Wisconsin Public Television University Place Entrepreneurship in Society  Troy Vosseller Legal Implications of Starting a Business  March 21, 2012 UP701   cc >> Jeanan Yasiri: This is Entrepreneurship in Society. It's a course that's offered through the University of Wisconsin School of Human Ecology, and I'm Jeanan Yasiri Moe. We always like to start our class by thanking our partners in making it possible. They include the UW Office of Corporate Relations, the UW College of Engineering for providing us with exceptional space and technical support, and the Ewing Marion Kauffman Foundation which provided financial support over the many semesters that we've been able to bring this class to you. Our media partners are Wisconsin Public Television and their University Place crew, and they are taping today's lecture. I'm pleased to introduce somebody who is familiar to this class. His name is Troy Vosseller, and he supervisor attorney at the UW Law School's Law and Entrepreneurship Clinic which is based out of the Wisconsin Institutes for Discovery just a few blocks from here. Troy is a 2006 graduate of the UW Madison, and while he was an undergraduate here he actually started a company called Sconnie Nation. It's a wildly successful t-shirt company which he continues to own and operate. And he's talked with our group about that, of course. 

After earning his undergraduate degree, Troy went on to earn his MBA in entrepreneurial management and a law degree, both from the UW. Troy's role with the UW Law School's Law and Entrepreneurship Clinic allows him to provide free legal services to start-up businesses and entrepreneurs from across campus and across the state of Wisconsin. And I've asked him to share with us his experiences in that work, what he does, the lessons that he has learned in helping local entrepreneurs learn more about the legal ramifications and the process that they really need to follow in starting up their own enterprises, be them for-profit or nonprofit. Please join me in welcoming Troy Vosseller. [APPLAUSE]  >> Troy Vosseller: Long time, no see! Thanks again for having me talk about some of the resources that exist here on campus at UW and within the community as they relate to entrepreneurship. In the story of Sconnie Nation, which I told to you guys, one of the things that my business partner and I encountered was sort of a lack of resources and, really, a lack of cohesion around resources on campus and within the community towards people starting their own businesses. So for instance, at the UW a lot of the resources existed to help big business, existing corporations, to leverage technologies and research that was coming out of the UW. So if I was a Fortune 500 company, maybe I was a pharmaceutical company, and I wanted to learn about or sponsor some research on campus that could benefit my company, I could interact with the UW in that manner. Or if I was a researcher on campus and invented something that ultimately was patented, as a company I could come and license that technology, that patent, for the benefit of my company. There really wasn't anything internally focused, which was around creating companies organically from within the UW, and there was especially a lack of focus around undergraduates starting companies that weren't necessarily high tech, as was the case with me with Sconnie Nation. 

So for us, oftentimes when my business partner and I went around to these different resources we would sort of get this deer in the headlights look, and people would say you guys are just freshman, you want to start a t-shirt company, and they'd kind of look around. And there was really nothing that they could do to help us in terms of substantive advice. And there were some other resources like this. Small Business Development Center and some other things that existed, and those were helpful. We had some good conversations with those different groups, but, again, there wasn't a lot of cohesion around this concept of undergrad entrepreneurship. Since then a lot has changed and for the better. So for instance, this class was created on behalf of a grant that the UW got to promote more academic learning around entrepreneurship. The entrepreneurship major for undergrads within the School of Business came to fruition and started then. There's new resources like the Law and Entrepreneurship Clinic that I work for and the umbrella organization known as the Entrepreneurs Resource Clinic. So there's been a lot of things that come into play now which is absolutely fantastic because the more brain power we can keep here in the state and in Madison, the better obviously for the state and local economy as well as the national economy. 

And the more churn, I like to call it churn, the better. So I define churn as people that start a company and maybe they have success or they don't, because I think failure is equally as important to success in really a free market system, so maybe people fail, and then they join another company either that exists or they start another company on their own, but they were able to build off those experiences and that knowledge that they've gained from their prior experience or experiences. So that idea of churn is very much important, and it's something that I think we're trying to build in Madison. We're not there yet. In fact, we have a long ways to go, but I think we're light years ahead of where we were in the past. So a great example of that is Shopbop which started in Madison, and it started as really a men's and women's outfitter for outdoor clothes. So it was almost like a Fontana. And then ultimately they had success around search engine optimization when e-commerce was kind of brand new, and then that ultimately developed into a high-end women's e-tailer for fashion. But they just recently relocated their headquarters from the Beltline to downtown Madison and are set to higher a ton of new people, talented people. So that's a great example of something that started in Madison and that continues to give back to the community, and we want to be able to promote more success stories like that here in Madison. 

