Getting Rich Slowly in the New Internet Start-Up Boom
We’ve all heard that the current economic climate has motivated venture capitalist to scale down their investments in internet start-ups. In all this gloom, internet entrepreneur hopefuls can find encouragement in a recent Time Magazine article by Josh Quittner, "The New Internet Start-Up Boom: Get Rich Slow".
Quittner refers to our era as The New Internet Start-Up Boom in which savvy internet entrepreneurs with a great idea can get rich slowly. Quittner talks about internet start-up companies that cost little or nothing to start but can eventually yield substantial profits. He refers to these internet companies as LILOs which stands for a little in and a lot out.
The article cites the examples of MotorMouths.com, a car review site started with less than $10,000 that may grow into a $250,000 revenue company within 18 months of opening operations. The article also includes the case study of AirBnB.com, a website that matches visitors with accommodations in private homes. AirBnB.com currently produces enough revenue to support its three founders.
Even Low-Cost Internet Start-ups Shouldn’t Skimp on Certain Legal Issues
Since this is a legal blog about business transactions, I must highlight some legal issues which even a LILO internet start-up should not ignore:
- Agreement Among Co-Founders and Business Partners. I’m frequently consulted by people who find themselves in business relationships that no longer function. The situation is at its worst when the partners have not documented their relationship in a written agreement that hopefully includes steps for an amicable parting. I talked about how business people can protect themselves and their businesses from relationships that go south in an interview on “When Business Partnerships Go Bad” with Steve Mullen of Start-Up BizCast.
- Web Host Development Agreement. Don’t hire a web developer without a proper web development agreement. Important contractual provisions include intellectual property ownership rights, development schedule, and the developer’s maintenance obligations. See an example of the problems that can develop if you forego the written web development contract.
- Securities Law Compliance. If you take money from someone who will share in future company profits but will not actively participate in the operation of your company, you have sold a security and you must comply with state and federal securities laws. It doesn’t matter if the investment is $500 or $5,000,000. Non-compliance triggers potential criminal and civil penalties that you don’t want to encounter. For more information on securities compliance, see my postings about Financing a Business.
- Website Audit. You’ll want to verify that nothing offered through your website is going to get you in trouble. I’ll talk more about website audits in my next posting.
Comments