Thanks to Title II of the Jumpstart Our Business Startups Act, which went into effect in September, private businesses can now solicit the public for seed investments.
Before the law’s passage and because of the Securities Act of 1933, businesses were prohibited from asking the public for money.
“It was an 80-year-old securities law that was really outdated and was meant to protect the little old lady from the bad man trying to sell fake stock certificates,” said Ruth Hedges, CEO of Unismart Capital Software Inc. and Crowdfunding Roadmap, which held its second annual crowdfunding conference at M Resort on Oct. 14-16.
Effective immediately, crowdfunding is open to businesses as a means of netting investors and raising equity. Previously, it could be used only to collect donations and donors could only be rewarded with gifts, not equity.
Though crowdfunding is now legal, the U.S. Securities and Exchange Commission still has work to do, said Justin McVay, director of the Startup Center at the University of Nevada, Las Vegas.
The center is a free community resource, financed by the Small Business Association, that is headquartered at UNLV but has satellite offices around town. Since it began in April, it has helped about 90 clients raise nearly $3 million in capital.
Previously investors had to be certified by the SEC as having a net worth of more than $1 million, a trust of more than $5 million, or making a single income of $200,000 for the past two years or a combined income of $300,000 for the same time period.
The requirement is meant to protect investors from themselves, McVay said. The SEC doesn’t want people putting their life savings into a bad investment when the reality is that 80 to 90 percent of startups fail and after the initial startup period, 50 percent of small businesses fail.
Since crowdfunding relies on small donations, sometime totaling $5 or $10 or $20 dollars, the rules for investing will have to be adjusted to allow for a lower threshold, perhaps a subset of an accredited investor that is authorized only to invest in crowdfunding.
Startups and small businesses often have trouble landing traditional bank financing because they haven’t been around long enough, don’t have proof of income and have no collateral to offer banks.
For these people, crowdfunding can be a good option.
On the flip side of crowdfunding is peer-to-peer lending.
“This is another way of crowdsourcing, but for debt not equity,” McVay said.
Lending Club and Prosper are two of the best-known sites, which allow people to lend to other people but collect interest rates that are better than what banks offer. Both allow loans of up to $35,000.
Debtors on Lending Club reveal their credit scores and specify what interest rate they promise to repay over a specified period of time. The website has facilitated $2.7 billion in loans since its inception in 2007.
As with any other loan, default occurs, so McVay said an investor’s best bet is to minimize risk by lending small amounts of money to several businesses, rather than a large amount to one.
Peer-to-peer lending groups are typically backed by banks that will take over the loans in case the websites fail, and use the same collection methods as traditional money lending.
With these new sources of income available, McVay stresses how important it is to have a solid product or service before seeking capital.
“Getting access to capital is one of the most important aspects of starting a new business,” McVay said, “But there are a lot of things you have to do before you are ready to talk to someone about money.”
Entrepreneurs still have to explain their product or service and the need for it. Business ideas should identify a problem and fix it.
Above all, talking to customers is key to developing a minimum viable product, the most basic form of the product that can be launched and improved on over time.
“Get your plan, then get out of the building,” McVay said.
Ask tough questions and be ready for responses you don’t want because, ultimately, demand matters. A strong product is necessary whether a venture capitalist, a bank or an online community is being pitched.
“They’re all still theoretically going to want to see the same thing,” McVay said.
GET YOUR PAPERWORK AND PERMITS IN A ROW
So you have a great idea and you want to make it official. But where do you start?
First, check to make sure your business name is unique. Do some research on the Nevada secretary of state’s website, nvsos.gov, and other search engines. This might save you a headache later.
The city of Las Vegas provides information about the new-business registration process in Nevada. The entity’s website suggests starting the process by registering any fictitious firm name for sole proprietors and businesses that work under a different name. The Certificate of Business Fictitious Firm name should be filed with the Clark County clerk’s office. Filing this certificate, however, doesn’t ensure a name is unique or reserve exclusive rights to use the name, which becomes more important as you continue down the line of legal paperwork.
Some state agencies, such as the Nevada Secretary of State and the Nevada Board of Contractors, do require a unique name and will reject a filing for a name that is too close to one already registered with them.
After filing the fictitious firm name, get a free employer identification number, or EIN, from the Internal Revenue Service, irs.gov. Also known as federal tax identification number, it helps identify a business for tax purposes.
Now, obtain a Nevada state business license from the secretary of state’s office, which can be completed online. Do this before getting your local licenses because you’ll need the state license number for the local applications. Any business that’s exempt from obtaining a state business license must still file for Notice of Exemption through the Nevada secretary of state’s office. These include nonprofit corporations, certain home businesses and rental owners renting four or less properties. For specifics, check with the secretary of state’s office.
To learn about state business tax information, visit the Nevada Department of Taxation. If your business involves sales, obtain a Nevada Tax ID, as a copy of your receipt will be required by the local business license office. Visit tax.state.nv.us.
Finally, you can start applying for regulatory and local business licenses. Find your jurisdiction, keeping in mind you might fall into more than one: gisgate.co.clark.nv.us/ziploc . Be patient going through this process as your particular business may require special permits, or land use or zoning hearings. The different jurisdictions in Southern Nevada are city of Las Vegas, city of North Las Vegas, city of Henderson and Clark County.
LOCAL ORGANIZATIONS OFFER INFORMATION, RESOURCES TO HELP STARTUPS SUCCEED
If you’re looking for resources, Las Vegas has plenty for entrepreneurs.