So, again, that's this concept of churn, and it's something that areas like Silicon Valley, so San Francisco, Mountain View, Palo Alto, they do an absolutely fantastic job where they embrace failure almost to the point of encouraging failure and then allowing people to go on to have other experiences, with the summation of all those successes and failures being a very big net positive. So I'm here today to talk a little bit specifically about the Law and Entrepreneurship Clinic. So that's the entity that I work for. So I went through law school here at UW Madison, and one thing that frustrated me was I wanted to go on and not necessarily be a lawyer in the traditional sense of working for a big law firm or working for a government but I wanted to be a lawyer as a way of helping people with the issues I faced as an entrepreneur. So specific to transactional law, entrepreneurial law, and all the laws that touch that area. So three years ago the Law and Entrepreneurial Clinic got started. It's part of a long line of clinical education history that the law school has. So clinical education loosely is defined as an academic, for-credit, hands-on learning experience, in this case, law students participate in to gain real world experience in the are of law that they're interested in pursuing as a career. So the law school has a long tradition of doing this in a criminal law realm. So whether it's legal systems to institutionalized persons or family law issues or helping people with neighborhood law issues, mediation around foreclosure, things of that nature. 

There's a long and rich history of that, but this was kind of a new direction. So this is focusing really more on civil law, and specifically business law. So it was a great kind of repositioning of the law school to give credence to this area of the law in providing, obviously, some infrastructure to make it happen. So the clinic started three years ago. Law students take this. It's a class that they take for credit. Myself and four others act as supervising attorneys/instructors for the program, and what the students do, the law students do is provide free legal services to entrepreneurs and small business owners. So those could be students like you guys here on campus, it could be general community members, really anyone across the state. They do not need to have a university affiliation, however, due to where we're located, many of them do. It's a completely free service. 

What we do is we direct people to our website. So if any of you here are interested in obtaining services, you can go to our website. The short way is UWLE.org. So UWLE.org. That will direct you to our web page. On the left column there's an apply for services button. That's where we ask for some information about you, about your business, about your idea, what sort of help that you think you need. And then on a monthly basis we invite you to a screening session. So we invite anyone that's applied for services to present their idea, their business, to a panel that includes people like myself from the Law and Entrepreneurship Clinic but also people from other campus and state resources like the Wisconsin Entrepreneurs Network, the Office of Corporate Relations, WARF, the Small Business Development Center, and the Physical Sciences Laboratory. So really a cross-section of people with different expertise with the idea being that you present your business idea and maybe legal services aren't the thing you need to focus on right now, but maybe there's a federal grant available for the idea or the research that you business is based on that you can obtain. 

Maybe you need to think more about your market or your customer base or product development, and there's resources that can help you with that. Maybe you need help prototyping and seeing proof of concept before you can ultimately do some of the legal things. So it's really meant to be a triage system. So you present your idea to a panel, we'll ask questions, we'll have some question and answer, and then we'll get back to you with an action plan with recommendations. We recommend you talk to these people first or start working with this group on campus and then come see us. It's unique to each circumstance. So, again, it's a great program. It's part of this larger initiative known as the Entrepreneurs Resource Clinic, and I'll pull up that website. So that website is located on the Wisconsin Institutes for Discovery web page. So, again, this is kind of the first true effort or most recent effort to bring all these different organizations under one roof and to have a coordinated application. 

