3D Printing Entrepreneurship: An Exciting New World

3D printing seemed poised to take the world by storm a few years ago, but as of 2018, this form of personalized manufacturing is still waiting to reach its full potential. The floodgates have not fully opened for various reasons, but there are a lot of opportunities in 3D printing. Here are some things to think about. 

What are these legal complications?

3D printing hinges on two things: a digital schematic of an item (like a CAD file) and a “printer”, or a device that can lend form to a raw material such as moldable plastic that can be woven into patterned cloth. The printer reads the file and instructs the connected machine to execute its commands on the raw material, which sounds simple enough.

When objects are created in a factory, the manufacturer retains some measure of control over both its material property and its intellectual property. In contrast, when the manufacturing is done by individual consumers in their homes and the company owns only the intellectual property—not the object itself from inception to creation—the company cedes some control over what the end result might look like. They also lose control over who can potentially create a 3D printed object. The independent printer could potentially alter the original design, use the product in unintended ways, or disseminate derivatives to others.

The creation, distribution, identification, and tracking of replica and derivative files will likely follow the same legal trajectory as developments in the entertainment industry, which have kept forensics experts and policy makers close on the heels of those who profit from piracy. Intellectual property laws will need to stay flexible to keep pace with technological developments that make reproduction and illegal commercial dissemination possible.

But these aren’t the only legal complications that in the 3D printing landscape. Another big concern is products liability. If a design or object is used to cause harm (for example, turned into a weapon, an unreliable tool, a dangerous drug or faulty medication), where should liability lie?

And finally, how will data and information associated with the file be stored and transferred? Who owns that data? If a doctor uses a 3D printer to create a custom fit prosthetic, a tooth, or a digital replica of a patient’s organ, who owns the resulting personal information generated by the use of that 3D printed object and how will that information be protected by privacy laws and security infrastructures?

These might look like minor concerns, but they have serious implications for innovative souls who hope to enter the uncharted landscape of 3D printing entrepreneurship. If you’d like to launch a business that relies on this technology, infinite possibilities lie in front of you. But you’ll need to convince your investors that you have strategies in place to address the issues listed above. As the world evolves and you evolve with it, be ready for the unexpected.



Dealing with the Unexpected

Your ambitions are large, but so far, your team is small. When you look around your table, you see a handful of co-founders, a marketing pro, an HR person, and your legal counsel. But you don’t see many other faces, so you know that when a truly unexpected challenge appears in your path, you might have a problem.

For example: What will happen if your committed investors don’t or can’t come through? If you negotiate a binding contract with a condition that doesn’t work in your favor? What if you misreport your earnings, fall short of shareholder expectations, or even experience an unexpected avalanche of profits that you aren’t sure how to properly invest or allocate? You got into this business because you love what you do, but the entrepreneurship learning curve is fast and steep.

We built our law firm from scratch, so we know the pains and gains of entrepreneurship intimately. Here is some advice on how we’ve learned to deal with the unexpected:

Put together a business plan

Have a business plan that you have vetted with key advisors, and go over it at least quarterly, if not monthly. Constantly assess where your revenue is coming from, and, who your customers are. Figure out your brand message -- can you tell someone what it is you do and who your customers are in a single sentence (and ideally not a run on sentence)?

Recognize areas of potential gain and loss

Staffing, marketing, product development, sales, delivery, tax reporting, shareholder relations and customer relations are all areas in which you can—and will—encounter increasing challenges as your company grows. Money can solve almost every problem, from a flawed product design to a trademark challenge. But unless you have limitless reserves, you’ll need to approach each new issue with caution and judgement. The small allocation and fiduciary decisions you make today will have a lasting impact on your growth tomorrow. In other words, the right moves now can keep you out of trouble later and allow you to gain maximum leverage from every asset you have, including your trademark, your data, your inventory, and the group of superstars around your table. Think through decisions wisely, and if you make a mistake, make sure to correct it as soon as it’s discovered and rethink your next steps. Surround yourself with people who are willing to tell you things you don’t want to hear. 

