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............................ 1871 - Where Digital Startups Get Their Start ........................


Wednesday, November 26, 2014

MUSIC DEALERS: $15M Dollars Earned for Independent Artists...and It's Just the Beginning

$15M Dollars Earned for Independent Artists...and It's Just the Beginning

Through Music Dealers, our global artist and client communities have worked together to put $15 Million into the pockets of independent artists. To celebrate this achievement, let's take a look at how we reached this milestone and how our artist are using their earnings to reinvest in their careers and better the future of the industry.

1871 CEO Howard Tullman Welcomes Columbian Entrepreneurs for TerraBridge Demo Day


Colombian IT companies complete TerraBridge Internationalization Project Boot Camp with a Demo Day at 1871; Fifteen companies are latest international visitors to world’s leading technology hub.

CHICAGO (November, 2014)—1871 has played host to fifteen Colombian IT firms at The Merchandise Mart over the past two weeks as part of the TerraBridge Internationalization Project Boot Camp, a program designed to give technology businesses from emerging markets the skills and resources to expand into the United States through Chicago and 1871. The program concludes on November 21 with a Demo Day at 1871, which will allow the companies to showcase their innovative products and services to the Chicago entrepreneurial, technology, business and investment communities.

We are excited to host the Colombian firms at 1871, and look forward to seeing their progress as they expand their businesses in the United States,” said 1871 CEO Howard A. Tullman. “1871 is constantly focused on strengthening our international presence in the technology community. With our growing range of international visitors and partnerships, 1871 is advancing Chicago as the point-of-entry to the US market for global technology companies.”

The TerraBridge Internationalization Boot Camp is produced in partnership with Proexport Colombia and the Colombian Ministry of Information Technologies and Communication. The program teaches foreign companies the skills they need to network, find clients and create partnerships to ease their entry into the US market. Week one focuses on soft skills and cultural lessons on the business norms specific to the technology world in the United States.  Week two focuses on teaching these firms how to raise capital, pitch clients and investors, negotiate contracts, close sales and create a market entry plan. During the program, 1871 welcomed Sebastian Gomez, the seniormost IT and Creative Trade Official for ProColombia in the Central United States Region, to visit the TerraBridge program participants and explore Chicago’s technology community.

“The goal of TerraBridge and its ongoing Internationalization Program is to make Chicago the premier destination for the expansion of established tech firms into the US marketplace, and assisting Chicago’s tech firms in entering and accessing the large consumer economies in emerging markets,” said TerraBridge founder Greg Stevens.

Since its opening, 1871 has hosted thousands of foreign dignitaries and entrepreneurs seeking to explore the entrepreneurial and technology industries in Chicago. In June, 1871 hosted twelve international startups for the Global Innovation through Science and Technology Initiative (GIST), which marked the first time that program was held outside of Silicon Valley. More recently, 1871 hosted eight Turkish startups to participate in specialized programming, business development and a Demo Day as part of the Teknojumpp Acceleration Program. 1871 also has formalized agreements with incubators and co-working spaces in London, Tel Aviv and Mexico City. This international involvement not only highlights Chicago’s growing ecosystem for digital entrepreneurs, but also provides 1871 members with an expanding set of tools and resources so that they can remain globally competitive as they develop their businesses. 

The Demo Day for the visiting Colombian firms will take place on Friday, November 21 at 1871. Those interested in attending can register at https://www.eventbrite.com/e/terrabridge-colombian-it-firms-demo-day-at-1871-tickets-14284616673.

About the TerraBridge Internationalization Project

The TerraBridge Internationalization Project is a two-week boot camp for information technology firms from emerging markets designed to give them all the skills needed to enter the US marketplace via Chicago and 1871. It is run by TerraBridge Partners, a Chicago based Internationalization Consultancy.

About 1871

1871 is an entrepreneurial incubator for digital startups. Home to over 300 companies, the 75,000-square-foot facility in The Merchandise Mart provides Chicago startups with programming, access to mentors, educational resources, potential investors and a community of like-minded entrepreneurs that help them on their path to building successful businesses. Recently ranked 9th in the world in the 2014 UBI Index list of top university-associated business incubators, 1871 has become a global leader in the entrepreneurial community. 1871 is the flagship project of the Chicagoland Entrepreneurial Center.

