VENTURE INVESTING II

TO EAST COAST FACULTY SECURITY LAW FIRM – RELATED TO ON GOING CLE EDUCATION CREDIT DISCUSSION:

Venture Investors,

In the ideal are wealthy affluent LONG TERM investors. They make sufficient INCOME that further income is a tax burden. In today’s market the equity options appear to be in deflation with potential for a historic ( 1907 and 1929 ) Super Crash. Whenever the stake holder market of buying and selling debt ( bonds ) or equities ( stock ) is dwarfed by non reporting speculative side bet markets, a market of manipulation and speculation exists. Today the dog is the off shore unregulated hedge fund and dark pools. These high risk high return inventions, control due to their leverage, some 70 trillion in real time investment worldwide. The stake holder market worldwide is around 13 trillion. If the stake holder trading is the tail and the dog is the now legal again, side bet speculation, we can’t return to a real economy until we have a regulatory reform. In each historic melt down, the world made criminal side bets, legal again, and in short order the system over leveraged and destabilized. For some reason we don’t learn from financial history. In the year 2000 congress with the unanimous passage in the last three hours of the Clinton Administration, made the crime of bucket shops and side bets in the 1920’s, legal again, only now with “enter” representing single trades of half a trillion.

Investors selecting the venture option, do so to park capital, across diversification platforms of investment industries, such that a 100,000 investor is well advised in venture risk taking to park their funds in 10 ventures at 10,000 a venture in various industries. By selecting wisely, to invest in hyper growth firm potential, with clear resale strategies in three to five years, the risk becomes systemic business failure, or TIME wherein the resale takes longer than the planners envisioned. Across a diversification platform avoiding capital concentration, the investor employs venture investing, as a buy low sell high strategy. Unlike so many overpriced asset classes in deflation markets, venture investing at low stock price buy in levels, permits a solid potential for a % of the diversified venture investments to be acquired at low prices and sold at high prices – with a potential for one to three IPO’s in the selected mix by design.

Venture investors are growth investors not income investors.

Income investors have many options for income funds, and bonds and income choices. Placing an income saddle on early stage ventures is very painful for the business from an investment banker valuation perspective and a solid disservice to shareholders. Later capital especially avoids investing to propel pay outs to early stage investors when the firm lacks fundamentals to justify such investments. In many ventures an LLC format with a tax pass through for 100% of the tax losses ( during the capital deployment period ) is ideal, wherein say over a period of three years the FIRST RETURN to high net work and high income venture investors ( the only folks who really are suitable for such investing ) becomes the TAX PASS THROUGH. This item is of no small value incentive to the venture funder. After three years the company needs the tax loss accruals to offset income that anticipates coming on line. Growth becomes the next phase of return coupled to the resale plan and time lines, adjusted for business real time value opportunities.

Law firms have specialized in firms that can PAY THEM. These firms are typically a class type that is more mature and populated by seasoned venture specialist. The majority of Entrepreneur firms are smaller business constructions, in which the law firms have more limited experience. In all instances the educated market ( on both sides of the equation ) rises to investment banking value issues when considering the detail we have provided to your firm in our memo’s. Our lesson plans teach these principles to the audience. Most of the PPM’s ( unlike your experience ) I review are pure equity in first and second rounds, and revenue sharing is not included as what we consider a ‘cheap’ idea primarily structured into the mix, on the false notion, this makes far more convenient to raise capital in front. So many unwanted conditions begin to happen shortly down the road that such structures are short sided for both sides of the transaction. Firms that employ this device are all stuck later and have challenges raising new capital. I can point to a number without any exception that I know of.

Coincidentally, the effort to raise equity capital is precisely identical if the clauses for this later “income” inducement are removed or remain present. There is no easier effort or lower effort to secure the capital. If the effort is unaffected and the challenge is identical in both structures, one might ask:

• Which structure is superior for longer term business growth and stability?
• Which structure is superior for ultimate shareholder growth and value expansion?
• Which structure provides superior future resale price?
• Which structure is therefore more prudent and of pure fiduciary value to both sides in the short and long term?

The exit is important. Having the weak plans turned into strong plans, having weak teams turned into strong teams, defines the risk reductions required to more prudently deliver the execution intelligence to exit at defined time lines and price points. Growth investors invest for growth. Income investors invest for income. Those who invest in both are not venture investors but rather mid range mezzanine pre Merger Acquisition or pre IPO investors, again in my opinion.

