As I wrote in Part I of this post, many of the most creative and disruptive startup businesses in recent years have involved the use of intellectual property in innovative, non-traditional ways that defy easy categorization and stretch the boundaries of concepts such as the fair use doctrine in copyright. When presented with a product or service in development, we often have to admit that there is no clear precedent and look for the best analogous situation to assess legal risk. Is Instapaper like collecting press clippings? (If so, do you have to buy a copy of each paper first?) Is pinning a photo or article on Pinterest more akin to showing someone an article in a magazine you’ve bought or actually making and handing them a copy? Does using a friend’s name or photo in a Facebook “Sponsored Story” (e.g., “David S. Rose likes Gust. Click thumbs up to Like it too”) more closely resemble a personal recommendation by that friend to buy the product, or plastering the friend’s photo on the product packaging in stores?
Articles by Antone Johnson
Dual-class voting structures are receiving a lot of attention these days along with intense publicity related to the Facebook IPO, following in the wake of other recent tech IPOs with a similar structure such as Zynga and LinkedIn. This is nothing new; long favored by family-controlled media empires such as Rupert Murdoch’s News Corporation, among Internet firms alone, Google took a dual-class approach when going public in 2004. Some commentators have suggested this is the wave of the future, signifying a shift in the balance of power from investors to founders of the relatively small, elite group of growth companies that make it to public markets. Yet I’m skeptical that a widespread shift will occur anytime soon, and for reasons discussed below, as much as I admire and advocate for talented entrepreneurs, I believe it would be a losing proposition for nearly all involved. Read more
Entrepreneurs tend to focus on opportunity rather than risk, and rightly so. As Steve Blank has written, at its core, a startup is an organization formed to search for a repeatable and scalable business model. In the lexicon of the lean startup movement, once “product-market fit” has been achieved, the focus shifts to scale and execution as the startup matures into a growth company.
In a sense, risk and opportunity are two sides of the same coin to early stage startups. The huge risk that eclipses all others is that the product or service being offered simply won’t succeed — there is no product-market fit, at least at numbers that would make for a financially viable business — in which case (assuming competent execution) the perceived opportunity, viewed broadly, wasn’t really there to begin with. Read more
One of the highest profile liquidity events to date in 2012 is Facebook’s announced deal to acquire Instagram for $1 billion. The popular mobile photo-sharing service should fit well into Facebook’s growth strategy as a soon-to-be-public company, but its eye-popping valuation — more than that of the New York Times, for those keeping score at home — is made more extraordinary by the fact that Instagram is run by only 13 employees.
Setting aside questions of unique strategic value for the moment, what could possibly make Instagram worth ten figures? Brand recognition, goodwill, user loyalty, mushrooming usage metrics, sure — but perhaps most importantly, a mountain of intellectual property. My quick-and-dirty assessment, based on pure speculation with no inside knowledge, produced the following taxonomy: Read more
Last week I penned an in-depth critique of the portion of the JOBS Act seeking to legalize crowdfunding in the United States. The bill, which may have more to do with political grandstanding in an election year than with actual job creation, was approved by a strong bipartisan majority in the House of Representatives. As I argued last week, the version of the JOBS Act approved by the House is a bold experiment in targeted radical deregulation of financial markets on the heels of one of the worst economic disasters in American history — itself attributable to deregulation with inadequate oversight — while the asthmatic U.S. economic recovery wheezes and stumbles through the smoldering wreckage of once mighty financial institutions. Read more
The verb “to disrupt” in all its forms is rightly popular in the startup world. To many entrepreneurs, few things are as personally satisfying (or as lucrative) as disrupting an entrenched, complacent, monopolistic, inefficient or stagnant market in ways that often empower consumers and producers alike. Consumer Internet and mobile technology businesses continue to be rife with opportunities for disruption.
On March 8, 2012, the U.S. House of Representatives passed the JOBS Act, becoming the subject of much chatter at this year’s South by Southwest Interactive (SXSW) conference that began the following day. This bill is the latest in a series of efforts and initiatives in recent years intended to disrupt the traditional methods and markets for investment in, and capitalization of, emerging growth businesses. Boosters can be found all over the Web proclaiming a nascent crowdfunding revolution that will ensure prosperity for entrepreneurs and mom-and-pop investors alike. Read more
Early stage startups understandably seek to minimize corporate overhead and devote every penny to customer development, engineering, marketing and so forth. Nevertheless, if you want or need the benefits of a business entity such as a corporation or LLC, there are some unavoidable expenses associated with their “care and feeding.” (Legal expenses are outside the scope of this post; my “manifesto” on the subject can be found at Quora.)