From friends and family rounds to how to navigate a seed round, here's what you need to know about raising money in Texas. Getty Images

In the vast majority of startups we've worked with across Texas, their "seed round" is not the first money in the door. That money is often called a "Friends & Family Round" and it's usually from people so close to the entrepreneurs that they are willing to take a gamble before there is really even much "there" to invest in. It also might include bootstrap funds put in by the entrepreneurs themselves.

After an F&F Round, Texas startups will pursue a "seed round," which generally includes some angel investors in the local and broader ecosystem. A problem we occasionally run into is that Texas entrepreneurs, including those in Houston, will get bad advice on what the right structures are for this kind of deal; either because they are reading a blog post from Silicon Valley (where things work VERY differently) or they're talking to someone marketing themselves as an "adviser" when their advice doesn't have much substantive deal experience backing it.

If your seed round is under $1 million, you will most likely structure it as a convertible note with a valuation cap and a 2 to 3 year maturity. Convertible notes are extremely slimmed down investment instruments that angel investors across Texas will be very familiar with. Usually, the "deal" in a convertible note round is that investors will get minimal up-front rights, in order to streamline early decision-making and keep legal costs down for negotiation, but they will get back-end protections like debt treatment if the company goes south. They will also almost always get a valuation cap and/or a discount on the price that future VCs pay, as recognition for the extra risk the seed investors are taking relative to later investors.

Once seed rounds get above $1 million, a more robust equity (stock) based investment structure starts to make more sense. There are two types of equity rounds, broadly speaking: seed equity and full VC-style equity. The latter involves a large set of heavily negotiated documents with robust investor protections, and is the structure most often utilized for a Series A (after seed). The former (seed equity) is a slimmed down version of full VC docs designed to give investors some rights, but keep negotiation costs (including legal fees) within a range that's reasonable for the smaller amount of money being raised. Investors vary as to whether they will accept simpler seed equity docs, or require you to give them full VC-style protections.

Given the diversity of investor expectations and contexts you're likely to run into in structuring a seed round, and the very high-stakes (and permanent) implications of the contracts you're going to sign, it's extremely important that advisers you work with have specialized experience in these kinds of deals.

In the case of lawyers specifically, it's also extremely important that they not have conflicts of interest with the investors you are raising money from. We too often see clever investors nudge entrepreneurs toward utilizing the investor's preferred law firm. Anyone with an ounce of honesty and experience can see why that's a problem.

Make sure you understand the high-level concepts and structures that are within the norms of your startup ecosystem, and then work with experienced, trustworthy advisors to translate everything into a deal that makes sense for your company's unique context.

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Jose Ancer is an emerging companies partner at Egan Nelson LLP. He also writes for Silicon Hills Lawyer, an internationally recognized startup/vc law blog focused on entrepreneurs located outside of Silicon Valley, including Texas.

You need a specialized lawyer for your startup — but that's easier said than done in Houston, according to this expert. Getty Images

Lawyers specializing in startups are hard to comeby in Houston — but here's what you need to know

Guest column

One of the worst, and most expensive, mistakes that we see startup founders make in the very early days of their company is not realizing that hiring lawyers is a lot like hiring doctors: when the stakes are high, you need a highly experienced specialist.

Law has numerous specialties and sub-specialties, and hiring legal counsel with the wrong specialty can mean paying to reinvent the wheel, or simply getting advice that is out of sync with the norms of your industry and the expectations of your seasoned investors.

This challenge can be particularly acute for founders of startups located in Houston. The legal market in any particular city tends to mirror the dominant industries of that city. Houston has some of the world's most prominent energy and healthcare lawyers, for reasons that should be obvious to anyone who knows anything about Houston's economy.

Startup lawyers, or more formally —corporate/securities lawyers who are sub-specialized in "emerging companies" — are a different story entirely. Given the nascent status of Houston's startup ecosystem, finding local lawyers who work with emerging technology companies and early-stage funding day in and day out, and know all the norms and nuances, is a challenge.

Very often we see founders get referred to a local lawyer who is a broad generalist that dabbles lightly in many practice areas. Their lack of depth in startup or venture capital work usually leads to clients paying for things that a more specialized lawyer, with a deeper set of precedent forms and institutional knowledge, could simply pull off the shelf. In other cases, founders get referred to very expensive senior corporate lawyers from firms designed for billion-dollar public company representation; totally overkill (and overpriced) for an early-stage startup.

What the smartest Houston founders discover, if they do their homework, is that leveraging the broader "Texas ecosystem" can help not just with sourcing talent for their employee roster or finding venture capital, but with sourcing specialized legal talent as well. In the case of Startup Lawyers, Austin's venture capital and startup ecosystem has produced numerous highly specialized lawyers whose depth of startup/vc experience easily compares with lawyers found in Silicon Valley, but who also regularly interact with investors in the Houston market; and therefore know their expectations. In the case of our firm, Egan Nelson (E/N), a significant number of our clients are located in Houston, Dallas, San Antonio, and other markets in the general regional area.

Historically, businesspeople have assumed that if they really want top-tier, highly specialized counsel, they had to find that counsel at large, multi-national law firms. That is no longer the case. The broader Texas ecosystem has produced a thriving group of specialized, high-end "boutique" law firms that are recruiting top-tier lawyers away from the traditional mega-firms, and leveraging technology to deliver "leaner" legal counsel; saving hundreds of dollars per hour for entrepreneurs.

