You may or may not get a formal list from the other side, depending on their level of formality and the nature of their advisors. Some investors know exactly what they are looking for and will figure out what they want to do from your financial model and a series of conversations. Others assume that the only way to be sure is to review a mountain of paperwork. The real answer lies somewhere in-between for most companies.

So, to get you started or at least calm you, here is a super Short Form Due Diligence Request List for a seed round investment or low-key quasi-acquisition, such as an asset purchase or stealth acquisition.

First, keep in mind that the other party may, and probably will, ask for additional information. Our goal here is first to identify anything that might concern them so it can be defused or resolved before it’s ever disclosed. (Hint to bad lawyers: you cannot hide things; there’s always a second copy floating around; the goal is to solve the problem so you can disclose how it has already been fixed.) Our second goal is to streamline as much of your work as possible so that you are not under time pressure later. The third goal is to identify the factual support for the business plan/budget that will be a critical piece of the transaction.

Here is the list of other materials you should be gathering in the background as negotiations continue, documents are drafted, and the deal moves forward.

1. Financials — Copies of all historical financials for existing operations: Income Statement, Balance Sheet, and Cashflow statements. (A backup version of a QB file is something that I regularly work with to extract these directly if necessary.)
2. Material contracts — all contracts that are either above a specified dollar value ($10-25k) or are otherwise important to the continued operations of the business on a similar basis. This should usually include customer contracts, all leases, all promissory notes, and IP licenses, and anything to do with stock or securities (like a warrant agreement or agreement to trade stock for services of a consultant).
3. Corporate documents — Copies of current articles/certificate of incorporation & bylaws; minute book with board/shareholder consents & minutes.
4. Other risks — A description of any pending litigation, whether company is plaintiff or defendant; any audit letters from auditors if financials have been audited in last 3 years; a description of any off-balance sheet obligations or other liabilities; and a summary of any related-party transactions, individually or in the aggregate greater than $25,000.

This ThoughtStorm Due Diligence Request list is a version written from the perspective of an investor and is a little more detailed than what I have above. It’s more like a reasonably thorough list that will get you most of the way to complete for an early-stage company.

For example, a web/logo designer took my card the other night and didn’t even look at it before it went into her pocket. (It’s a good thing for her I’m not Japanese! But i was still miffed.)

She could have commented on my logo or suggested something to consider. Now I think of her as NOT someone who lives and loves graphic design. Is she getting my call, ever?

So, I’m now thinking of instituting a new policy with folks who really aren’t likely clients: no one gets my card when I don’t see a need for their services. The flop side if that is that when I give you a card, it will mean that I do want to hear from you in some way. (Permission marketing — thanks, Seth.)

What do you to to channel people who aren’t a good fit? We always talk about saying no to the wrong clients, but what about everyone else?

Closing tip: if someone asks you second-level questions and you answer like you’ve had four glasses if wine, you may have squandered an opportunity.

I guess I’ll be citing this decision to people who dismiss Scalia and Thomas as right-wing conservatives. It sounds like they have taken a principled approach to applying the laws of the land and accepted a result that might otherwise be objectionable.

Our federal system makes tradeoffs that were readjusted in 1787 after the Articles of Confederation proved a poor framework. Two follow-on shifts occurred after the Civil War and during the Civil Rights era, but the second of those was not a structural change to the system but a tweaking of where we draw bright lines inside the gray borders between state and federal domains.

I sense that there could be great lessons in here for mindless conservatives who call themselves federalists or states’ rights folks only because they think they can get the rules they want, and perhaps great examples for mindless liberals who do not want to believe that they are only looking for the rules they want too. These mindless _____’s are more alike than different, and they are equally dangerous to our collective freedoms — freedom from ___, and freedom to ____.

“[T]o secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.” Declaration of Independence.

The way that I look at these groups, which I lump together, and others who operate from a different mindset from those although toward the same ends, is that the distinction is between rules-based and outcome-based politics. This being a democracy and all, and with the fundamental protections built into our federal and state constitutions, I see myself as a systems guy, with a belief that if our systems are well-constituted, and continually subject to improvement, we should be able to consistently improve our actual results over time, with fewer disruptions from political shifts of relatively minor proportion to the grand scheme.

