofit organizations and schools. IBM comments on the scale of its newest project: "What sets this initiative apart from other corporate employee volunteer programs is the size and scale of the enterprise. IBM On Demand Community enables us to engage thousands of employees on a world-wide basis, and give them resources that will transform the schools and community organizations where they donate their time. We're taking community service to a whole new level." http://www.atnewyork.com/news/article.php/3113101 ¿

Tribe Networks Raises $6.3 Million in Series A
San FranciscoTribe Networks, an on-line classified and social networking company, said it raised $6.3 million in Series A financing. http://www.tribe.net ¿

Sprint to cut 2,000 Jobs
news@2 direct — As reported widely Sprint, which promised to reduce operating expenses by 5-7%, will lay off 2,000 workers in the current quarter as it continues its efforts to restructure. The layoffs will  reportedly come across its divisions as it consolidates into two primary units: business and consumer.
http://www.corante.com/communications/redir/34093.html ¿

What are Indicators?
Indicators are presentations of valuable data that show changes over time. They help to answer important questions such as how well the economy is functioning, how the schools are doing, or how air quality is improving or worsening. Indicators are powerful tools for measuring and tracking the overall quality of life and comparing performance against goals or benchmarks. The measurements help communities monitor changes or give them a baseline against which future changes can be measured.

What are Good Indicators?
A good indicator has several characteristics:

• It reflects the fundamentals of long-term regional or community well-being.

• It is clear and understandable.

• It can be tracked, is statistically measured at regular intervals, and comes from a reliable source.

• It is easy to communicate in concept as well as in terms of its value and importance to the region. It measures an outcome rather than an input.

http://www.greatvalley.org/indicators/index.aspx ¿ 
 

2003 List is Online
Search the entire 2003 list for free on Inc.com. http://trax.inc.com/k/w/mailman/inc_connection/20031125/inc500list ¿
 

Innovation, Capitalization Report
The IC Report, a newly launched Red Herring newsletter, carefully analyzes young companies, as well as new technologies emerging from university and corporate labs. This month, the newsletter focuses on the promise in the alternative energy sector, including a fuel-cell breakthrough, a heart monitor for the "golden age" of the baby-boom retirement, and silica fiber – without the silica.

The IC Report, focusing on seven industry sectors, is published 12 times per year and provides business intelligence on a full range of technology opportunities.
http://www.redherring.com/RhResearchWeb/Download/ICR_NovPromo.pdf ¿

Term Sheets & Valuations - An Inside Look at the Intricacies of Term Sheets & Valuations
By Bigwig Briefs
A helpful primer for entrepreneurs looking to attract venture funding that's a steal at less than $15. Includes advice on valuation, legal issues, negotiating strategy and more. Perhaps its most useful section: an actual term sheet with line by line explanations that spell out which parts are "entrepreneur favorable," "investor favorable" or "neutral.
http://www.amazon.com/exec/obidos/ASIN/1587620685/corantecom/ ¿

The Red Herring Fall Conference
Red Herring Events: Red Herring and its respected events have served the industry for the past ten years. Reflecting the technology trends of the time and exploring the most pressing issues affecting the industry, Red Herring's series of conferences and briefings are at the vanguard of new developments in the technology, media, venture capital and communications sectors. They allow industry leaders, venture capitalists, entrepreneurs and influencers to meet under one roof.

December 9-10, 2003 at the Monterey Plaza Hotel in Monterey California

RED HERRING Fall will focus on industry trend-setters and the latest innovations. Hear from global leaders. Learn how they manage their companies and implement new technologies. Understand the latest approach from the venture capital community. Listen to the strategy and vision as explained by the primary players shaping the future of technology.

RED HERRING Fall is an exclusive CEO invitation-only event and will welcome 350 executives from leading global technology firms, senior partners from the principal venture capital firms and entrepreneurs from the most exciting startups.