So I mentioned we have an application on our website. I should also say you can also apply for services through this website. Regardless of where you apply, you go through the same process in terms of assistance. It lists the partners that we work with here at the ERC, that's the Entrepreneurs Resource Clinic. And, again, the idea is to be able to grow businesses regardless of what stage you're at. So there is a bit of an income screen. We're not here to provide free legal services or business planning assistance for an already successful company or wealthy individual, but we are here to provide assistance for people, like I said, mostly students, first time entrepreneurs, people that don't really know how to navigate the process, navigate the waters. And the idea is to move them from point A to point B, and if you picture the entrepreneurial journey going from point A to point Z, we're just kind of the tip of the iceberg. We want people to get off the ground and get enough knowledge and have enough availability to resources to get them to the next level. And then hopefully they have some success and they can ultimately find these services, whether it's accounting services, legal services, business planning services, grant writing services, hopefully they can find those services in the private marketplace as they go on. 

For our law students that actually provide the service, it's a great experience for them because most of them want to go off and practice in that area of law as a career. So for them it's kind of a safe way of experimenting to do that. So they get the supervision of myself and the other supervising attorneys, and we're also supported by a network, an advisory committee, which is made up of lawyers from all the major firms in Madison. So we have a lot of support behind what we're doing, and that's really been a great experience. Specific to the legal things, I can go into our website that talks about the kind of services that we provide. So here on the right side, you see wide-ranging services offered. So, again, beyond the legal services we maintain relations with these other groups that may offer accounting or business planning or grant writing things, and so whether that's business planning, entity selection and registration, so that'd be deciding between an LLC, a partnership, and S corporation, a C corporation, or nonprofits. We also help nonprofits obtain 501(c)(3) status or other IRS statuses that they may be pursuing. Federal, state, and local tax issues, so whether that's obtaining a seller's permit if you're actually going to be selling goods or services in the state, we can help advise on that. Financing documents, so if you're taking outside investment, whether it's from friends and family or from third party investors, we can provide some assistance with that. 

Leases and other commercial contracts, so if you're, let's say, planning a restaurant and you need help, one, finding space, or two, how do you negotiate that, what are issues to look out for, what should the lease look like, we can provide assistance with that. Other contracts, so if you're a business and you're going to be selling a product but it's, let's say, unique and there's other contingencies involved with that, we can help draft contracts and help memorialize what sort of relationship you want between you and your customer or you can another business. So, for instance, in the story of Sconnie, we have a contract between Sconnie Nation and Underground Printing. So that's the sort of thing that the Law and Entrepreneurship Clinic can help with. Employment agreements, this is something very important. So when you bring on employees that aren't, let's say, founders or owners of the company, getting that relationship in writing. How much are they going to be paid? Is it a salary? What's the payment frequency? Is it an hourly wage? How much is that wage? Are there benefits that come with it, yes or no? Do you want to include any sort of non-compete language or non-solicitation language? If that employee were to leave, can they take their customers with them or can they not? Those are questions to think through. Things around intellectual property ownership and assignment. So if I'm an employee of a company and I invent something, who owns it? Do I own it individually as the employee or does the company own it? If I'm in the creative realm and I think of a new product name, let's say a trademark product name, or I write, I create a successful blog for this company that ultimately becomes a business of its own, who owns that content of that blog? Who owns the copyright? Who owns the trademark to those underlying intellectual property assets? There's a lot of trip ups that entrepreneurs can run into, and, frankly, a lot of people run very fast, which I think is important as an entrepreneur, I think you definitely want to run fast, but at the same time you definitely want to make sure that you're buttoned up on those issues because the absolute worst thing that could happen is you have some success and then when it comes time, let's say maybe you're company is going to be bought or maybe you're going to take on money from more sophisticated investors, they're going to go through a due diligence process with you and with your company, and if they find that, hey, Troy, I don't think your company actually owns what you think you own, that's a big problem because that means all your value just goes down the toilet. So you don't want to find yourself in a situation like that. 

