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If you’ve come up with a great business idea, but don’t have the money to bring it to market, it may feel like you’re left with few funding options. Banks aren’t interested in loaning to startups that have yet to make any money, and most people don’t have family or friends who are wealthy enough to provide the kind of cash needed to make a real go of it.

To this end, you may find yourself considering the venture capital market. While TV shows like Shark Tank have romanticized the world of venture capital, many entrepreneurs have little idea of how such financing actually works. Here we’ll walk you through the basics, so you’ll have a better understanding of whether or not this type of funding is right for your awesome new idea.

Venture capital (VC) is a form of business financing that comes from outside, private investors, who agree to fund a startup or small business in exchange for a high rate of return and some temporary control of how the company is run. The businesses that receive VC are generally considered to have exponentially high-growth potential, but are also often high risk.

VC is not about long-term investing. The investors are interested in providing the company with enough infrastructure and guidance for it to obtain significant size, profitability, and credibility, and then they want you to sell the business, so they can recoup their investment.

And VC also isn’t about investing just money—it can be offered in the form of management and/or technical expertise as well.

Once the business reaches a certain level of maturity—typically after 4 to 6 years—it’s usually sold to a corporation or made available for sale on the public equity market through an IPO. At this point, VC investors will liquidate their shares.

Simply put, VC investors buy a stake in your business idea, help nurture its growth for a short period, and then cash out their equity in your company when it reaches a certain point in its life cycle.

Venture capital firms typically get the majority of their investment funds from major institutions—large corporations, financial firms, pension funds, university endowment funds, along with very wealthy private individuals, or “angel investors.” These institutions and individuals generally put only a small percentage of their overall funds into these high-risk investments, and they expect a high rate of return (between 20% and 35%) per year for the duration of their investment.

Usually, it won’t be just one VC firm financing a company. Instead, you’ll frequently find a group of two or three firms involved, with one serving as the “lead” investor and the others as “followers.” Outside of the small percentage of funds they invest, such co-investing offers further diversification, ensuring that even if one startup fails, they’ll be able to offset the loss with others that succeed.

Because they’re often hoping to take a chosen startup public, VC investors are looking for businesses with a potential for rapid growth, as opposed to small mom and pop shops. Given this, VC firms usually focus solely on high-growth market sectors.

Timing is also critical in VC. Investors tend to focus on industries that are in their adolescent stage of evolution. They avoid an industry’s earliest stages, when the technology and market are still unstable, as well as the later stages, when the market is saturated with competitors and its potential for growth has passed its peak. Today, for example, more than 25% of VC is focused on the Internet and its seemingly limitless technological applications.

Moreover, VC firms often specialize in certain areas: particular industry segments, stages of a company’s development, or specific geographical regions.

While VC firms look at numerous factors (which we’ll cover in a future article) when deciding whether or not to finance a specific company, you generally need to show investors that your business idea, company’s stage of development, and industry match their particular needs, values, and focus.

And most importantly, you’ll need to show them they can believe in you! You must prove that your experience, management acumen, and skills make you a relatively safe bet. Since they’re investing other people’s money, they want to feel confident you’re worth the risk. By understanding how venture capital financing works and adjusting your expectations properly, you’ll have a jumpstart on the competition before you even give your first pitch.

Beyond these basics, there are a huge array of other legal and financial issues to consider when seeking venture capital. With us as your Family Business Lawyer®, we can not only help you locate suitable VC investors, we can also walk you step-by-step through the complex process of preparing your business to qualify for funding.

And if VC funding is not an option, you may want to consider using a unique funding technique known as credit card stacking, where you use multiple business credit cards to get zero-percent business financing. We’ll cover this method in next week’s article, explaining how it works and when you should use it—or if you need the money immediately, contact us today to learn more!

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.

If you follow the mainstream or social media news, you likely know the new Republican tax bill, which recently passed both the House and Senate, is a potential game changer for tax planning. Known as the “Tax Cuts and Jobs Act,” both houses of Congress passed different versions of the bill, so it’s unclear what the final legislation will include, or if it will even pass. If passed, the new bill is a potential game changer for your family’s tax strategy.

That said, both versions include some common elements, and since we’re close to year end, it’s important to understand what these potential changes might mean for your family’s tax planning. For example, if you are a W-2 employee, you may want to start a side-line business in 2018 to offset some of the potential negative impact of the tax law changes, and we may be able to help you with that.  If you have specific questions on personal impact to you, contact us prior to year-end so we can discuss.

You can use this knowledge to implement tax-saving strategies—by potentially deferring income to 2018 or accelerating deductions into 2017—if you take action before year end.

But keep in mind: None of this is set in stone, yet. By the time this article is published, we’ll certainly have more information. And one thing is for sure, knowledgeable, proactive planning is always wise, especially when supported by a trusted advisor who can guide you.

Both the House and Senate versions of the bill increase the standard deductions to nearly identical levels: $12,200 for singles and $24,400 for joint filers in the House and $12,000 and $24,000 in the Senate. Both plans eliminate personal exemptions, though, so those with dependents won’t see quite as much savings. And if you’ve deducted medical expenses and/or charitable donations in the past, that would be eliminated. So if you donate to charity and are able to write off your donations because you itemize your expenses rather than take the standard deduction, consider increasing your charitable donations this year, as they may not be deductible next year.

