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Backyard Soda Co.

CBD-infused soda and uniquely flavored syrups

$77,387

Raised from 328 investors

Min: $25,000

Max: $107,000

Security Offered

Convertible Note

Minimum Investment: $100

  • CanopyBoulder Summer 2019 graduate

  • Products sold in Whole Foods in Colorado

  • Raised $130,000 in funding so far this year from CanopyBoulder

  • Began selling its CBD-infused sodas in August 2019

Executive Snapshot

Backyard Soda initially produced and sold uniquely flavored syrups comprising whole natural ingredients used to flavor sparkling water and cocktails. After learning of the potential benefits of CBD and widespread consumer interest,i the company began looking for ways to incorporate it into its products. Following its graduation from CanopyBoulder’s Summer 2019 accelerator program, Backyard Soda began selling CBD-infused sodas flavored with its natural syrups, utilizing locally sourced hemp.

Backyard Soda currently sells its syrups through retail stores in Colorado, including Whole Foods, and plans to begin increasing distribution of its CBD-infused sodas in the coming months throughout Colorado and Illinois. Thus far in 2019, the company has raised $130,000 in total funds, all from CanopyBoulder as part of its accelerator program.

Terms

Investment Terms

Security Type: Crowd Note

Round Size: Min: $25,000 Max: $107,000

Discount Rate: 20%

Valuation Cap: $2.5 million

Conversion Provisions: In connection with equity financing of at least $1,000,000, the Company has the option to convert the Crowd Note into non-voting preferred stock (Conversion Shares) at a price based on the lower of (A) a 20% discount to the price per share for Preferred Stock by investors in the Qualified Equity Financing or (B) the price per share paid on a $2,500,000 valuation cap. Please refer to the Crowd Note for a complete description of the terms of the Crowd Note, including the conversion provisions.

Perks

*You are investing in Crowd Notes in this offering. Perks are meant to be a thank you from the company for investing. The perks below, subject to Regulation CF investment limits, are not inclusive of lower dollar amount perks, except where otherwise noted.

Following a successful raise, Backyard Soda is planning to host an investor party in Denver, Colorado for all investors who meet the minimum investment amounts outlined below. At the party, investors will have the opportunity to try Backyard Soda products, meet and talk with the Backyard Soda team, listen to music entertainment, and explore Denver.

$250 - One ticket to the investor party and mixed six-pack of CBD-sodas

$500 – Two tickets to the investor party, mixed six-pack or six-pack of choice of CBD-sodas, hat, and a koozie

$1,000 – Two tickets to the investor party, mixed six-pack or six-pack of choice of CBD-sodas, koozie and food truck voucher

$2,500 – Two tickets to the investor party, choice of two six-packs CBD-sodas, koozie, and food truck voucher

$5,000 - Two tickets to the investor party, choice of two six-packs CBD-sodas, koozie, food truck voucher, uber voucher, and hotel for one night

$10,000 - Two tickets to the investor party, choice of two six-packs CBD-sodas, koozie, food truck voucher, uber voucher, hotel for one night, and flight to Denver for one (flight voucher not to exceed $400)

$15,000 - Two tickets to the investor party, 12-pack of CBD-sodas of all three flavors, koozie, food truck voucher, uber voucher, hotel for one night, and flight to Denver for two (flight vouchers not to exceed $400)

Overview

Opportunity

In 2018, the U.S. Farm Bill designated hemp (from which cannabidiol [CBD] is derived) as an agricultural crop and made it legal to farm nationwide.ii According to a study by Harvard University, CBD is commonly used to address health issues such as anxiety, insomnia, and chronic pain. The strongest scientific evidence for CBD’s treatment of health issues is its effectiveness in fighting childhood epilepsy syndromes such as Dravet Syndrome and Lennox-Gastaut syndrome (LGS).iii Due to an increase in consumer interest, companies began bringing CBD-based products, such as CBD-infused beverages, to market to meet growing demand.iv According to Zenith Global, a market research firm, U.S. sales of CBD-based drinks reached $86 million in 2018 and are projected to reach $1.4 billion by 2023.v Large alcohol brands like Molson Coors, Anheuser-Busch InBev, and Heineken have noticed the potential and have invested in cannabis-infused (e.g. CBD) drinks as a result.vi In fact, Constellation Brands – the number three beer company in the U.S. - made a $4 billion investment in Canopy Growth, a cannabis and hemp consumer products company, in August 2018.vii Additionally, beverage companies such as Coca-Cola, Pepsi, and Starbucks have indicated interest in cannabis-based or -infused beverages.viii​​​​

Backyard Soda was initially founded as a soda cart selling sodas, flavored teas, snow-cones, and slushies made with its uniquely flavored syrups on streets and in backyards in Denver, Colorado. It developed a strong local following which encouraged the company to begin bottling the syrups to sell through retail channels. As Backyard Soda grew, its founders began to learn more about the hemp plant and its potential use cases and benefits. The founders discovered CBD helped them feel better, sleep better, and feel more relaxed. After going through the CanopyBoulder accelerator program, Backyard Soda began selling its CBD-infused sodas in August 2019. Leveraging existing distribution and manufacturing relationships, the company is currently selling its sodas in several retail stores and on-premise locations in Colorado. With the proceeds from this crowdfunding raise, Backyard Soda is looking to increase its production capacity, hire sales and marketing staff, and increase its advertising efforts.