Protect yourself

Event the most valued and trusting partnerships can shift over time. For example, a vendor that currently provides a vital raw material at a fair price might merge with another company that holds different priorities. An employee who costs a certain amount today may cost much more in a few years, due to her accumulating skills and institutional knowledge. A customer base can dissolve, a tool can become obsolete, or a regulation can change. Will you be financially ready? The ground under your feet can and will shift with time, but as long as you maintain flexible guidance, you’ll stay a step ahead.



Developing an Information Protection Strategy

As an entrepreneur, you’re progressing through the earliest phases of development; you have a functional business model, a committed investor base, a small but growing team of employees, and the infrastructure (space, hardware, etc) to get things moving and get your enterprise off the ground.

In a few years, you’ll be a well-established business with a recognizable culture and a loyal customer base. So before that happens, and before certain cultural elements, policies, and aspects of your brand become entrenched, take action now to place these things on a positive path—a path that can lead to both security and success.


For example, now may be the perfect time to establish your information protection strategy. Like almost every business, your company owns and manages valuable information assets. Everything from your basic business model, to the plans and algorithms that differentiate you from your competition and protect your customers from exposure can be considered a valuable asset worthy of monitoring and protection. So as you develop your ground-up information protection strategy, divide your areas of focus into three components:

Stored Data—The information that resides within your databases

Data in Transit—The information that passes from one user or point of access to another

Data in Use—Monitor who looks at your information, when they do this, why, and the devices and circumstances involved in this process.

Here are some other things to keep in mind:


To protect your intellectual information and your customers’ privacy, you’ll need to know (and be able to track) who, how, when and where this information travels. Are your teams storing files on usb drives, shared cloud databases, or printing documents on insecure printers? How much of your proprietary information can be found on the internet? Now is the best time to delete, classify, encrypt or block access as necessary, and to start developing routines and policies that will become a matter of course later on. Cultivate a culture of respect for data management and data security.


While you’re at it, develop a culture of compliance as well. Determine which legal regulations impact your business and your interactions with customers, vendors and partners, and be ready to demonstrate your compliance to auditors.


A key element of both protection and compliance will be resilience, or the ability to respond quickly and effectively to a breakdown in your establish protection or compliance protocols. If you experience a hack or breach, will you know right away? Will you know how to report the incident to affected individuals? And will you know how to review your points of access and determine who last handled this data and when?

If you haven’t even begun to address these questions, start today. Building a strong, resilient approach to data protection and management will never be easier than it is right now, during the early phases of your company’s growth. Develop a culture and an infrastructure based on mindfulness, security, and respect.



Pre-investment Due Diligence

Before you embark on investing in a potential portfolio client or undertaking an acquisition or asset purchase, you’ll need to take all the necessary steps to make sure that the deal makes sense. This is called “investment due diligence,” and this means more than a simple review of quarterly earnings and profit margins; true, in-depth due diligence can protect your reputation and finances in the event of an unpleasant surprise down the road.

A fundamental flaw in the company’s marketing strategy or business model can be determined by a close review of  corporate records. But make sure you include these other elements in your investigation as well.


Review the company’s history, its reputation, and its corporate structure. This should include a separate review of each entity or division within the organization and a look at the capitalization table. Look for any legal issues from previous investment rounds. Did the company comply with securities rules in issuing securities? What type of investment financing happened in the past? Are there outstanding warrants or other exotic securities that may disrupt the cap table at a later date?.

Founders, Employees and IP

A comprehensive review of the company’s list of founders and employees is essential. Have there been founders who have departed? When and how did they depart? Is there an agreement in place documenting the departure? This is important to examine to avoid claims by aggrieved founders who later claim ownership of the company or its intellectual property

The same is true for employees who have departed. Have all employees and service providers executed confidentiality agreements, and have they assigned over and committed their intellectual property contributions to the company? Were departing employees asked to turn over company property? At a time where many companies are deriving value from their data and intellectual property, ensuring that a target company has guarded its intellectual property is a good sign and gives confidence in management and data security.

Data Security

Relatedly, diligence should examine issues related to regulatory compliance. If the company, its agents, its supplier or its associates take responsibility for managing sensitive customer information, you’ll need to see certifications proving the company’s ability to withstand potential hacks and breaches and report them immediately if and when they happen. These audits are typically conducted by third party data security experts.