1871 CEO Howard Tullman Speaks on Social Entrepreneurship to students from Francis Parker

Sunday, November 23, 2014

Jerusalem's New Holy War

There are terror attacks, and there are pogroms. The attack at a Jerusalem synagogue this week that killed four rabbis was a pogrom. It was an attack motivated not by politics but by religious hatred; it was directed not at Israelis but at Jews.
The killers were armed with hatchets and guns instead of suicide belts, and they came not to kill Jews but to butcher them. The images are horrific: a prayer shawl in a pool of blood; a prayer book turned crimson, from which one of the victims had been worshiping as he was killed; and more haunting, the hand of a dead man, still wearing his phylacteries, soaking in his own blood. Witnesses said a worshiper’s arm, also wrapped in a leather prayer strap, had been hacked off its torso.
To Jews schooled in Jewish history, these images are not new; they are the images of a destiny from which Israel had been intended to redeem the Jews. Consider this description of the Kishinev Pogrom in 1903:
[One young boy], blinded in one eye from youth, begged for his life with the offer of sixty rubles; taking this money, the leader of the crowd …  gouged out [his] other eye, saying “You will never again look upon a Christian child.” Nails were driven through heads; bodies, hacked in half; bellies split open and filled with feathers. Women and girls were raped, and some had their breasts cut off.
Jews knew that sort of hatred could not be combated with reason. Violence of that sort was not motivated by economics, by contested territory or even by history. It was, they understood, malignant Jew-hatred at its core, driven by a millenniums-old sickness from which Europe would never recover.
The 20th century was to have been the century of reason, of banishing ancient hatreds. But when the Kishinev poison was unleashed with the new century already under way (they had no inkling, of course, of how horrific the century would become), they knew they needed to flee.
At the Sixth Zionist Congress in 1903, Theodor Herzl, the father of modern political Zionism, evoked Kishinev not as an event, but as a condition. “Kishinev exists wherever … [Jews’] self-respect is injured and their property despoiled because they are Jews. Let us save those who can still be saved!” The Jews, he insisted, needed a state of their own.
He was not the first to say this. When the assassination of Czar Alexander II in 1881 unleashed a similar burst of murderous anti-Jewish violence, an earlier Zionist, Yehuda Leib Pinsker, wrote that “the misfortunes of the Jews are due, above all, to their lack of desire for national independence; … if they do not wish to exist forever in a disgraceful state … they must become a nation.” As long as the Jew was landless and stateless, Pinsker argued as Herzl would once again a decade and a half later, the Jew would persist in a “disgraceful state.” He, too, argued that there was no choice -- the Jews needed to flee Europe.
So flee they did, by the many millions. Most went to America, but some newly committed Zionists went to Palestine where they hoped to build a nation-state for the Jews. The Italians had Italy, the Poles had Poland and the Germans had Germany. Each had a language, a history, a culture. So, too, did the Jews; what they lacked was a state, and the price of that statelessness, they believed, was Kishinev.
The Jewish State was supposed to put a stop to those images. Yes, a tragic and bloody conflict over land erupted, but Jews -- later called Israelis -- believed the conflict could be resolved. Israel would sign treaties with its Arab neighbors, sometimes giving up land (as with the Sinai Desert in the case of Egypt) and sometimes not (since Jordan essentially required no meaningful territorial concession). When Palestinian nationalism emerged and then became the world’s darling, left and centrist Israelis remained unfazed. This was a conflict over territory, they reasoned; when the Palestinians were ready to live side by side, Israel would cede more land, and the conflict would be over.
But the images of Jewish bodies hacked to death on a blood-soaked synagogue floor are about a hatred too deep to be assuaged by territorial concessions. Those images tell Israelis that although they fled Europe and have built their national home, they are still assailed by the same venomous loathing they had sought to escape.
This time, 7 million Jewish Israelis have nowhere to run. To where would they go?
While Hamas has praised the butchery and Palestinians have celebrated by handing out candies to children and posing with hatchets and photographs of the killers, Prime Minister Benjamin Netanyahu has called for restraint, urging Jews not to take the law into their own hands.
Yet while Netanyahu seeks restraint on the part of private Israelis, he is unlikely to show restraint himself. For if this horror cannot be stopped, the fundamental premise of Zionism and the promises that it bore for the Jewish people -- that the butchery was over -- will be upended. And no Israeli prime minister can willingly allow that to happen on his or her watch.
To contact the author on this story:
Daniel Gordis at danielgordis@outlook.com