SCORE is one that continuously offers workshops and seminars geared toward business owners at any level. On Oct. 26, the group will host a session on writing a business plan from 9 a.m.-11:30 a.m. at 300 S. Fourth St., Suite 400. Cost is $25.
Other recurring workshops that SCORE offers are “How to Start Your Business,” “Marketing & Sales Explained,” “Cash Control,” “Home-Based Business,” and “Consulting and Independent Contracting.” The Southern Nevada chapter also offers free, one-on-one personal business counseling, email counseling, business mentoring and small-business support teams. Through its website, the organization also provides links to online resources for entrepreneurs, including SBA loans, financial statements for beginners and lists of available federal government contracts for vendors.
For more information about SCORE or its services, call 702-388-6104.
Besides SCORE, the Las Vegas Metro Chamber of Commerce; the University of Nevada, Las Vegas; the Nevada Small Business Development Center; and the Las Vegas CEO-CFO Group all provide resources to businesses.
The chamber offers links online to agencies that offer various forms of business assistance, including the Global Trade and Investment and Nevada Industry Excellence. In addition to education, UNLV has opportunities for community involvement through the Lee Business School and the Center for Entrepreneurship. The institution also tracks economic data and releases it to the public through its Center for Business and Economic Research.
The Nevada Small Business Development Center offers an array of resources to businesses: professional consulting, microloans, training on how to start a business, research and economic analyses. The CEO-CFO Group is a networking group for professionals.
HELPING TO MAKE THE MOST OF THE CLOUD
“Cloud computing” sounds like a mysterious new technology, but it’s actually one most people have experience with.
Email accounts and online bank accounts are in the cloud and always have been.
Simply put, using the cloud just means storing information in data centers at a location other than where your office is. It used to be called hosted services or managed services.
For small businesses, cloud computing can make a lot of sense. Rather than buying expensive servers and hiring information technology professionals to maintain the system, cloud computing allows businesses to rent server space and technical help.
People who work from home or have multiple offices are great candidates, said Tom Andrulis, CEO of Intelligent Technical Solutions.
Andrulis said his smaller customers often opt for hybrid cloud services, which include hosted email and file services. File services are similar to Dropbox and clients can access their documents from anywhere.
Cloud packages can contain applications as basic as email or as advanced as customer relationship management software.
Basic services run about $30 per person per month, though rates can climb up to $250 per person per month depending on what is offered.
Jason Mendenhall, executive vice president of cloud at Switch data center, encourages people who are interested in cloud computing to schedule a meeting with his company, which has been around for 13 years and has never experienced downtime, or time disconnected from the Internet.
Switch works with more than 45 cloud providers and offers free, nonobligatory advice to customers.
“Don’t do it on your own,” Mendenhall said. “It’s a complicated landscape.”
Andrulis and Mendenhall agree that identifying a problem that cloud computing will solve is key to a successful experience. Similarly, customers should plan to stay with the company they choose for a long time, and have faith that company will be around for a long time, as moving information off the cloud can be costly.
LAW BARS EMPLOYERS FROM ASKING FOR SOCIAL MEDIA PASSWORDS, CREDIT CHECKS
Whether hiring for the first time or brushing up on labor laws, employers should know that there are two new laws that regulate what can and can’t be asked during a job interview.
Beginning Oct. 1, Chapter 613 of Nevada Revised Statutes, which outlines unfair business practices, forbids employers to ask for social media passwords or credit checks.
“Before this statute, employers were left with a vague area of privacy rights violations,” said Lisa Zastro, lead counsel at Kaempfer Crowell, which specializes in business law.
Zastrow said that before the law was created, employees who had been violated would likely have legal recourse, though the new guidelines spell it out more clearly.
The issue hasn’t been a common problem so far, but Zastrow said it’s likely being addressed now because social media policies are just starting to emerge.
“These two topics have been linked to unfair business practices, but as a practical matter, most employers are not asking prospective employees or employees for their social media passwords,” Zastrow said. ‘That borders on reckless and absurd.”
If employees were asked for a password or credit check, they could file a complaint with the labor commissioner, who would start an investigation to find out what happened. The employees might also have private cause of action.
However, there are exceptions.
If a job involves managing money or allows access to financial info, such as a chief operating officer or accountant, a credit check might be appropriate. Zastrow notes that an employee credit check is different from a consumer credit check and, if done correctly, will not show up on a credit report, will not show credit score and will not give additional personal information.
If an employee runs a social media account for a company and holds the only authorized login, asking for the password would be acceptable.
To avoid legal trouble, Zastrow advises businesses to put everything in writing.
“I would tell employers, even if it’s very small, to have a written policy and procedure manual,” she said.
With written policies, employers can terminate employees with less fear of being reported to the labor commissioner.
Nevada is an “employ at will” state, which makes managers think they can fire at will.
“That doesn’t mean they can hire and terminate without fear of litigation,” Zastrow said. “Clark County is a highly litigious county.”
Similarly, she recommends keeping employee files that include tax statements, payment records and disciplinary records. When a serious conversation has occurred, the employer should note it in writing.
At the least, Zastrow recommends that employers familiarize themselves on Nevada rules and regulations, health insurance laws, hiring and firing laws and discrimination laws. They should look into noncompete contracts and confidentiality agreements to protect their ideas and livelihood, and look into employer liability insurance, which can cover lawsuit costs.
“Time is the biggest asset and people don’t want to spend it meeting with lawyers,” Zastrow said, but taking a couple of hours at the start of a business can save an employer from big headaches down the line.