Trademark and copyright registration and provisional patent applications and licensing agreements. So if you have a brand or a product name that you want to have trademark protection around, so in the case of Sconnie, our trademark Sconnie, we can help you with those applications whether it's registration with the state or with the United States Patent and Trademark Office. If it's something copyrightable, let's say a book, a move, you're an artist, or a musician and you want to protect the underlying work that you created, we can help you obtain copyright registration with the United States Copyright Office. Provisional patents, so if you come with some sort of idea for an invention, something that has utility or something that has a very unique design, we can help you obtain a provisional patent on that underlying invention, and we've helped clients do that as well. Licensing agreements, so if you already have a piece of intellectual property, be it a trademark, a copyright, a patent, or a trade secret, we can help you with issues that you'd face licensing that piece of intellectual property to another party to either build or create or use in some other way. And then other counseling regarding branding, copyrights, trademarks, trade secrets, freedom to operate, that's another concept involved with patents. So if you have an invention that you want to know if it's going to infringe on someone else's invention, you might have an invention and other people own patents all the way around it, so that prevents you from really being able to do anything with it without licensing or working with those other companies. So analysis around that. We also list your unfair competition, publicity rights, privacy rights. So a lot of what we do, let's say you're creating a new website and it has the social networking concept, privacy issues, so things like are children going to be using the site and what sort of information can you and can you not collect from those users. 

What sort of security measures do you need in place. So checking for people's age, things like that. Drafting terms of use that talk about if I'm YouTube and you're a user of YouTube and you upload a video, you're actually giving YouTube a license to that video, and what you're telling YouTube is that you own that video or you have rights to upload that video to YouTube. So there's a lot of transfer in licensing that are going on whether or not you really appreciate it. So I don't know if you guys have seen the South Park episode about terms of use and iTunes, it's pretty funny. You can look it up. But it's the click-through. So whenever you upload a piece of software or create an account with, let's say, Facebook, Twitter, Pinterest, when it asks you, yes, I agree to the terms of use and privacy policy, you're actually agreeing to a lot of things that you may or may not realize. So we help companies draft those polices to make sure that the company isn't going to do something that the user does not expect or that the user is not notified of. So things related to privacy, information rights, licenses of content being shared and uploaded. 

So that's that. So I guess I'd open it up to questions again about whether you want to ask legal questions or entrepreneurial formation issues or if you have specific questions about what other resources might available on campus, I'd be happy to do my best to answer those questions. >> And I'm going to pass off the mic again to Alexis and Chuck who will divide the room, and I'm going to actually start with the first question, Troy, if you don't mind. I think that sometimes people have ideas, and they're just not quite sure when is the right time for them to engage with an attorney or counselor like that which you're describing. How soon is too soon? How much do things have to be vetted first? >> Sure. So I think it's important to, obviously, have those things on your radar, so it's great to be thinking about that question. And I think overall the sooner you can have those conversations, the better. So if you're going to use our resources, which I really would encourage you to do, the sooner you can get on a radar, the better. Now, that might not necessarily mean that we pick you up as a client right away, but we might give you specific feedback about what we think you should do. So a common example is people don't have the right team in place. 

So it's very, very difficult as an entrepreneur, especially a first time entrepreneur, to say I have an idea for this, whether it's a new machine, a new sort of website that has some advanced capability. It's very easy for people to say, hey, I have this idea to do that, but then you ask them, in the case of a website, are you a programmer, do you have a business partner that is, and can they develop that themselves? Or in the case of an invention, do you have expertise in that area, can you build that or is it just in your head? So it's the ability to be able to execute on that idea, and I think that's an area that a lot of nascent entrepreneurs fall short in. I think people are quick to put too much value on ideas, and for me I'd say ideas are cheap. Ideas are almost free. What really provides value is the execution of those ideas. So someone could have the best idea in the world, but if they can never make it happen, then there is ultimately no value there. So I think creating the right team is very important. So if you're going to be able to start a company, I think for the most part, especially as a first time entrepreneur, you need to have a team that can more or less take that idea and execute on it at least to the prototype stage. So in the case of a website, something that is functional and might not be the most polished and the fastest, but you need to have a team with the internal capabilities to do that. And if you don't, it's nearly impossible I would say. 