The 4 Myths Of Equity Crowdfunding (And Why They’re Wrong)

 This Week In Crowdfunding: The 4 Myths Of Equity Crowdfunding (And Why They’re Wrong)

This Week in Crowdfunding is a newly launched podcast series hosted by OurCrowd's Zack Miller and David Stark, where they cover the best in Crowdfunding with a frank — and educational — discussion about the issues surrounding Crowdfunding. Every week, they interview successful entrepreneurs, deconstruct campaigns, and hear from the smartest people around on this transformative, massive financing trend.
Sign up to listen to the podcast on iTunes * Sticher * SoundCloud!

Equity crowdfunding is probably the newest form of crowdfunding, Kickstarter and Indiegogo’s little brother. But the momentum is there — OurCrowd estimated that upwards of $700M would be invested via equity crowdfunding during 2014.
While thousands of investors have taken to equity crowdfunding platforms, there is a lot of runway for new investors to embrace crowd investing. In this week’s episode of TWiC, hosts Zack Miller and David Stark explore (and bust) 4 myths of equity crowdfunding.

Saturday, November 22, 2014

Thoughts on Howard Tullman’s recent Inc. magazine piece

Thoughts on Howard Tullman’s recent Inc. magazine piece

loved the piece in Inc. entitled “5 Ways to Stop Legal-Fee Madness” by Howard Tullman, a legendary Chicago entrepreneur who recently became the CEO of 1871, one of the premiere startup incubators in the area. I agree with just about everything Howard says. Stop for a moment, go read it, and come back and click “more” below to see my thoughts.

Shameless plug alert: My practice, goodcounsel, is doing pretty much everything Howard says a startup should want a lawyer to do. If you want a lawyer who knows his stuff and will deliver a standardized set of investment documents, drafted more or less in plain English, for a reasonable fixed fee, call me. Operators are standing by.

As noted, I agree with the goals that Howard states in his piece. However, I would like to explore one of his assumptions. He seemingly has it in mind that the lawyer hired by the startup will be at a law firm of the size to have “partners,” “associates” and “administrative assistants” – that is, a larger law firm. Logically, his further premise must be that hiring a lawyer from such a place will lead to the outcomes that he advocates. This is where I would like to weigh in. (I have a lot of opinions here, so apologies for what will be a very long post.)

I’ve worked at big law firms – a couple that are regularly atop most lists. They are great places to bring the types of matters that larger businesses tend to have: IPO’s, high-stakes litigation, and the like. However, generally speaking, the larger the firm, the worse the fit will be for a startup, culturally and economically. (My caveat is key, because there are some lawyers at larger firms serving startups quite well.) An entrepreneurial company typically ought to partner with entrepreneurial organizations across the board – those that understand what running a startup is like, and that are organized to respond to a startup’s needs – and this includes the lawyer. Entrepreneurial lawyers are uncommon, but increasingly, they can be found.

It is no disrespect to larger firms to say this. Larger firms are better for certain matters and not good at all for others, just as some diners want a Michelin-starred restaurant experience, and others prefer the price and atmosphere of Chipotle. It’s rare for any business to be able to serve all segments of a market well. Law practices are no different in this regard, including mine. My focus is early-stage companies.

Some further thoughts with regard to Howard’s points:

The need for standard documents

Howard is not the first smart person to propose that there should be a unified set of documents agreed to within a community of companies and investors. He is reacting to the ridiculous fees that many law firms charge startups. (That issue is addressed below.) I think standardization is a laudable goal, and there has been progress toward it (e.g., “Series Seed” documents), but it will never be fully achieved. Just like voters who hate “pork barrel spending” in general but love pork barrel projects in their districts, everyone agrees that documents are too long but each of the parties to a transaction typically has at least a couple of issues that they feel are absolutely essential. What should be “standard” is very much in the eye of the beholder.

Example 1: I represented a Company that had to amend its Certificate of Incorporation to add director indemnification because the VC investor did not feel that the indemnification terms set out in the bylaws were sufficient. Furthermore, the VC insisted on contractual indemnification too, using the NVCA model document that is 25 pages long. Whether  necessary or not, issues like this are frequently raised.