It is not uncommon for us to see Houston startups utilizing an emerging companies corporate lawyer in Austin, a regulatory specialist lawyer in Houston, and a tax lawyer in Dallas; all from different firms. This is the future for how emerging companies will source their legal talent, without the constraints of geography or old-fashioned "all in one" law firm structures.

This trend really isn't that new. VCs from Austin and other Texas cities (and the coasts) have regularly been visiting Houston to fund companies, and Houston companies have regularly leveraged contacts in other markets to source specialized resources for their companies. The same dynamics have extended to finding legal counsel. "Localism," and an over-preoccupation with hiring everyone in the same city, isn't really just last year, it's more like last century. There is nothing about legal services for startups that requires any of your lawyers to be within your same city. Videoconferencing works great.

The growth of the Texas ecosystem, and the emergence of specialized boutique law firms, mean that Houston entrepreneurs have far more options to choose from for sourcing specialized legal counsel. Leverage those options to avoid engaging lawyers who are insufficiently experienced, or overkill, for the needs of your company. For more resources on finding and assessing the right lawyers for your Houston startup, see Startup Lawyers, Explained.

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Jose Ancer is an Emerging Companies Partner at Egan Nelson LLP. He also writes for Silicon Hills Lawyer, an internationally recognized startup/vc law blog focused on entrepreneurs located outside of Silicon Valley, including Texas.

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Ventilator designed by Rice University team gets FDA approval

in the bag

A ventilator that was designed by a team at Rice University has received Emergency Use Authorization from the U.S. Food and Drug Administration amid the COVID-19 pandemic.

The ApolloBVM was worked on March by students at Rice's Brown School of Engineering's Oshman Engineering Design Kitchen, or OEDK. The open-source plans were shared online so that those in need could have access to the life-saving technology. Since its upload, the ApolloBVM design has been downloaded by almost 3,000 registered participants in 115 countries.

"The COVID-19 pandemic pushed staff, students and clinical partners to complete a novel design for the ApolloBVM in the weeks following the initial local cases," says Maria Oden, a teaching professor of bioengineering at Rice and director of the OEDK, in the press release. "We are thrilled that the device has received FDA Emergency Use Authorization."

While development began in 2018 with a Houston emergency physician, Rohith Malya, Houston manufacturer Stewart & Stevenson Healthcare Technologies LLC, a subsidiary of Kirby Corporation that licensed ApolloBVM in April, has worked with the team to further manufacture the device into what it is today.

An enhanced version of the bag valve mask-based ventilator designed by Rice University engineers has won federal approval as an emergency resuscitator for use during the COVID-19 pandemic. Photo courtesy of Stewart & Stevenson

The Rice team worked out of OEDK throughout the spring and Stewart & Stevenson joined to support the effort along with manufacturing plants in Oklahoma City and Houston.

"The FDA authorization represents an important milestone achievement for the Apollo ABVM program," says Joe Reniers, president of Kirby Distribution and Services, in the release. "We can now commence manufacturing and distribution of this low-cost device to the front lines, providing health care professionals with a sturdy and portable ventilation device for patients during the COVID-19 pandemic."

Reniers continues, "It is a testimony to the flexibility of our people and our manufacturing facilities that we are able to readily utilize operations to support COVID-19 related need."

The device's name was selected as a tribute to Rice's history with NASA and President John F. Kennedy's now-famous speech kicking off the nation's efforts to go to the moon. It's meaningful to Matthew Wettergreen, one of the members of the design team.

"When a crisis hits, we use our skills to contribute solutions," Wettergreen previously told CultureMap. "If you can help, you should, and I'm proud that we're responding to the call."

Nonprofit arts event in Houston pivots to virtual experience

the show must go on

As summer rolls on and Houston adapts to the new normal of the COVID-19 pandemic, myriad arts organizations are pivoting, morphing their in-person events into virtual experiences.

One such event is the 49-year-old, annual Bayou City Arts Festival, which has just announced that it has reimagined its outdoor event originally scheduled for October 10-11 this year. Due to the cancelation of the event because of coronavirus concerns, all 2020 festival tickets will be honored at Bayou City Art Festival events in 2021, according to organizers.

In place of an in-person festival in 2020, a Bayou City Art Virtual Experience will take place the week of October 5-11. The event will feature an art auction, virtual performances, art projects for kids with Bayou City Art Festival nonprofit partners, creative activities with Bayou City Art Festival sponsors and more, according to a press release.

"The decision to convert our Bayou City Art Festival Downtown to a virtual experience was difficult, but the health and safety of our community and our festival family is our top priority," says Kelly Batterson, executive director of the Art Colony Association.

Organizers have also announced that a fundraising campaign dubbed Save Our Art - One Passion. One Purpose. One Community, in partnership with the City of Houston to support the arts and the festival's local nonprofit partners.

Interested parties can donate by sending a text SaveOurArt to 243725, donating via our website and Facebook page, or by participating in the many upcoming fundraising events.

Festival fans can stay up to date via Facebook, Twitter, and Instagram.

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This article originally appeared on CultureMap.