So I think team and the right technical and business expertise is very important, but once you have that I think the different resources that we have on campus can really provide a lot of feedback around what's the best way to fund this. If you need access to certain resources like machines to make it happen that you might not have enough money, is there a space where you can rent usage of those things or computing power, questions like that. As it relates to legal issues, I think the sooner the better as well. That being said, I think there should be some internal conversations that the team has around is this something we're serious about because if one individual is very serious but the other team members, it's just a hobby for them, that's going to lead to problems, and you're going to have to think about that long and hard. So I think making sure your team is correct because we can write the best incorporation documents in the world, but if the following day you decide we're not really into this, that's kind of a big waste. So we want to make sure that people are committed to what they're going to do. It's not necessarily a hobby for those individuals. It's hard to have success with a hobby. It's got to be something that you're willing to commit to. So if you're a student that means, not necessarily that you're going to drop out of school, maybe you get to that point, but as a student you're really willing to commit to it. 

So that means working after class, that means working on weekends, being serious about that versus someone coming to us in February and saying I start this job in May when I graduate but I really am excited about this. That business probably isn't going to work out because that person isn't committed to it at that time. So I think thinking about teams, what kind of capabilities you have, and then are you serious about this venture, are you going to be going forward with it, and then have those conversations with lawyers and others can be helpful. >> I just want to remind folks that Chuck is down here, and he can't see you unless you wave at him. And Alexis is over here and happy to hand over the mic if you've got a question. I'm going to follow up to Troy's comment about when to be in touch, either with your clinic or some kind of legal influence, and the question that I have really speaks more generally to ideas. A lot of students say I think I have a great idea but I don't know if I should share it. I don't know who is safe to share it with versus not, and we do have need for a mic down here, Chuck. >> That's a great question. So information sharing, so there's differences of opinion on this. 

There's no magic answer and I think it varies based on what that idea is and whatnot. But for the most part, within the Internet realm, the web realm, the software realm, a common phrase is if you've though of an idea, odds are other people have thought about it as well. It's a matter who's going to be able to execute on that idea best or most efficiently or first. Not always first ultimately wins, but who has the best execution of that idea. I think in different industries the standard is a little bit different. So in the Internet realm, developers, software designers and whatnot, they tend to be a little bit more open with what they share, and it's just a culture of sharing. That's why you see open source software many times. So it's the culture of sharing and growing and not really stealing people's ideas but building on top of them. So in that realm I think you can share quite a bit and get some valuable feedback because hopefully you're getting feedback from people who are already doing something full-time themselves. So they're not interested in stealing your idea. 

Another example is if you approach angel investors or venture capitalists, almost all of them will say that they'll sign an NDA, a non-disclosure agreement, just as policy. They just choose not to because they have so many ideas come past their desk, they never want to be caught in a position where someone says I told you this one microscopic piece of that idea that you ultimately funded and, therefore, they're suing that financier. They live in a culture of reputation. So if they were out stealing people's ideas, they would have a bad reputation and entrepreneurs wouldn't want to get money from that financier. So there's really reputation markets that exist as well. And that's true for all entrepreneurs. So if I'm known in the community as a reputable entrepreneur and I'm not out stealing people's ideas, hopefully there's a level of assurance that I have a good reputation and I'm not willing to tarnish that reputation by stealing your idea, but rather I want to provide you valuable feedback. I will say it's very difficult to provide valuable feedback  without a certain amount of disclosure of your idea because otherwise you're just speaking too abstractly and I don't think it can be very helpful. That being said, any sort of correspondence that you'd have, whether it's submitted to us or when you're going through a screening intake interview with the Law and Entrepreneurship Clinic or the Entrepreneurs Resource Clinic, all us, as staff, are under confidentiality agreements. So everything you tell us is held in confidence. 

If you're engaged with us at the Law and Entrepreneurship Clinic, you have all the protections of lawyer/client privilege as it relates to information sharing and all those things. So you do have protections like that, and we can also advise you on when something like a non-disclosure agreement is appropriate, and there definitely are circumstances where such an agreement is appropriate and we can help advise you on that. But for the most part, I think as a general piece of advice, and, again, I think each industry sector and each technology area is different, but as a general piece of advice I think entrepreneurs, first time entrepreneurs tend to be too close-lipped about their ideas, and in general they probably would be better off being a little bit more open on speaking about their idea. Now, there are some exceptions. If you talk about something that's patentable, once you make a public disclosure you only have a year timeline until you can file for a patent. So the clock does start ticking once you make a public disclosure. That would be like if you were to publish something on the Internet or got to a public lecture and speak about it, but there are ways short of telling the secret sauce to communicate about the idea and get valuable feedback. >> Darian has a question. >> Hey, Troy. Thanks again for being here, and my name is Darian. 

