I had some free time this weekend and watched “Empire of the Sun” starring Christian Bale and John Malkovich. The movie came out in 1987, but I saw it for the first time Saturday.

The premise of Empire of the Sun is that an aristocratic British child is separated from his family (living in China) at the start of World War II after the Japanese invade China. The child is forced to live on the street and is eventually interned in a Japanese POW camp.

I’m glad I did not see Empire of the Sun when it first came out, because I would not have fully-understood the characters’ emotions. In fact, I would have likely grouped the movie with other “where are the parents?” movies like The Goonies or Adventures in Babysitting in the late 1980s.

While I was a child in 1987, I have 2 children in 2008. My experience as a parent helped me understand the anguish of losing a child.

However, there will be situations where you (and I) will lack experience and be at a disadvantage in understanding another person’s emotions and subsequent decisions. In these situations, you must do your best to put yourself in the other person’s shoes. How would you feel and react if put in the exact same situation? Answering that question before every negotiation or interaction will yield positive results for your startup.

As an entrepreneur, it may feel as though the world consists solely of you and your idea. And for a period of time, that may be true. But eventually, and in order for you to implement your idea, you will have to interact with and rely upon many individuals and groups. And they will all come with their own sets of emotions, decisions, and priorities.

For example, when hiring an employee, you should understand that no matter how many stock options you throw at an employee, those stock options will not feed his or her child for some time (if ever). Thus, an employee’s hesitance to accept stock options in lieu of other compensation may not have anything to do with his or her view of your startup’s future. He or she may just have a child to feed today.

In the startup world, reducing egocentrism and increasing empathy will have positive effects for your startup when dealing with employees, vendors, co-founders, or venture capital firms. By better understanding others and their motivations, you will increase the potential for agreements. Focus on the reason and not the answer. You may be able to find a way to make it work.

The Rick Roll. It’s classic. Some might even call it legendary. Rick Roll your friends & family. Rick Roll your co-workers. Heck, Rick Roll me. We will all belly laugh as “Never Gonna Give You Up” blares on our computer speakers. But please don’t Rick Roll venture capital firms.

By Rick Rolling a venture capital firm, I mean don’t attempt to bait and switch or otherwise mislead venture capital firms with your startup company’s pitch. They won’t find it very funny and they have seen it all before.

Here are some common venture-capital-pitch Rick Rolls:

A flock of fancy employees are on the way. Don’t talk about all the great Google execs that are coming onboard as soon as your startup gets funding without evidence to back up your claims.

Company X is our partner. “Partner” is an ambiguous term which leads to additional ambiguous language. Don’t go on and on about how you’ve “talked” with some “key executive” at Company X and how “excited” they are to become “involved” with your startup.

Company Y will want to acquire us. Don’t speculate about your exit strategy to a venture capital firm before you get funding. First, you should be more concerned with demonstrating the greatness of your startup’s idea and your startup’s ability to implement the idea, rather than hypothesizing about an event that might happen 7 years from now. And second, the venture capital firms will have access to better speculators than yourself.

My startup is the only one with this idea! Oh really? Have you checked every garage and co-working space in the world? I’d be willing to bet 25 others have your idea. Focus on the implementation of the idea rather than its extreme novelty.

While your venture capital firm might enjoy Rick Astley (it’s hard not to like a guy who sings and dances while sporting a raincoat with clear skies overhead), they won’t like being mislead by your startup company’s pitch. They’ve been Rick Rolled enough by other entrepreneurs to see yours coming. And they’ll likely feel your startup is unworthy of funding.

For another article about how to pitch venture capitalists, click here.

A few months ago, I was on a conference call with opposing counsel to negotiate a client’s deal. Things got a little heated (the only time I’ve ever experienced a hostile communication with another attorney) and eventually I got hung up on. I was about to call the attorney back and show him what I learned from 15 years of listening to gangsta rap, but thankfully I didn’t.

Was I upset? Sure.

What it have felt great to go 2pac on the other attorney? Very Sure.

Would I have regretted it 2 minutes later? Extremely Sure.

Instead, I waited a day and called the attorney back. We ironed out the terms of the deal and got it done. Everybody was happy.

But here’s an even better example of why you don’t burn bridges unnecessarily: Three weeks later, another client of mine asks me to handle an acquisition. He gives me the contact information for the other company’s lawyer. You guessed it…the same lawyer.

If I had burned the bridge with that lawyer, it could have negatively affected my client’s current deal. Or, it could have gotten me removed from the transaction. Luckily, both were avoided.

As an entrepreneur, there will undoubtedly be frustrating moments where you will reach a boiling point and be tempted to let it rain fire on a co-founder, employee, vendor, or other 3rd party. In these situations, don’t throw your MacBook against the wall or burn bridges with other people.

Burning bridges is a short-term (emotional) solution with long-term implications. Of course, there will be situations where a relationship can not be salvaged, but those situations are rarities. And your startup will be better off the rarer they are.