Compliance: When Should You Take Action?


After your Series Seed and Series A financing rounds, your new company will be well on its way to gaining a foothold in the marketplace and achieving success. Company long term goals may vary depending on the nature of the business, but at least after these early rounds, founders can typically begin to focus on building the business instead of fundraising.

With that in mind, the completion of Series Seed, and Series A (or B) financing offers the perfect place to pause, reset, and focus on compliance. Take some time at this point to make sure you’ll be ready when auditors come to call, both legal, financial and technical. Here are some things to think about:

Securities compliance -- As part of your Series A and Series B financing, your investors will probably have already requested that the company warrant that it is in compliance with securities laws. Nonetheless, it can sometimes happen that securities compliance is overlooked or simply forgotten, evey by companies with sophisticated counsel. After the rush of the financing, make sure to double check that stock plans and all securities sales fit into a recognized exemption from registration from U.S. securities rules, and comply with any applicable state “Blue Sky” rules. If you intend to take the company public, you will absolutely need to be compliant with all applicable securities rules.

Information controls -- If you are a SaaS provider or otherwise handle confidential information, consider looking into compliance with various information and security standards. For example, SOC 2 compliance may provide a good start in ensuring that sensitive data and information is being handled in a proper manner. Larger customers may require SOC 2 compliance or some other standard.

If your company creates, maintains or uses proprietary information and trade secrets as a key means of success in the marketplace, you should put in place information controls to make sure that you can check your employees’ access to such sensitive information. When employees depart, have them document that they will not take confidential information with them, and you should make sure that they have no more access to company information (such as on cloud drives) after their last day. In the event of a dispute about whether or not trade secrets were taken or misappropriated, this type of compliance is critical in convincing a court that the company took all necessary steps to protect its sensitive confidential information.



Choosing Limited Partners for your Fund

As you seek out appropriate LPs for a new private fund, focus your targeting efforts on LPs that are likely to bring higher investment contributions and fewer problems down the road. You’ll want to look for traits that indicate stability, steadiness, the willingness to weather potential storms and early-stage setbacks, and the ability to clearly communicate needs and expectations. You’ll want patient investors who understand what they’re getting into and you’ll want investors who understand (to at least some extent) where your fund fits in the larger market.

In order to pursue the right LP’s, it helps to understand why investors are drawn to limited partnership structures in the first place. The primary reason: as the name suggests, limited partners cannot typically lose more than they invest. Their losses are controlled, and chances are, your target LPs appreciate this and are not interested in being taken on a wild ride of unlimited risk and reward. Limited partnerships also allow legal teams to adjust the operating terms of the partnership agreement, and many potential partners are attracted to this type of flexibility.

So once you understand the motivations of the LPs who are interested in signing on, how should you choose who is in and who is out?

Choose LPs who are comfortable with your fees and profit share.

Fund fees typically fall between 1.5 and 2.5 percent, and profit share or carried interest typically falls between 15 and 25 percent of total profits. If your fund is large, you have a successful track record as a fund manager, or you have something unique to offer that warrants higher fees and carry, you can command more from LPs. If your fund is small and your experience limited, you will have to keep fees and carry low. In either case, your LPs will need to find satisfaction with your terms based on your track record.

Choose LPs who are comfortable with your investment strategy.

Your LPs should fully understand the philosophy behind your investment decisions and the companies you decide to back. They should believe in both your chosen sector (energy, healthcare, crypto, etc.) and your chosen vetting method. If you lean toward struggling companies with high upside potential, or small startups with bright futures, your LPs should support the general reasoning behind your decisions.

Choose LPs who can contribute at a scale that works for you.

If your management approach is hands on and your staff is small, it may not be worth your time, labor and risk to accept LPs who invest very small amounts. If your LPs are willing to invest more than you can responsibly manage, they may be better off with a much larger fund. In all cases, open communication and a clearly written, fairly negotiated operating agreement will be essential to successful and lasting partnership.