Product

Backyard Soda currently has two product offerings, CBD-infused sodas and simple syrups. The company initially focused on its simple syrups. However, in 2019 it began shifting its focus to CBD-infused sodas.

CBD-infused Soda

Backyard Soda produces ready-to-drink flavored sodas infused with full spectrum hemp extract (CBD). The sodas are made from a mixture of sparkling water, 15mg of CBD, and uniquely flavored syrups. The syrups are made by Backyard Soda and comprise whole natural ingredients. The CBD is sourced from locally grown hemp. Backyard Soda aims to keep the ingredient list and soda flavor as simple and natural as possible. Cans can be purchased from retailers individually and in six-packs. The company currently offers three flavors:

  • Lavender lemon
  • Ginger lime
  • Mango jalapeno

Simple Syrup

Backyard Soda currently sells five flavors of simple syrups; ginger lime, lavender lemon, mango jalapeno, Madagascar vanilla bean, and true grenadine. All syrups are made with whole natural ingredients. The syrups are intended to be mixed with sparkling water or cocktails to add extra flavor. Adding one serving of syrup (~31ml) makes five drinks. Syrups are sold through the Backyard Soda website in 375ml bottles that can be used for 10-12 servings. Several of the syrups (lavender lemon, ginger lime, and mango jalapeno) are used as the base ingredient for its CBD-infused sodas.

Ginger Lime Simple Syrup

  • Ingredients: filtered water, pure cane sugar, lime juice, whole (fresh pressed) ginger, and kosher salt
  • No artificial ingredients
  • Makes easy and delicious Moscow mules
  • Can be added to marinades, sorbets, and vinaigrettes

Lavender Lemon Simple Syrup

  • Ingredients: filtered water, pure cane sugar, lemon juice, dried lavender flowers, citric acid, and salt
  • No artificial ingredients
  • Makes easy and delicious cocktails. Good mixer for vodka, tequila, and champagne
  • Locally sourced Lavender

Mango Jalapeno Simple Syrup

  • Ingredients: filtered water, pure cane sugar, mangos, dried jalapenos, citric acid, and salt
  • No artificial ingredients
  • Makes easy and delicious margaritas
  • Can be added to marinades, sorbets, vinaigrettes, and salsas

Madagascar Vanilla Bean Syrup

  • Ingredients: filtered water, pure can sugar, brown sugar, whole Madagascar vanilla beans, kosher salt, and citric acid
  • No artificial ingredients
  • Makes easy and delicious cream soda and vanilla flavored coffee drinks
  • A great addition to whipped cream, frostings, and icings

True Grenadine Simple Syrup

  • Ingredients: filtered water, pure can sugar, pomegranate juice, orange blossom water, kosher salt, and citric acid
  • No artificial ingredients
  • Makes easy and delicious cocktails. Good mixer for rum, whiskey, and vodka
  • Can be added to marinades, sorbets, and vinaigrettes

Use of Proceeds and Product Roadmap

Backyard Soda is seeking to raise a minimum of $25,000 and a maximum of $107,000. If the minimum amount ($25,000) is raised, Backyard Soda plans to allocate $10,000 (40%) to marketing activities, $7,500 (30%) on future wages, and $7,500 (30%) on manufacturing.

If the maximum amount ($107,000) is raised, Backyard Soda plans to allocate $45,000 (42.06%) to future staff wages, $25,000 (23.36%) to increase manufacturing, $20,000 (18.69%) on general marketing, $10,000 (9.35%) on working capital, and $7,000 (6.54%) on research and development. The company has discretion to alter the use of proceeds as needed.

Marketing: Backyard Soda plans to build brand awareness through social media marketing campaigns and promotional opportunities such as sponsorships, promotions at retail stores, and promotional items.

Manufacturing: To improve operational efficiency, the company plans to invest in manufacturing processes, purchase ingredients in bulk quantities, and increase production sizes with the aim of bringing down operational costs and increase margins.

Research and development: Backyard Soda plans to continue developing new flavors for its syrup and soda lines.

Future wages: New hires the company plans to add over the coming year include an operations/product manager and several brand ambassadors. The new operations/production manager will assist in improving operational efficiency, and the brand ambassadors will attend tasting events for marketing and brand awareness.

Product Roadmap

Over the coming year, Backyard Soda plans to add more flavors to its syrups and canned soda line. The company currently has 10-12 recipes in development, including low-sugar and low-calorie options. It may also look to add a bag-in-box (BIB) packaging line to on-premise customers looking to create a fountain drink option for customers.