In such a system, it is entirely possible that we could, as a society, legitimately come to different conclusions about how we would operate in nearly every sector of public life, from the expansion or restriction of government as a participant in the economy, whether by intervention, regulation, or participation, to the relative expectations about how widespread and uniform any regulation should be (which is another way of talking about the state-federal balance).

My theory is that the contradictory view of modern “liberals” on the federal government as both king-like protector and despotic villain are grounded in the combination of Watergate, Vietnam, and the Civil Rights movement. In those three seminal interactions with the baby boomers, many saw the worst and best of the federal government all at once. (And to be clear, many people who call themselves conservatives have a similar fear of government.)

At the same time, modern “conservatives” have latched on to different memes, showing the potential tyranny of the central government and the entrepreneurial spirit of a vigorous federal system, a laboratory of 50 regulatory approaches that could lead us all to finding more efficient ways of regulating ourselves to maximize freedoms and wealth while minimizing dislocation costs, crime, and negative externalities.

I confess that I have never thought about specific elements of our history that are likely to be responsible for (or at least ideologically connected to), this description of “conservatives.” Perhaps World War II and Roosevelt’s court-packing plan, the Slaughterhouse cases, and similar depression-era changes are the genesis, but I seldom hear these types of people talk about these events. Maybe it is the failings of other governments, where tyranny has taken hold, that is the real example this group keeps learning from.

What events/movements provide the touchstones for this rule-based group? Do you think that there are inherent benefits to rules-based or outcome-based politics?

I’ve found it’s great for making me mindful of what I’m doing, and counting servings is always different if you actually figure out how big a “cup” of Cheerios is.

One tip I read in the reviews was so good that I’m sharing it here. A basic failing of all these programs is that they can’t know how many calories is in the ham and gouda sandwich that you make. What they do well, of course, because the data is available, is know how many are in some Denny’s/Friendly’s/fast casual ham and cheese sandwich.

Put square peg into round hole: instead of working to figure out exactly what makes up “your” ham sandwich, just pick something fast food-y that is likely worse for you. It’s a much faster method of adding up what you’re eating, and you get to cheat a bit by over-tracking, i.e., under-eating.

Now, you might think that you will know that you’re probably a little ahead and be more willing to eat more. But I don’t think so: the reason this works is that you’re guessing that the food you pick is pretty much like what you eat. But you don’t really know, which means the technique might be steering you wrong. (In other words, if you’re a mayonnaise and double-cheese person, that’s a little different than mustard and extra tomato, hold the cheese.)

Good luck!

Any great iPhone-related diet/fitness tips that work well? I’m contemplating a Nike Fit+, which I’ve just discovered fits into my running shoes. What’s the lowdown on that tool? Is it dead now that iPhones have GPS?

“What is a reverse merger or reverse IPO?”

Short answer: “reverse merger” is almost always spelled S-C-A-M.

There are a small handful of legitimate reasons why a non-scammy, non-scuzzy company would go through this process. It is expensive, provides little intrinsic value to the private company paying for everything, and does little else of note.

How is it structured?

Standard format: a private company enters into an agreement to merge with an existing listed (meaning on a stock exchange) company that has little or no assets, may have (preferably) gone through a bankruptcy to become a “clean shell,” and has existing stockholders whose shares probably have a fair market value of close to zero. These zombie companies may nevertheless have a stock price because of random trades, but the FMV is still close to zero. (You can do the math yourself, or just trust me.)

The merger goes through and the private company is merged into the public company with new shares issued to old private shareholders. The private company is thereby able to “take over” the securities filing status of the public company, meaning the private company is now effectively public (as if that matters!). In exchange, the shareholders of the shell get some amount of money, generally well into 6 figures (most of which will certainly go to fees for third-party advisors) and some percentage in the post-deal company (5-20% is not uncommon).

Why do people do these deals?

Because they think that now they can easily “raise money” that they couldn’t previously. Sort of true technically, but false on a practical level. Or, even worse, they think that because they’ve gone public, it magically comes with some kind of new capital. A full-form securities registration (S1) is expensive, and those companies still need brokers to sell the shares to investors. If you don’t spend the cash on the reverse merger, you could just look for underwriters to sell the shares in a regular IPO. Same result, cheaper, faster (since you don’t have to do the merger deal first), and without the equity haircut.