Guidelines for First-Time Fund Managers: An Overview of Fund Structure

If you are a first time fund manager, establishing a private fund is a fairly attainable process. In later articles, we’ll provide a quick overview of the process, starting with a basic description of fund structure. Next week, we’ll list some of the key considerations fund founders should keep in mind while vetting and accepting limited partners.

Private Equity Fund Structure: A Simple Overview

During the earliest stages of fund formation, the primary fund founder and his or her team are known as General Partners, or GPs. General Partners work together to attract and retain commitments from Limited Partners (LPs) who may include high net worth individuals looking for investment opportunities, but can also consist of institutional investors and organizations looking for stable investment vehicles. These types of potential limited partners will most likely consist of pension funds, retirement funds, and insurance companies.

As these institutions—LPs—provide capital, the General Partners choose companies in which to place private investments. Over time, this list of companies will grow into a substantial portfolio.

Before a new Limited Partner begins providing capital, the organization will sign a Limited Partner Agreement (and often a few special considerations listed in a separate document), which will include all the details of liability and accountability on both sides of the table, and will also typically include structural details like the length of a given commitment (for example, ten years), how profits will be divided, and how management fees will be applied.

Before you sign on with your team of General Partners and launch your search for LPs, you’ll need to establish the parameters of your fund and the commitments you’ll make to the LPs who sign agreements with you. For example, you’ll need to establish the focus of the companies in your portfolio. Which industry sectors and geographic regions will you target? What research have you conducted to determine the strength and growth potential of these investments?

You’ll also need to clarify the obligations and liabilities that will make up the details of your LPA, and you’ll need to hone the pitch you present to target LPs. You’ll also need to determine which types of LPs will and won’t work for you. We recommend that you commence this process with a fund term sheet that can be used to suss out commitments. And of course, fundraising on these types of investment vehicles must at all times be compliant with state and federal securities rules.

Tune in next soon—We’ll list some key considerations to keep in mind while selecting potential LPs.



Launching an Investment Fund: Considerations

A growing number of investors are looking for alternatives to standard funds with large scale banks and brokerages, and private equity / private fund firms have long been recognized as a successful asset class. As more investors seek out the returns offered by private investment, the demand for successful and knowledgeable fund managers will only increase. Are you considering launching an investment fund of your own? If so, your goals may be more attainable than you realize. Keep a few considerations in mind.

Research and groundwork

Launching a fund is similar in many ways to launching a small business. Before you can attract the attention and earn the trust of potential investors, you’ll need to toil behind the scenes, putting in the hours of research necessary to differentiate yourself from your competition. In which market sector will you specialize? If you plan to focus on biotech, energy, or healthcare, you’ll need to work these fund goals into a cohesive business strategy. And in order to do this, you’ll need to understand the quirks and prevailing trends of your own marketplace inside and out. Research should be grounded and guided, so before you dive in, create a map for yourself by finding mentors, points of exposure, and focused questions you’ll need to answer.

How will you approach and/or attract target companies?

Some private fund managers want to place their hands on every detail of the companies they target, including strategy and operations. Others just want to clear up debts and build revenue. How will you focus your attention? Since you’ll be targeting companies that are not publicly traded, you may find plenty of ways to help these companies raise capital, but you may also want to focus on helping them build out a better business plan to make them more attractive to a potential acquirer. You’ll also want to make sure you have absolute confidence in the Board of Directors running the company.

You’ll need a strong set of advisors.

No one does everything alone, so in addition to attorneys and accountants, you’ll need to look for and engage industry experts and independent consultants who can help you choose a path forward. Your team should be able to structure defenses and know how to manage information, including in the event of a security breach. Manage risks before they happen.

Details and overhead

In the meantime, just as you would with a small business, you’ll need to rent and furnish an office, hire in-house staff (if you decide to do so), and set up all the nuts and bolts of employment structures, including compensation, payroll, taxes, and insurance benefits.

Don’t let the tasks in front of you hold you back! Every risk is manageable, and every obstacle is surmountable if you have the right people in your corner. Get the answers you need in order to move forward with confidence.