The Conference Fee is $2,500 if you pay before Oct 31, 2003 or $3,000 after this date. Request an invitation by emailing conferences@redherring.com or calling 650.428.2900. ¿

Trends in legal terms in venture financings in the San Francisco Bay Area
VC Experts — Fenwick & West reports on the VC deal terms offered to 85 high tech start-ups in the San Francisco Bay Area during 3Q 2003. A series of charts illustrates the quarter-over-quarter changes in VC financing terms, in areas such as liquidation preferences, anti-dilution provisions, cumulative dividends and pay-to-play provisions. In 3Q 2003, 53% of VC deals were "down" rounds, while 35% of VC deals were "up" rounds — a slight improvement from the previous quarter. Most interestingly, the data shows a "notable" decline in the use of multiple liquidation preferences. The bottom line: "The overall terms of venture financings in 3Q03 improved mildly. The direction of price changes was similar to 2Q03, but the use of some of the tougher terms such as multiple liquidation preference, ratchet anti-dilution and pay-to-play decreased." http://vcexperts.com/vce/news/buzz/ ¿
 

VC firm's business-pitch bake-off pays off
News.com — Of the 110 entries that VC firm Draper Fisher Jurvetson received as part of its online "cattle-call" for the next billion-dollar idea, at least five ideas are worth a "closer look," says Tim Draper. Two of the best ideas were from Canada — an online sales referral system that is a slight tweak on the social networking idea and an online search tool that displays results as category listings. The other ideas involved a "virtual network to capitalize on excess broadband capacity," wireless applications and services, and "adult-oriented products." Based on the initial success of this contest, Draper plans to hold similar contests every quarter. http://news.com.com/2100-7341-5111336.html ¿
 

Reconsidering initial public offerings
New York Times — More coverage on the proposed rule changes for the IPO market: the NASD is mulling ways to prevent retail investors from "accidentally paying inflated prices for hot new offerings once trading begins." One proposal, in fact, would require investment banks to provide detailed information about the valuation process, with an explanation of how factors like future earnings estimates impact the offering price. The NASD notes that, "These proposals further address conflicts of interest in the IPO market, and are an important addition to the regulatory initiatives that address abusive and unethical practices that have occurred with IPOs. They will promote investor protection and a fair and open process for companies to raise capital in the public markets." http://www.nytimes.com/2003/11/25/business/25place.html ¿
 

IPO market turns ugly as three of four deals falter
Dow Jones/AP — Three of the four IPO deals planned for the Thanksgiving holiday week turned in lackluster debuts. Texas-based specialty retailer Conn’s was the only IPO that closed above its offering price on the first day of trading. In contrast, Sirva closed below its offering price, as did Pinnacle and Synnex. http://www.siliconvalley.com/mld/siliconvalley/7349515.htm ¿
 

Orbitz IPO takeoff could top $300 million
Reuters — Orbitz announces details of its long-anticipated initial public offering - it could bring in more than $300 million for the company and its shareholders. Orbitz plans to offer 11 million Class A common shares to the public for $22 to $24 apiece. Current shareholders will sell 7 million of those shares. Orbitz will net about $82.2 million from the IPO. http://news.com.com/2100-1030_3-5111946.html ¿
 

New National Angel Network
Angel investing has enjoyed an interesting history over the years. It began as individuals backed companies with their own time and treasure. By the 1990s, more formal angel networks emerged in a number of communities. These groups held regularly scheduled meetings, invested as a group, and encouraged regular pitches from entrepreneurs. Now, in 2003, the field is taking another progression with creation of the first national network of angel investing groups. The new Angel Capital Alliance (ACA), backed by the Kauffman Foundation of Kansas City (NDE's sponsor), brings together the nation's angel organizations. ACA helps these groups collaborate on research projects, share best practices, network and advancethe field. The network not only seeks to expand angel networks around the US, but also wants to ensure that all local angel investors can access the latest thinking and ideas about how to effectively build and grow new businesses. ACA has been endorsed by 46 angel groups. To learn more about the Angel Capital Alliance, visit www.angelsummit.org ¿ 
 

New Data on Social Investments
Does socially responsible investing pay off? That was the question under consideration in a new study from researchers at Harvard Business School. The study examined returns from 110 companies funded by the Investor's Circle, a national network dedicated to financing ventures that "deliver commercial solutions to solve social and environmental problems." Researchers followed the ventures between 1992 and 2001. They found that a slight majority of firms (55%) still remained in business. Of the remainder, 30% were bankrupt, 9% had been acquired, and 6% had gone through an initial public offering. The business survival rates were not significantly different when compared to other early stage companies, but these socially responsible firms had a much lower average rate in terms of experiencing a liquidity event. The most successful firms were in the fields of technology and health care. From the investor's perspective, these investments did not pay off as handsomely as expected. However, most interviewed investors did plan to continue socially responsible investing as part of a diversified portfolio of investments.
To learn more about the study, visit 
http://www.hbsworkingknowledge.hbs.edu/pubitem.jhtml?id=3774&t=nonprofit ¿

Q:
Is a miracle loan or grant out there for people with no credit, no equity, no money — your all-American young couple who got off on the wrong foot — to open a business or franchise? I don't know where to look or if it even exists. Could you please lead me in the right direction or at least tell me where to start?
                                                            — Dina, Prescott, Ariz.