The bill keeps the mortgage interest deduction, but adds some new limits. Current homeowners can continue deducting mortgage interest up to $1 million. For new home buyers, however, the deduction will be capped at $500,000. And the bill only allows homeowners to take the deduction for their primary residence, not vacation and/or second homes. What’s more, the bill no longer permits taxpayers to deduct the interest on home equity loans or lines of credit.

Those with young children will see an increase in the child tax credit, too. The House raises the credit to $1,600 per child, with a phase-out for joint filers with an income of $230,000. The Senate plan boosts the child credit to $2,000 per child and sets the phase-out at $500,000.

The House bill sets in motion a full repeal of the estate tax  by 2024, but it boosts the exemption from its current $5.49 million to $10 million starting in 2018. The Senate doesn’t repeal the estate tax, but it does significantly raise the exemption to $11.2 million. Chances are you aren’t impacted by the current estate tax, but if you are, contact us so we can take advantage of potential opportunities to save going into 2018, as it’s likely that the estate tax exemption amount will be rolled back after future elections.

Both bills repeal deductions for state and local income taxes. However, they do still allow for up to a $10,000 deduction for state and local property taxes.

If you’ve created an estate plan, it likely includes traditional wealth and assets like finances, real estate, personal property, and family heirlooms. But unless your plan also includes your digital assets, there’s a good chance this online property will be lost forever following your death or incapacity.

What’s more, even if these assets are included in your plan, unless your executor and/or trustee knows the accounts exist and how to access them, you risk burdening your family and friends with the often lengthy and expensive process of locating and accessing them. And depending on the terms of service governing your online accounts, your heirs may not be able to inherit some types of digital assets at all.

With our lives increasingly being lived online, our digital assets can be quite extensive and extremely valuable. Given this, it’s more important than ever that your estate plan includes detailed provisions to protect and pass on such property in the event of your incapacity or death.

Digital assets generally fall into two categories: those with financial value and those with sentimental value.

Those with financial value typically include cryptocurrency like Bitcoin, online payment accounts like PayPal, domain names, websites and blogs generating revenue, as well as other works like photos, videos, music, and writing that generate royalties. Such assets have real financial worth for your heirs, not only in the immediate aftermath of your death or incapacity, but potentially for years to come.

Digital assets with sentimental value include email accounts, photos, video, music, publications, social media accounts, apps, and websites or blogs with no revenue potential. While this type of property typically won’t be of any monetary value, it can offer incredible sentimental value and comfort for your family when you’re no longer around.

Though you might not know it, you don’t actually own many of your digital assets at all. For example, you do own certain assets like cryptocurrency and PayPal accounts, so you can transfer ownership of these in a will or trust. But when you purchase some digital property, such as Kindle e-books and iTunes music files, all you really own is a license to use it. And in many cases, that license is for your personal use only and is non-transferable.

Whether or not you can transfer such licensed property depends almost entirely on

the account’s Terms of Service Agreements (TOSA) to which you agreed (or more likely, simply clicked a box without reading) upon opening the account. While many TOSA restrict access to accounts only to the original user, some allow access by heirs or executors in certain situations, while others say nothing about transferability.

Carefully review the TOSA of your online accounts to see whether you own the asset itself or just a license to use it. If the TOSA states the asset is licensed, not owned, and offers no method for transferring your license, you’ll likely have no way to pass the asset to anyone else, even if it’s included in your estate plan.

To make matters more complicated, though you heirs may be able to access your digital assets if you’ve provided them with your account login and passwords, doing so may actually violate the TOSA and/or privacy laws. In order to legally access such accounts, your heirs will have to prove they have the right to access it, a process which up until recently was a major legal grey area.

Fortunately, a growing number of states are adopting a law that helps clarify how your digital assets can be accessed in the event if your death or incapacity.

The Revised Uniform Fiduciary Access to Digital Assets Act, which has been adopted in 37 states so far, lays out guidelines under which fiduciaries, such as executors and trustees, can access these digital accounts. The Act allows you to grant a fiduciary access to your digital accounts upon your death or incapacity, either by opting them in with an online tool furnished by the service provider or through your estate plan.

The Act offers three-tiers for prioritizing access. The first tier gives priority to the online provider’s access-authorization tool for handling accounts of a decedent. For example, Google’s “inactive account manager” tool lets you choose who can access and manage your account after you pass away. Facebook has a similar tool that allows you to designate someone as a “legacy contact” to manage your personal profile.

If an online tool is not available or if the decedent did not use it, the law’s second tier gives priority to directions given by the decedent in a will, trust, power of attorney, or other means. If no such instructions are provided, then the third tier stipulates the provider’s TOSA will govern access.

As long as you use the provider’s online tool—if one is available—and/or include instructions  in your estate plan, your digital assets should be accessible per your wishes in states that have adopted the law. However, all 50 states are expected to adopt the Act soon, so even if the law isn’t on the books in your state, you should take it into serious consideration when planning.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.