Doing business in California? Learn how to authorize your business in the Golden State.

Nowadays, almost every founder knows about the benefits of incorporating in Delaware. However, our foreign clients often forget that the United States is a federation, which means that a separate certificate of authority to do business is required for every single state.  Consequently, as the Silicon Valley is the Mecca of pilot projects and almost all of the up-and-coming startups start and continue their business activity over there, it is important to remember a few basic formalities that need to be taken care of when you begin to conduct your business in California. First and foremost, am I doing business in California? The answer is yes if one of the following is true: You are actively engaged in any transaction…

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Data Protection and Data Transfer between United States and Europe

SaaS technology companies in Europe that have U.S. subsidiaries or clients in the U.S. frequently ask us about data protection and data transfer between the U.S. and Europe. This issue is governed specifically by the Safe Harbor Principles Program (the “Program”) on the basis of an agreement dated on March 15, 2000 between the U.S. Commerce Department and the Directorate General of the European Commission. The Program enables U.S. businesses with physical presence in the EU or EU businesses with physical presence in the U.S. (“Companies”) to transfer personal consumer data gathered in the EU territory to affiliated U.S. entities or third parties without violating article 25 of Directive 95/46/EC on the protection of individuals with regard to the processing…

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Watch out for venture capital syndicate SPV. Devil is in the details.

Problem Due to exploding valuations of tech companies, many venture capital investors are priced out of venture deals and cannot exercise their pro rata rights to participate in hot financing rounds. A recent solution to this problem has been syndication, among existing VC fund limited partners and new investors, via special purpose vehicle (SPV) structures. The SPV is created for just one purpose: pooling capital and taking a direct stake in a company by participating in a specified financing at a specific point of time. Pooling the VC’s resources with funds from other investors, both from inside and outside of the fund, allows VCs to maintain control and expand its financial interest. However, SPVs also pose certain business and legal…

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 Regulation A+ and start-up financing

The change. Loud pops were audible across the globe as countless bottles of champagne were uncorked in reaction to the announcement of the latest version of the Regulation A+. Adoption of the final rule by the SEC will provide emerging companies with a new, convenient path to raise substantial capital by offering their stock to large audiences. The Regulation A+ sets forth two tiers of offering processes: The “Tier 1” path, available to all companies conducting offerings of up to $20 million in a 12-month period, with not more than 30% in offers by selling security-holders that are affiliated with the company ($6 million in the case of a $20 million offering). The “Tier 2”, available in turn to all…

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Planned Pregnancy with Strangers

Dear Cytowski LLC, I’ve been a single startup for months and I am desperate to set up a traditional family with a venture capitalist I’ve been hoping for. If I were to take a vacation, go to the Valley and have unprotected investments with 5-7 VC strangers in order to get pregnant with funding, whose consent should I be asking for? Do the VCs have a right to know what I’m trying to do? I’m not looking for child support (aka Series-A, Series-B), an involved father (Marc Andreessen), or even to know whose investment, exactly, lands inside me. I just need to kickstart my startup to make this happen. — Anonymous Startup Dear AS, The investors out there who will…

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Stop being paralyzed by the FDA scare and get your medical device to the U.S. market [part 2].  

This is the second part of our short informational series on FDA procedures for approval of medical devices. In our previous post we have analyzed what makes your product a medical device and its three possible classifications depending its type and application. Below we cover the most confusing and at the same time interesting part, i.e. the consequences of being assigned to one of the three classes and the resulting formalities you will need to take care of. The applicable standards in the context of the market entry. Class I The most lenient standard applies in this case. Apart from few particular products, most of the devices in this class are exempt from any premarket notification or approval requirements. Remember…

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Stop being paralyzed by the FDA scare and get your medical device to the U.S. market [part 1]

One of the most problematic issues for the med-tech startups is what to do in order to legally access the fertile U.S. market, i.e. how to obtain the Food and Drug Administrations’ (FDA) approval for their product. This problem seems to be overwhelming some of our European clients what slows down their businesses and hinders the American healthcare. Because we care about both we have decided to write this short series of two informational blog posts. Ok, so you have a product and you want to bring it to the American market. What now? There are two main questions you need to answer, firstly, whether your product is indeed a medical device and, secondly, how it is classified by the…

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NDAs: What every entrepreneur must know [part 2]

In our previous post we have described what an NDA is and what is its typical scope. We continue with potential problems you should be aware of. Abusive provisions. Not all NDAs are plain vanilla boilerplates as some may contain quite surreptitious provisions. To give you an example, in our practice we have seen a party trying to impose a provision allowing it to use in the future all the information passed by our client (including ideas, concepts, know‐how etc.) which that company’s employees encounter and memorize during the cooperation. It goes without saying that such clause negates the primary purpose of the NDA. Amusingly, that provision was euphemistically called as a “residue clause” and was introduced not by a…

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NDAs: What every entrepreneur must know [part 1]

A company may find it necessary to disclose confidential information to third parties under a number of cases. In the context of startups, it usually happens when an entrepreneur has to share confidential information with prospective investors or partners while trying to raise first rounds of financing or grow the company. This issue is particularly sensitive for an early stage startup as a unique idea or execution is often its most valuable asset. In this article we will cover the most common way to protect it, i.e. a “Non-Disclosure Agreement,” or “NDA”. NDA basically allows the parties to share confidential information for the purpose of exploring potential partnership based on a mutual understanding that neither party may disclose any confidential information…

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Vesting – why you need it?

In the last post I wrote about the basic mechanics of vesting. Now I would like to explain why it is indispensable for every healthy startup to have founders’ shares subject to vesting. The reasons for vesting. Getting shares later rather than sooner is sometimes, counter-intuitively, actually better and this is definitely the case here. Founders themselves benefit from vesting as it locks their partners in the enterprise and guarantees that they will work hard to push the business forward. Founders usually perform dual roles in startups, as they are both their shareholders and employees. This may theoretically result in a situation where a founder quits working and moves to Bahamas but, as a shareholder, continues to reap off profits…

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