Dina: A miracle loan. Why, yes, just write a letter, and... no, wait, that's Santa Claus. We receive many letters asking about "grants" for starting businesses. It's an urban myth, I'm afraid. It's less charming than St. Nick, but just as tall a tale. Except for some extremely narrow, specific instances, which I'll mention below, there are no government grants to start a business.

Still, even if you aren't credit-worthy, you don't need to give up the idea of having your own business. I've always admired the entrepreneurs out there, who, through sheer grit, start on a shoestring and weave it into a thriving enterprise. It's called bootstrapping. They work like crazy, forge ahead regardless of disappointments and setbacks, pour what little profit and cash flow are generated back into the business, and build upon each small success.

Most bootstrappers start in service businesses, which tend to require little capital. Rose McCoppin, for instance, left Turkey for Los Angeles in her early 20s. She started a cleaning service and supported her family with it. After she secured a dozen or so clients, she'd advertise her "cleaning route" for sale, at a price of about four times monthly sales. Then she'd start from scratch again. Soon, she started hiring employees and had teams working for her. By 2000, she had three cleaning teams and $1.5 million in sales. Later, she bought a couple franchises of The Maids, to use their more-refined business systems. Today she runs her business from an office and doesn't scrub any more. "Working hard comes naturally for me," she says.

Another of my favorite bootstrappers is Dianne Rossi, who built a Chicago pet business around cleaning up dog-waste. She'd had a rough life and had lived in her car with her own child briefly. After hitting rock bottom, she decided she would make her own way, and put up fliers advertising a pet-clean-up service. She worked her routes in bitter cold and in the face of intimidating dogs. When I last spoke to her, she'd branched out with a Yellow Pages directory for pet services and was selling recyclable pet clean-up bags to the city of Chicago, among other clients. She fashioned herself into a pet expert.

Jill Blashack of Alexandria, Minn., started in a backyard shed, preparing gourmet food for a business with her partner. After a period selling from a kiosk and a storefront, she decided to try selling it through home parties. Her partner invested $36,000 of her own money, based on Ms. Blashack's drive and vision. Ms. Blashack recruited new sales people and selling more goods with every party. She started in the mid-1990s, and the multilevel-marketing business, called Tastefully Simple, grew exponentially. Last year her sales hit $78 million. Not too shabby.

What bootstrappers lack in cash, they must make up for in energy and smarts. All of these bootstrappers shared a love of business biographies and inspirational books. Ms. Blashack likes "Gung Ho" (William Morrow, 1997) by Kenneth Blanchard. Ms. Rossi, the pet expert, likes a biography of Anita Roddick, founder of The Body Shop.

Beyond inspiration, an aspiring bootstrapper must get familiar with the nuts and bolts of business. Take a class in marketing or accounting. Web sites, magazines and support groups are available for entrepreneurs. Get yourself hooked up with the service organizations that help small businesses.

Yes, the government awards grants to nonprofits and some state agencies, which in turn offer some sort of training or assistance to small businesses under the U.S. Small Business Administration. A few states offer business grants in particular economic zones under very specific conditions; you could look for them online. Of course, the SBA offers all manner of specialized loans. But a poor credit history, to which you allude, Dina, is generally a showstopper, unless you have collateral to offer.

In your case, maybe you or your spouse could get a job with someone else - perhaps in an industry you're eyeing for a start-up — for the benefits, and the other could go all-out building a business. Or, it may be necessary for both of you to work, and save, and spend your off-hours researching the best business for an aspiring, bootstrapping, All-American young couple. ¿
 

Building a Brand
By Rhonda Abrams |  RhondaWorks | September 2002

Branding isn't just a logo that you slap on or a fancy ad campaign. Your brand is a reflection of your business's personality.

The other night, I was talking with a few friends about how to build a brand for a company. Yes, I know that seems like off-beat dinner conversation, but you have to understand that one of the people at the table was my friend Julie McHenry.

Julie's been in the marketing and communication field for over 20 years, and she's got some pretty impressive credentials. In the early 1980s, Julie co-founded a public relations firm, and one of her first clients was a new software company — Microsoft. That firm, now called Waggener Edstrom, is still Microsoft's leading PR representative. Julie later co-founded another PR firm, Wilson-McHenry. Julie is now president of Communications Insight, of San Mateo, Calif., which specializes in communication strategies for technology businesses.