Example 2Nearly every VC seems to believe that anti-dilution provisions are reasonable protections for their investments and should. I strongly disagree. I believe that VC’s get plenty of protection, and that anti-dilution is unjustified and often just a bad idea. It’s standard in the sense that VC’s often insist on it and get it, because they are writing big checks. But whether it should be part of standard set of documents is debatable and probably not something that can be agreed upon as a general rule for all deals. It’s more a matter of the parties’ bargaining power.

In my view (and admittedly, I generally represent companies), it’s often the investors — the institutional ones — that complicate things with a variety of terms. In small angel rounds, it’s far less typical for issues to arise.

Regardless of whether platonically ideal documents will ever emerge, the fact is that alllawyers recycle documents. We call it, “precedent.” That’s a good thing, because it saves effort and should therefore result in lower fees – but it has to be the right precedent. When a lawyer uses a precedent from a large transaction for a smaller deal, that’s when you end up with a 50-page document where it should really be 10.

When a startup hires a lawyer that works with startups all the time, there is a better chance that the documents will be suited to the task.

Howard, I would love to work with you on a simple, standardized convertible note document set for 1871 startups. The price – how about $1,871?

Fixed fees

Conventional law firms typically charge by the hour – $500 per hour and up. By contrast, entrepreneurial practices are comfortable with fixed fees. Delivering early-stage transactional documents on a fixed-fee basis is a no-brainer. Nearly every single early-stage funding transaction I’ve worked on with an early-stage client has been for a fixed fee of less than $5,000, and many have been less than $3,000. If a lawyer cannot confidently propose a fixed fee, that is a lawyer who does not have enough experience with that kind of transaction.

There is simply an order of magnitude (or two) of difference between what is “normal” to a larger firm as far as fees go. I can still remember the shock I felt when I learned that a client of mine had been forced to hire the preferred big law firm of its would-be investor (a wealthy and presumably sophisticated person) to document a relatively straightforward preferred equity investment. The legal bill came to $175,000. I would have handled that matter, on a fixed-fee basis, for about 10-15% of that price. (See my previous post, “Lawyers as deadweight loss.”) 

Knowledgeable counsel

Many of the more senior partners at larger firms are indeed experienced, but if a law firm of any size has reduced its rates to a level that a startup can afford, the odds are – as Howard acknowledges – that you will spend very little time interacting with those partners. Whether the junior associate you are dealing with is any good, or knows anything about early-stage investment transactions, is a crapshoot. 

Generally speaking, startups are not a durable priority for larger law firms in the same way that they are for smaller ones. The larger law firms have clients paying them six and seven-figure fees annually. If a larger client’s matters heat up, there is no way the startup is going to get the same level of attention (even if the startup is paying a lot by its standards). You want to work with a lawyer to whom your business is really a priority.

My subjective observation is that larger-firm interest in startup work tends to follow high-profile IPO’s (LinkedIn, Facebook, Twitter). I believe interest also ebbs and flows in proportion to how busy these firms are. When larger firms have unused capacity (i.e., associates), they don’t mind discounting their rates or deferring fees. (Associates are to law firms what seats are to airlines – fixed capacity that needs to be filled.) Companies need to understand that if they do make it to the next stage, the deferred-fee day of reckoning will come, and it will be very expensive. (Interesting New York Times piece on this general subject, here.)

Plain English

It is a point of pride with me to use the simplest language possible, and to avoid bad lawyer drafting habits (such as writing as if you live in medieval England). I agree that, regardless of the language used, it’s imperative for clients to understand what their documents say. Clients, therefore, must hire lawyers who will take the time to explain things to them.
Closing thought: Howard recently became the CEO of 1871, one of the premiere startup incubators in Chicago. I hope that 1871, and other institutions that have emerged to incubate, coach, and invest in startups, come to recognize that the practice of law is undergoing profound changes. (More here and here, and in tons of other places.) These changes are leading to new models of practice, affording startups the opportunity to obtain high-quality legal services with all of the advantages that Howard describes – if they choose to look.

Thursday, November 20, 2014

1871 tech incubator announces partnership with Mexico City incubato

1871 tech incubator announces partnership with Mexico City incubator
Chicago Tribune
Amina Elahi

Merchandise Mart-based tech hub 1871 announced Thursday a three-year partnership with Startup Mexico, a Mexico City-based incubator, through which the two would share resources and benefits.