I attended the Dallas Startup Happy Hour (sponsored by SpringStage) last night. This was the second time I attended but this one was especially great because I got to bring along one of my clients who is working full-time on his startup. He got a much-needed break from coding and was able to network and just otherwise talk shop with other startup entrepreneurs. Thus, if you are a current startup in the DFW area or maybe just thinking about it, consider attending a future Dallas Startup Happy Hour. It’s being held every other week at the High Tech Bar at the INFOMART Center in Dallas.

Here is the motivation for the event:

We are working to build a vibrant startup community here in Dallas every bit as interesting and dynamic as San Francisco, Boulder, Boston or Austin. The first step is engagement. If you are an entrepreneur (future, current or past) you should attend. If you are working for a startup you should attend.

I’ve had the pleasure of meeting many great people, including (but not limited to):

-Jason Hudgins of Droidworks
-Andy Chen and Andres Fabris of Traxo
-Brad Brawner of SportsJungle
-Bradley Joyce, web developer & entrepreneur and the newest member of the SpringStage team
-Lincoln Murphy of Morph Labs (who helped me with the correct pronunciation of “mysql” and explained what “the cloud” is.)
-Scot Duke of Innovate Business Golf Solutions

#5 - In your latest attempt to go viral, you call in to the Suze Orman Show and ask if you can afford to purchase your startup company, constantly letting her know how fantastic it is.

#4 - You start a blog about your blog about your startup company.

#3 - To get more street cred with VCs, you and your 2 co-founders change your names to Brad Feld, Paul Graham, and Dharmesh Shah, respectively.

#2 - Your startup company’s twitter account has less followers than I have.

#1 - You offer to pay your pizza delivery guy by issuing him common stock, and he counters with preferred stock and a 10x liquidation preference.

Many entrepreneurs begin their startup as a sole proprietorship. Eventually, some sole proprietors desire to incorporate so they can reduce their personal liability and protect their personal assets. But the act of incorporating a going business does not, by itself, transfer the current business being conducted as a sole proprietorship to the new corporation.

The 2 main issues when incorporating a sole proprietorship

The 2 main issues involve the transfer of assets from the going business to the new corporation and the tax consequences from such transfer. [This article will address the transfer and not the tax issues.] Since the assets of the sole proprietorship will need to be transferred, formal conveyances of such property must be made from the sole proprietorship to the new corporation.

The process

The first step is to incorporate the new legal entity. The next step is to execute various transfer documents by the sole proprietorship, by the new company, and some by both the sole proprietorship and the new company. In return for the conveyance of property to the new corporation, the owner of the sole proprietorship usually receives corporate shares of the new corporation.

You’re not done yet

While the transfer is now complete, additional administrative steps may need to be completed depending on the nature of the business:

-Transfer assumed name
-Handle workforce commission issues
-Close sole proprietor bank account and open account in new corporation’s name
-Make necessary changes to insurance policies
-Transfer permits and licenses
-Contractual obligations
-Apply for new federal tax ID number
-Make appropriate revisions in estate planning documents

Furthermore, while there’s no requirement to publish notices of the intent to incorporate, creditors should be notified of the sole proprietorship’s termination and the existence of the new corporation. This will help prevent liability if creditors continue to believe the business is operating as a sole proprietorship.

While incorporating a sole proprietorship may seem like a large and painful task, I believe the benefits such as reduced personal liability outweigh any headache from completing the transaction.

While the venture capital market becomes increasingly global thanks in part to Europe, China, Israel, India, and Canada, the United States remains the leader in venture-backed financing. Although some American venture funds are willing to invest in foreign startups, the lion’s share of U.S. venture funds are not going overseas.

Most U.S. venture capitalists believe ROI from domestic deals will be superior to foreign ones. Investing in a foreign company exposes the U.S. venture fund to a new set of legal rules, compliance issues, and risks, leading to increased uncertainty and transaction costs for the American venture fund. Additionally, trying to replicate typical American VC terms, such as anti-dilution and redemption provisions, can be difficult to accomplish in a foreign market.

Does this mean my international (i.e., Non-U.S.) startup will be shut out from a majority of U.S. venture capital funding or from being acquired by a U.S. company?

Potentially–unless your international startup performs a Delaware Flip Transaction.

What is a “Delaware Flip Transaction?”

A Delaware Flip Transaction is the process of creating an American holding company for an international company. The end result is that the international company will be owned entirely by the new American company. Thus, the U.S. venture fund will invest in the new American company.

What are the mechanics of a Delaware Flip Transaction?

The basic mechanics of a delaware flip transaction is to create a U.S. holding company and insert it above the international company. Next, the shareholders of the international company execute a share-for-share exchange by exchanging their shares of the international company for the shares of the U.S. holding company. (Note that this share-for-share exchange may require some additional legal maneuvering depending on the jurisdiction of the international company. For example, it will likely be necessary to use a “scheme of arrangement” or other court-approved process to accomplish the exchange in the UK and other jurisdictions.)