Seed Seed Versus Series A Funding Rounds

In an earlier blog, we discussed the fundamental differences between two different types of funding rounds: Series Seed funding and Series A funding. By definition, seed rounds are private offerings of securities that are targeted toward smaller groups of investors, each of whom will contribute investment in exchange for preferred securities and limited investor protections. In contrast, a Series A usually involves higher levels of investment, classically with institutional investors, who will expect more stringent protections for their higher contributions of capital. 

For most early stage startups, knowing the difference between the two types of rounds only answers half of the important question at hand: Which type of financing is right for your company at this particular moment in time? And what are the stakes involved in making the wrong choice? Here are some things to consider.

Choosing A Series Seed Investment

Our clients usually go with a Seed round when they are very early stage -- perhaps just a year or two into their business. While many investors may be fine with purchasing a convertible note, established angels or early stage VCs may want to directly own some of the business and obtain basic investor protections. If that’s the case, a Seed round makes the most sense. Companies should expect to receive anywhere from $1-$5 million for a Seed, depending on the industry and the company valuation.

Choosing A Series A Round

Series A financing usually requires entrepreneurs to prove to more serious investors that the business is functional, sustainable, and scalable. This may mean proving that a customer base is already in place, a prototype has been created and mass production has been priced out, long term costs have been analyzed, and the company can grow without experiencing risky and expensive stops and starts.

Checks at the Series A stage are larger, because investors see something they like and want the company to use the money to scale. Investors at this stage usually invest somewhere between $2 million to $10 million. Investors will also expect to receive standard investor-side protections, such as a board seat, veto rights over certain business transactions, approval of future funding rounds, and possibly things like a cumulative dividend or drag-along rights.

But choosing a funding option isn’t always as simple as these descriptions would suggest, and while these are general trends, companies have a lot of flexibility in determining the sale of their securities. Sometimes, even for an established business, setting high investor expectations can be risky, and companies deciding between the two types of funding may elect to start with a Seed round so that they can reasonably demand a higher valuation at the Series A and give themselves more breathing room to develop the business. While checks are larger at a Series A, expectations run higher commensurately as well. As market conditions tighten for early stage funding, we have also had several clients turn down Series A funding which they felt was not good for their companies.

The best approach is to make sure that the financing you decide to seek is part of a much larger financing and revenue strategy that looks out to the medium and long term. Don’t look for investment like a pinball in a machine: have a focused, targeted strategy about where you want the business to be in one year, three years, and five years, and execute on that. If and when a funding round seems possible or you get a term sheet, you’ll know where that type of funding fits into that strategy, and what terms will be fair.




Financing Your Idea

If you’re daydreaming about turning your app or industry-disrupting project into a successful business, you’ll find plenty of advice (good and bad) in almost any direction you turn.

But what if you don’t even have a marketing plan or a product prototype in hand just yet? What if you have absolutely nothing on your desk but a clever idea and few supportive teammates who can help you bring your plans to life? In other words, what if you’re so early in the process that you assume potential financiers will laugh and tell you to come back in three years?

Take the first steps.

As with any project, financing a startup can be broken down into a series of manageable steps, and the first step is the easiest: get help. Contact a firm that can walk you through the early stages (the VERY early stages) of the process. And once you’ve done that, your legal counsel can help you set terms and pitch your idea to VCs. The right lawyers can also help you understand how early stage equity financing -- and in particular, Series Seed or Series A financing -- can make or break a venture.

We’ll discuss some of the characteristics and distinctions between classic Series Seed and Series A financing in the next blog, but for now, recognize that seed rounds typically involve the support of up to 15 investors who contribute small amounts—with total financing anywhere from $1-$3 million—and receive some very basic investor protections. Series A financings typically involve higher investment amounts, but also carry with them far more stringent investor rights.

A great Series Seed round can help early stage startups get the capital they need for initial market research and the development of a functional business model. It can then lead directly to a Series A round. Alternatively, a venture may feel prepared to jump directly to a Series A financing, if it is fully prepared to say yes to a large influx of capital and to the investor rights and protections that often accompany that capital (including board seats, cumulative returns, and possibly drag-along rights).

Stay tuned for more detail on this critical early stage decision. In the meantime, recognize that no matter how new and untested your idea might be, it’s never too early to start reaching out for support and putting your plan into action.