Most of us think a "brand" is just the name of a company. But Julie set me straight. "The brand is the emotional personality for the company. Branding isn't just a logo that you slap on or a fancy ad campaign. The brand is the essence of the company." Thinking about a company's brand as its personality was helpful. Just as your own name becomes associated with your personality, the name of a company becomes associated with its personality.

"With a one-person business, the brand is really wrapped up in that one person — whether they're intense, energetic, warm, or cool," Julie explained. "As the company grows, the personality is determined by everyone and everything — from how the phone is answered to the website to product packaging to how partners are treated." But how important is the name itself in shaping the company's personality? Would Starbucks have been able to expand as rapidly if it had a less unusual name, such as the Peet's?

"Absolutely," said Julie, explaining that Starbucks grew because of how the company was operated. "There's a law of diminishing returns on how much time and money you spend developing a name. It's about execution."

Nevertheless, most of us do spend a lot of time thinking about our company's name. Should it be descriptive, clever, off-beat, or particularly memorable?

"If you're starting from scratch, you have the luxury of choosing words that have more marketing meaning. As to clever, it depends on what type of business you're in...Memorable is more important; you want people to remember your name."

To assist you in thinking through some of the issues if you're in the process of figuring out a name for your company, I've put a "Business Name Comparison Chart" on my website, www.RhondaOnline.com, where you can evaluate your potential choices.

To help visualize a "personality" for your company, Julie suggests getting the top people in your company together and having them answer these questions:

If your company were each of the following, which type would it be:
— a car— animal— color— beer— department store.

"The VP of sales may think the company is a tiger, and the president may think it's a parrot," says Julie. "This gets a conversation going about what you really want your company to be."

She also suggests you ask your top five customers the same questions. "You may want to be the Nordstrom of your category, and you find out you're considered the Wal-Mart."

And what if your customers don't think anything about you? "Then you're not communicating any personality; to them, you're just a blank."

Instead, sit down and define your brand attributes — your company's personality, and then be consistent. Consistency is critical in developing a brand. "Choose a set of words that describe your business and don' t change them," said Julie. "Keep it simple and consistent."

In the end, of course, a personality — whether for a company or for a person — isn't about words; it's about how you behave. What do you promise and what do you deliver? How do you treat other people — your customers, your employees, your vendors?

"Credibility, integrity, honesty," said Julie. "Today, the way people make decisions about purchases — whether a new pair of shoes or a huge order of commercial valves — they first look at the credibility of the company. A brand needs to embody that credibility."

© Rhonda Abrams, 2002  ¿ 
 

Non-disclosure Agreements In Venture Capital Transactions
By Thomas C. Klein, Wilson Sonsini Goodrich & Rosati, P.C, 11/18/2003

Occasionally a venture fund will receive a request from a potential portfolio company for the venture fund to sign a non-disclosure agreement prior to commencement of due diligence. The proposed non-disclosure agreement would commit the venture fund to maintaining the confidentiality of the company's information disclosed to the venture fund in the course of the due diligence investigation. Entering into non-disclosure agreements could restrict the future investing and disclosing activities of the venture fund or its principals.

Industry Custom
It is well established that for an initial meeting with a venture fund, a company seeking funding should not make any request for the venture fund to sign a non-disclosure agreement. Requesting a non-disclosure agreement for these meetings indicates that the company's technology is very weakly protected and that the company's field has low barriers to entry. In addition, the company's business plan should delineate what the company's technology does, not "how" the technology does what it does. The "how" should be protectable and may be the subject of a non-disclosure agreement at some later stage with the venture fund.

For later meetings with the full partnership of the venture fund and for most venture fund due diligence investigations, the custom in the venture capital industry has been, similarly, not to request a venture fund to sign a non-disclosure agreement. In return, a potential portfolio company would rely on the reputation of the venture fund and its principals that they have not in the past breached confidences of companies that they investigated. This custom is still the norm for virtually all initial meetings and presentations to venture funds. The rationale for this custom is threefold.

First, venture fund principals serve on corporate boards of many companies, and these principals have fiduciary duties as directors to these companies. If a venture capitalist, through his exposure to a new company's business plan or other disclosures, learns something material that is likely to affect a company on which he serves as a director, he would have a duty as a director to so inform his company, although he may choose not to reveal the source of the information. He naturally would not want to be conflicted because of a non-disclosure agreement to a company in which his venture fund has no investment.