My question is about applying. I think you had said you guys select people once a month, and how many people do you select from the applicants and when is that once a month? >> Sure. So in general we let the applications build up and we screen them on the first Tuesday of each month unless there's holiday or some other conflict. So the first Tuesday of each month. It will be coordinated so whenever you apply you'll be contacted and scheduled for the next available Tuesday they can make for a time slot. It's just a 15-minute time slot that you come in, pitch your idea, there's some Q&A, and then we'll make a decision. So we'll follow up with an email that says we think you should start with this resource or start with these two resources simultaneously. And so there's no limit on that. So if all 20 companies that come through and see us on a given Tuesday are all great and we think that they fit kind of the resources that we have, we'll put them all, we'll queue them all in our list. So then you'll enter another waiting list there. 

As it relates to the Law and Entrepreneurship Clinic, you'll be taken in order as the law students have freed up space. So if they're working with a client and they close that client out, they're done working with them, they'll take a new one from the top of that list. So, overall, I'd say that the process takes, it's not quick, it does take time just because of the overwhelming demand that we have, but I'd say, on average, on the short end it's one month, on the long end it's three months before you're actually picked up as a client. >> I'm going to ask one last question because this is a newer audience from that which you had the opportunity to speak to just a moment ago, and I know you can probably provide a pretty succinct answer, Troy, but at one point you talked with us about the importance of partnership agreements, and whether it be family members or friends, at what point should people be entering into those? >> Sure, sure. So I think as soon as you've got that team together and you know that that's going to be the team that is in it for the long haul, then I think that's the time where you want to do your corporate formalities. So whether it's registering an LLC or incorporating a corporation or forming your nonprofit, and in the case of those for-profits, I think it's really important at that time to set into writing what responsibilities each party has, what rights and privileges each party is receiving. In the case of an LLC, having that operating agreement that stipulates what happens if someone dies, what happens if I go into business with a friend who is married and they get divorced what happens. So it's all the morbid things is really what you got to think about. So let a lawyer help you with those things because that way it makes it less personal. There are certain forms and certain routine that happens in the practice for all these morbid things, so debt, disability, divorce, incapacity, fraud. 

So what if one partner is defrauding the company, how do you handle that situation? It's a lot of those negative things. But if you can agree on them from square one, then you have this procedure in place. So if that were to happen, you can pull out that operating agreement from your file, dust it off, and look at it and sort it out, follow that procedure. In the case of just the general partnership relationship, I think, again, the sooner the better you can get that in writing because you never want to find down the road years later and then actually have created a business with a lot value and now you disagree on and you have this 50/50 split, it's deadlocked between the partners, that's just very unhealthy for the partners, unhealthy for the business, really unhealthy for the employees working for that business. That really seeps down to them as well. They can sense that. So the sooner you can get that in writing, the better. One thing I say is you'll never agree more than at the beginning or at the start of a venture. You always tend to disagree more. So you don't want to start down this path and then once you start to disagree then you discuss this because then no one wants to agree. 

You've already had this falling out. So the sooner, the better you can think through those issues is what I would encourage you to do. Don't fall into the trap that I did with Sconnie Nation. Don't just listen to the advice but actually heed that advice. Get that operating agreement in place, have all these provisions in place around these morbid issues as well as a partnership buyout. What happens if one party wants to buy out the other? Deal with that. And then once you deal with it, it might not be the most fun thing to deal with but once you have dealt with it, it's out of the way and you can move on. And in the best partnerships, the same is true for the best contracts, the best licensing agreements. You'll never have to pull those documents out again because everything will be rosy. The business will go on. 

Everyone's making money. It's profitable and the relationship is good. So you'll never have to pull those documents out, and you can cross your fingers that that's, ultimately, how it's going to work out, but at the same time you want to plan for the downside as well. >> Well, I know the students and our audience really thank you, Troy Vosseller, for sharing your expertise. >> Thank you. [APPLAUSE]