As you can appreciate we teach these platform fundamentals to our CEO’s. We feel the majority of our legal team understand and make both sides ( investors and owners ) safe(er) by applying this principles with discipline for all the reasons set forth in this memo. The notion “but that’s the way I’ve always seen it done” within inventive financial structure designs, that are basically infinite in crafting ( see Dark Pools and hybrid derivatives or “hot money” now driving FOOD prices up to 20 year world record high points ), is an oxymoron. Re-education for Entrepreneur Law firms seeking not only to harvest the growth curves taking form in the surging Entrepreneur sector, such that the firms that lead are higher service providers to the firms that bleed, is a differentiating sophistication of highly specialized knowledge.

Who advises such firms? The industry leader with more launch to success to win ratio’s for investors than any provider in the world today ( as there has to be a number ONE in any category ) or knowledge brokers that are self proclaimed with limited actual experience related to measureable result outcome? CEO SPACE is the leader in our category as you have well verified.

My patience is endless as law firms come to grips with the idea, a) entrepreneur sector capital law is very high specialized and requires law brand differentiation as a service sector via education and firm leadership based on the quality of the re-education and b) desires to excel in pure service measurable to the client base driving long term relationships and much higher referral marketing to the firm’s profit centers.

Entrepreneur billable hours is a stage and phase new billing model for law firms in the ideal. Phase I is a flat rate project billing, less profitable than stage II. Stage II is a mid ground project plus hourly billing to execute evolving business complexities in contract execution, IP protection, and expanding market compliance issues. Phase III is the more mature full billing practice traditional to firms that retains long term clients due to the values of CORPORATE and account memory that presses IP enforcement, litigation and liability management and the globalization of the enterprise through Merger Acquisition to IPO. Firms creating Entrepreneur INNOVATIVE billing practices in my firm, and expressing capital concentric policies, lead the Entrepreneur revolution and are more exiting partner fee sharing firms than those who lack brand extension by design into the growing Entrepreneur billing matrix now becoming one of the fastest growing aspects of so many prospering law firms within this recession climate.

Adjusting thinking processes in the Entrepreneur Capital engineering phase, for stage one two and three capital rounds, remains in our opinion a priority SOFTWARE upgrade for law firms, seeking to lead in the future Entrepreneur Age within which we reside. We have requested our legal faculty at CEO SPACE and our entire Faculty at CEO SPACE along with our clubs remain consistent in the execution of our lesson plans, as relates to “guarding and protecting” CEO’s from making mistakes due to their own lack of experience in venture forward planning, within highly changing brand markets. You have seen enough of the larger global CEO SPACE market to appreciate the concern we continue to express for Entrepreneur execution intelligence, first in the area of OVER COMPLIANCE in private placement security work, and second in the area of capital engineering related to valuation and future execution cost dynamics.

We continue to employ assistance from senior partners at Booze Alan and Accenture and Doolittle to advance our conservative fiduciary educational responsibilities in this area. Post graduates from all major Universities are on line stating our work in this area was more important to them then their MBA’s from their prestigious campus’s. Professors from these same institutions are on line suggesting CEO SPACE remains the SUPER BOWL of bleeding edge Entrepreneur education. It remains my opinion the cornerstone of our leadership is the presentation of capital education issues, such as we are now discussing, which provide TWO YEARS of CLE credits for attorney’s who attend our program certified and maintained in all fifty states – no small task on quality in 2010 -2011.

Our investments to advance bleeding edge support for law firms remains unmatched in industry. We invested to have experts on site during the financial law remodeling, with our graduates sitting between Senator Dodd, the Chairwoman of the SEC and 42 lawmakers and staff members, presenting modification to language input appropriate for Entrepreneurialism in America. During the early part of the process, as far as we could determine CEO SPACE was alone in such investments as no small business interest or group including the ABA ( whom we contacted repeatedly ) were present or in the lead. It was lonely leading.

It is challenging leading. We accept both the challenge and penalty for such leadership.

We especially understand the Entrepreneur and the issues they face as we have no other interest or focus, save this specific niche of service.

Sincerely,

Berny Dohrmann

PS: My intention is to be explanative versus preachy and I apologize for any aspect of the “memo” that feels preachy. You know my heart is pure service to entrepreneurs without a personal financial motivation.

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