Are there legitimate reasons to do these deals if you’re the private company? Sure, there’s at least one: if you have an investor IN HAND who has ALREADY committed to investing but is subject to investment policy restrictions such as only investing in public companies, then the speed of getting from A to B via reverse merger might make sense. And in that scenario, the terms should be negotiated way, way down from the “typical” deal.

Bottom line?

In general, stay away and get advice from a reputable, experienced corporate/securities lawyer who has done mainstream deals before getting into this one.

Have any of you actually done one of these deals that made sense before or after? My suspicion is that it’s a null set. #FAIL

This one gets a #FAIL from me.

Hearkening back (or forward, since I don’t know if I’ve posted it yet) to my thoughts on why I write, one of them is definitely to signal to founders and directors of small and startup companies when they need to call a lawyer. I guess I’ll have to follow up soon with my hot-button post.

I think that it’s really useful for me to tell people when they absolutely need my advice (taking investment money of any kind), when I can almost certainly help (non-standard commercial contracts), when I can add value (helping negotiate a deal), and when I’m not helpful (picking colors for the website design). Honesty from me makes my clients more efficient, and I hope that it s’s more evidence to them and the not-yet clients that I fit their definition of “trusted.”

The shame of it is that it is flanked by an absolutely awesome video from the same fellow, Jesse Rosten: iPad shopping could look like this. I’d have to buy stock in J. Crew and BCBG if my wife could get this. (Of course, it would be worth it: just look at her.)

Anyways, he writes some good stuff. My personal opinion is that there’s a lot of chaff in the wheat, if I can deconstruct that metaphor.

I can generally do without the too-clever turns of phrase, and the rehashes of the same sayings in three or four different blog posts.

But.

There has to be a but, right? But, sometimes he comes out with really great, great stuff. Actually profound and meaningful instead of just rambling and space-filling noisemaking.

This definition of “thought leader” is by far the best thing I’ve seen from him. It’s just great.

So short and sweet that it’s like a nine-word poem:

A trusted source who moves people with innovative ideas.

He breaks out the six key themes (trusted, source, moves, people, innovative, ideas) and distills his message down to just a sentence or two. It’s really that good.

So, of course, I’m going to create the entirely opposite effect and write six separate posts, one on each of these themes, to dig deeper into discovering and communicating, living and expressing, your (and mine) thought leadership platform.

1. Trusted
2. Source
3. Moves
4. People
5. Innovative
6. Ideas

(I’ll link each post back here so you can get the full effect if you’re so inclined.)

What experience led you to recognize any of these traits in yourself? What did you do to clarify your message on one of these themes?

Can you share an experience in which you saw the benefit of one of these traits or the harm from its absence?

Here’s a recent Above the Law post on a job that really doesn’t appear all that worthwhile, really.

This is a downgrade from the $12 job they link to at the bottom of the post, but it’s a step up from the California job FOR AN ADMITTED ATTORNEY that paid so little it violated minimum wage laws.

Wowza. I suppose my economist friend would say this tells us something about the shape of the demand curve, right? But what, exactly?

Is this a supply problem, of there actually being too many lawyers, or is it a matter of there being such a demand for work that is legal in nature but doesn’t merit paying high costs for that work? In other words, there are lots of clients out there who aren’t Fortune 500 companies and are stretching for

Separate from the inherent interest in the notion that the pack may be far more powerful than the cigarette (and I like both Why We Buy and Call of the Mall by Paco Underhill as modest introductions to some of these ideas) is the question that doesn’t occur to the author but matters a lot to us here.

Could the federal government impose similar restrictions on cigarette manufacturers in the US? We know some labeling requirements are permitted (the Surgeon General’s warning), but what about the rest? Is the design of the package constitutionally protected speech? What “message” is there, or is the “expression” enough?

I’m not a commercial speech guru, but I’m sure some of you are: what’s the story on limits on packaging regulation, and has it changed because of Citizens United?

And for the non-lawyers, would requiring bland packaging be an acceptable compromise to (1) allow smokers to continue smoking, i.e., not outlawing them entirely, (2) reduce uptake by new consumers, i.e., people who are now our children, and (3) allow adults the opportunity to make bad decisions? And if we can tax the price of a pack as much as we want (and do), why not do this too, or instead? After all, if we’re not going to outlaw cigarettes, what can we do that works to reduce smoking?