The partnership goes into effect Friday, one year after Mayor Rahm Emanuel announced Chicago’s participation in the Global Cities Initiative, a joint project of the Brookings Institution and JPMorgan Chase. The program intends to strengthen economic ties among cities to promote job growth, trade and investment opportunities.

Companies from both hubs will have access to each others’ people, amenities and some events, free of charge. Howard Tullman, CEO of 1871, said his incubator likely would host a demo day for Mexican startups, as it has for other partners. Tullman said the partnership is reciprocal, with no financial component.

For 1871, the partnership is an extension of a global strategy that has led to connections with startups and incubators in London, Tel Aviv and Ankara, Turkey. Tullman said the Global Cities Initiative pushed him toward a relationship with Mexico City that he said would have happened regardless. Tullman mentioned Brazil as another target for 1871 partnerships.

Tullman and 1871 COO Tom Alexander attended a launch event for Startup Mexico in Mexico City on Thursday morning. Startup Mexico offers 3,500 square feet of facilities, including coworking space, for entrepreneurs, venture capitalists and corporate partners.

Tullman said major Mexican cities are ready for U.S.-based startups. He cited the prevalence of Uber in Mexico City and the popularity of social media there as evidence of a serious tech environment. Chicago companies could lead the Mexican tech industry, where technical skills lag the U.S., he said. He expects particular interest in Mexican inroads from 1871’s currency and payments-systems-focused startups.

Proximity to the U.S. also helps Mexico, Tullman said.

“People talk about India or China from a volume standpoint,” Tullman said. “But in terms of really being able to drop your business or solution into major economies, those are a lot more challenging than countries that are adjacent to the U.S.”

1871, Startup Mexico announce partnership
Chicago Sun Times
Bill Ruminksi

Chicago incubator 1871 and Startup Mexico will work together to grow tech businesses in both cities

A partnership announced Thursday includes reciprocal membership benefits between 1871 and Startup Mexico. Startup México, based in Mexico City, houses small businesses, venture capital firms and corporate partners under one roof.

“1871 is continuing to expand its international relationships in the community of digital entrepreneurs in order to foster disruptive innovation in Chicago and on a global scale,” 1871 CEO Howard A. Tullman said in a statement. The partnership “positions Chicago as the first place where Mexican technology startups will begin expanding their businesses in the US market.”

1871 also has formal agreements with incubators and co-working spaces in London and Tel Aviv.


1871 Goes Global in Partnership With Mexico City Tech Hub
Jim Dallke
Chicago Inno

Chicago tech hub 1871 is creating global opportunities for its member companies in a new partnership with a Mexico City innovation center.

1871 and Startup México announced a partnership Thursday morning that will give companies at both tech hubs "drop-in" membership access to each other's facility. 1871 members will be able to work out of Startup México with access to its mentors and investors, and vice versa. 1871 CEO Howard Tullman is in Mexico City this morning announcing the partnership with Startup México CEO Marcus Dantus.

“1871 is continuing to expand its international relationships in the community of digital entrepreneurs in order to foster disruptive innovation in Chicago and on a global scale,” Tullman said in a statement. "1871’s partnership with Startup México positions Chicago as the first place where Mexican technology startups will begin expanding their businesses in the US market. We are thrilled that 1871 and Chicago will be the point-of-entry to the US market and we are excited to work together to create jobs on both sides of the border.”

The sharing of resources between 1871 and Startup México is part of Mayor Rahm Emanuel’s 2013 announcement of Chicago’s Global Cities Economic Partnership with Mexico City. The agreement outlined an economic partnership to foster job growth and economic opportunity between Chicago and Mexico City, which have been linked as Sister Cities since 1991.

“When I signed the global cities partnership, I expected it would be a call to action for leaders in both cities to explore opportunities to work together and create jobs,” added Emanuel. “I commend 1871 for this partnership, which is exactly what I had hoped would come from this framework. It promises to have long-lasting economic benefits for both cities and will further cement Chicago’s status as the most hospitable city for business in the United States.”

The partnership with Startup México will initially last three years. 1871 also has formalized agreements with incubators and co-working spaces in London and Tel Aviv.

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