Second, the mere funding by the venture fund of a company competing with the prospective portfolio company could be perceived by the prospective portfolio company as a breach of a non-disclosure agreement in that it may appear that the venture fund used the market information revealed in due diligence to evaluate another investment. Usually, non-disclosure agreements require that the recipient of the information use it only for evaluation of a business transaction with the company disclosing the information, not for evaluating another investment. Thus, the venture fund could be perceived as using the information for an impermissible purpose.

Third, venture funds and their principals have disclosure duties to their limited partners. That disclosure may involve information about a company or a market that was gleaned during a due diligence investigation. Some, but not all, of those disclosures to limited partners are themselves governed by a confidentiality agreement between the fund and the limited partners, but certain legal or regulatory duties may require the limited partners to disclose certain information they receive from the venture fund, and that could include information provided by a prospective or current portfolio company. Accordingly, the venture fund does not want to be restricted in its fundamental business by being bound by a variety of non-disclosure agreements.

Historically, though, there were certain exceptions to this custom. One exception was that carefully tailored non-disclosure agreements have been used with corporate venture capital funds where the corporation sponsoring the venture fund could be a competitor of the prospective portfolio company. Another exception was that, on occasion, a company could be restricted from disclosing a material contract because that contract requires that anyone reviewing that contract be subject to a non-disclosure agreement. Thus, a venture fund might sign a non-disclosure agreement in order to have access to that material agreement. A third exception was the "strong deal" exception. In a "strong deal," typically involving a veteran team of entrepreneurs, or a later-stage transaction with multiple interested investors, the venture fund after concluding preliminary due diligence and obtaining partner approval for the transaction, might agree to the non-disclosure agreement in order to finalize its due diligence prior to making the investment. In some instances, the company and the venture fund might agree that a third-party consultant hired by the venture fund would evaluate the sensitive technology or intellectual property (and this third-party would sign a non-disclosure agreement with the company), and the consultant would merely report summary information to the venture fund or merely confirm information that had already been provided to the venture fund not under a non-disclosure agreement.

Best Practices
No non-disclosure agreements should be needed for the initial meeting with the venture fund or for the review of the business plan. Consistent with this practice, the disclosing company should be careful about putting to much of how the technology works in the business plan. If a non-disclosure agreement is required to move the transaction forward after the initial meetings, then to insure that the venture fund has freedom to operate, the venture fund should insist on a limited non-disclosure agreement; that is, a non-disclosure agreement limited to a specific list of documents or information. This list should be comprised of only those documents and information that the potential portfolio company is required by law or by contract to keep confidential. This list of documents and information would be attached to the non-disclosure agreement.

The non-disclosure agreement should also be limited in other ways. If the agreements to be reviewed require confidential treatment only for a certain period of time, then the non-disclosure agreement should have the same limited term for its obligations of confidentiality. Also, the non-disclosure agreement should not contain a provision prohibiting solicitation of the potential portfolio company's employees, unless this provision is limited to just the venture fund and expressly excludes all affiliates of the venture fund. Affiliates of a venture fund could include the venture fund's portfolio companies, which, without the knowledge of the venture fund, might recruit and hire employees of the potential portfolio company. In addition, there should be an express acknowledgement that any provision in the non-disclosure agreement will in no way restrict the venture fund from evaluating or investing in any company including competitors or potential competitors of the potential portfolio company. Finally, the non-disclosure agreement should have a provision requiring confidential binding arbitration in the event of any disputes. This will prevent any disputes from being played out in public, and will be a faster, and therefore more efficient, route to a resolution of the dispute. The outcomes of arbitration are no better or no worse than those of a court, but the process can be confidential, and is speedier and therefore less expensive.

If a corporate venture capital investor is involved in the due diligence process, the potential portfolio company may desire a broader non-disclosure agreement with this investor. The corporate investor needs to insure that the obligations of confidentiality and non-solicitation of employees do not extend to the corporation at large, but apply just to the venture capital division (or corporate venture fund, depending on the business structure of the venture entity) involved in the transaction. At the same time, this venture capital division will be required to represent that any information received in due diligence will not be shared with the rest of the corporation.

Summary
In summary, non-disclosure agreements for venture funds should be discouraged by the funds, and for most transactions with established funds, the reputation of the fund and its treatment of entrepreneurs is a valuable asset, providing sufficient incentive to the fund and its principals to maintain the confidentiality of information disclosed by companies seeking funding. A non-disclosure agreement may also be a diversion or impede progress on the transaction. However, in those circumstances where a non-disclosure agreement is necessary or desirable, a venture fund or corporate venture fund usually can enter into an appropriately limited non-disclosure agreement that does not restrict the fund from carrying on its business.

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