Why Flip to Delaware?

Delaware provides the most comprehensive set of corporate law in the United States. No matter which American state the venture fund is located in, such a fund will be comfortable with require Delaware law. Additionally, foreign companies are likely most comfortable with Delaware law, as Delaware provides a good neutral ground or “playing field.”

I previously wrote a post about why you should consider incorporating in Delaware here.

Final thoughts on Delaware Flip Transactions

Even if an American venture fund is willing to invest in (or purchase) your international startup, it still may be beneficial to perform the Delaware flip transaction. The reduction of legal uncertainty and the ability to replicate typical U.S. venture capital terms should dictate an increase in valuation and could facilitate a NASDAQ or other listing (although IPO exits for venture-backed companies are not very common). Alternatively, Delaware may provide neutral ground for funding or acquisition by a non-U.S. company or fund.

And finally, there are important tax implications that may result from performing a flip transaction, thus such a deal requires both U.S. and foreign accountants.

Thus, the Delaware flip transaction may not be for every international startup looking to be funded or acquired, but it should at least be considered.

Venture Capital Firms. They won’t grant you a meeting. If you do get a meeting they won’t sign your nda. And you’ll be lucky if your startup gets any funding. Making matters worse, they could be about to commandeer federal grant money earmarked for small businesses like your startup.

Federal agencies earmark 2.5% of their research and development budgets for grants to stimulate innovation among small businesses. To qualify, your company can’t have more than 500 employees and must be independently owned and controlled (51% owned by individuals). Thus, some Venture Capital-backed firms are locked out of the Small Business Innovation Research program (”SBIR”). Using the 2.5% set aside by the federal agencies, the SBIR offers about $2 billion each year in grants to high-tech firms. Currently, these grants are handed out in three phases. The first two phases are reserved for small businesses. In the final phase, applications from entrepreneurs funded by large Venture Capitalists and other corporations are accepted.

But that may all change. The Senate is now considering legislation that would change the definition of “small” business and expand access to set-asides now reserved for independent entrepreneurs. This bill is called the Small Business Investment Expansion Act (”SBIEA”).

In the SBIEA, VCs are trying to end the rule by which the SBA counts all employees of any company affiliated with the applicant - including the Venture Capital firm and other startups in the VCs portfolio - toward the 500-employee limit. This would allow VC-backed firms to compete for grants in all three phases of the SBIR, instead of just the final phase.

A new online marketplace for buying and selling companies officially launched this week: BizTrader.com.

I believe BizTrader will be a strong competitor to the current company marketplace juggernaut, BizBuySell.com. Both BizTrader and BizBuySell charge customers monthly fees to list their business for sale starting at $39.95 per month for BizTrader and $59.95 per month for BizBuySell. Both also offer ancillary services, such as valuation services and help finding financing opportunities.

BizTrader will compete with BizBuySell by taking a global focus and pushing its listings with broad search-engine exposure. For an extra $20 a month ($59.95), BizTrader will promote your listing to broader search services like Google, Oodle, and Craigslist.

BizTrader also looks to be a step ahead of BizBuySell when it comes to referring professional help to their customers, such as accountants and attorneys. BizBuySell referrals seem to be limited to business brokers.

Check out BizTrader and let us know what you think.

Many entrepreneurs worry that someone, whether a potential partner, a VC, or a boogeyman will steal their startup idea. If you are worried about having your startup idea “jacked,” I recommend you take a deep breath and relax a bit–your startup idea isn’t worth that much.

Paul Graham, in an essay derived from a talk at Startup School 2005 had this to say about the value of your initial startup idea:

I think people believe that coming up with ideas for startups is very hard– that it must be very hard– and so they don’t try do to it. They assume ideas are like miracles: they either pop into your head or they don’t.

I also have a theory about why people think this. They overvalue ideas. They think creating a startup is just a matter of implementing some fabulous initial idea. And since a successful startup is worth millions of dollars, a good idea is therefore a million dollar idea.

If coming up with an idea for a startup equals coming up with a million dollar idea, then of course it’s going to seem hard. Too hard to bother trying. Our instincts tell us something so valuable would not be just lying around for anyone to discover.

Actually, startup ideas are not million dollar ideas, and here’s an experiment you can try to prove it: just try to sell one. Nothing evolves faster than markets. The fact that there’s no market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.

You should still take precautionary steps to protect your idea even though Paul Graham (and I) don’t assign a lot of value to your startup idea. The best way to protect your startup idea is to keep it secret. Help prevent your startup idea from being stolen by being selective with both the amount of information you reveal and to whom you reveal such information. A nondisclosure agreement will help, but any piece of paper drafted by a lawyer like myself is only a reactionary document–it only benefits you after your idea has been stolen.