Additionally, Backyard Soda wants to continue deepening its relationship with national and regional retailers such as Whole Foods and develop new channels with boutique groceries, liquor stores, bars and restaurants, gyms, and cannabis-focused retailers. Some luxury gyms have cafes or foods shops on-premise, and the company believes this represents an interesting opportunity. Backyard Soda plans to access these new retailers through extending its distribution throughout North America via distribution partnerships.

Business Model

Recently, Backyard Soda shifted its concentration from non-CBD-infused flavored syrups to CBD-infused soda cans. The company believes that syrups are a great option for people having a party or who want to experiment with different flavors at home. However, they are not daily use products. The CBD-infused cans have the potential to reach a much higher velocity of sales. The company plans to continue producing its syrup because it is the base flavor for its CBD-infused sodas and because it’s still popular with some consumers. Both the CBD-infused soda cans and syrups are produced by a third-party manufacturer using Backyard Soda’s proprietary formula – enabling the company to avoid large fixed asset purchases and the related maintenance expenses.

Backyard Soda works with food brokers and distributors for placement into grocery stores, convenience stores, and liquor stores. Additionally, the company sells its simple syrups directly to consumers through its website and third-party websites (e.g. Amazon). The company provides wholesale pricing to retailers and on-premise accounts (i.e. bars and restaurants). It sells CBD-infused sodas in single cans and six-packs to stores. It sells simple syrups to retailers and on-premise accounts by the gallon. Eventually, Backyard Soda would like to add a monthly subscription service providing consumers with single-serve syrup-infused packets for at-home carbonation machines. It plans to build awareness for its products through its social presence and retail promotion opportunities.

Currently, Backyard Soda sells its CBD-infused cans to wholesale distributors for $2.375 per can. The suggested retail price for a can is between $4.39 and $4.99. Its syrups (375ml) sell for $12.99 on the Backyard Soda website and $22.99 on Amazon.  

User Traction

Backyard Soda began selling its CBD-infused sodas in August 2019. Through August 9, 2019, the company had sold 93 twelve-packs (1,116 cans), representing $2,673 in sales. It currently sells three flavors; ginger lime, lavender lemon, and mango jalapeno. Initial sales have been spread evenly among each flavor. CBD-infused sodas are sold through a distribution agreement with LoCo Food Distribution.

Since January, the company has also sold approximately $22,795 worth of simple syrups (as of August 9, 2019). Backyard Soda’s most popular flavor has been ginger lime, accounting for 24.20% of sales, followed by lavender lemon, accounting for approximately 18.50% of sales. Through its distribution agreement with LoCo Food Distribution, simple syrups are sold at several Whole Food retail locations in Colorado.

Historical Financials

Through July, Backyard Soda has generated $22,620 in revenue in 2019, a 27.25% decrease over the same period in 2018. Revenue through July decreased year-over-year, at least in part, due to a shift in strategy from Backyard Soda to focus on CBD-infused sodas. Over the same period, the company has achieved a gross margin of 46.48%. In 2018, the company generated $52,984 in total revenue for the year, with a gross margin of 25.21%. Backyard Soda’s gross margin increased when compared to 2018, at least in part, due to more efficient manufacturing and business processes.

Through July, Backyard Soda has incurred $66,340 in total expenses for the year, a 12.90% increase over the same period in 2019. This increase in expenses can largely be attributed to an increase in wage expenses due to the hiring of an additional staff member. The additional staff member was hired in Q2 2019. Expenses in 2019 primarily consisted of cost of goods sold (COGS), advertising and marketing, lab fees, and wages. In 2018, the company incurred $111,327 in total expenses for the year. Expenses in 2018 primarily consisted of cost of goods sold (COGS), advertising and marketing, wages, and event fees.

Through July, the largest expense line item for Backyard Soda has been employee wages. Wage expenses thus far in 2019 comprised wages for three Backyard Soda employees until June, when the company hired a director of business development. COGS, the next highest expense line item, have decreased as a percentage of total expenses thus far in 2019 – compared to 2018 – due to the company’s strategy switch and more efficient manufacturing, which has helped the company achieve better gross margins. The largest expense line item in 2018 was employee wages. The wage expense line item in 2018 comprised wages for three Backyard Soda employees. Wages were closely followed by COGS.

2019 (through July) Expense Breakdown

  • Wages: 54.33%
  • COGS: 19.17%
  • Advertising and Marketing: 3.50%
  • Lab Fees: 2.85% 
  • Other Expenses: 20.15%

2018 Expense Breakdown

  • Wages: 35.80%
  • COGS: 35.60%
  • Advertising and Marketing: 9.68%
  • Event Fees: 4.85%
  • Other Expenses: 14.07%

Through July, Backyard Soda has incurred a net loss of $43,107 thus far in 2019, a 55.8% increase over the same period in 2018. The company’s net loss has increased compared to the same period in 2018 for several reasons including:

  • The business started in January 2018, with business functions ramping up throughout the year
  • Increased expenses from additional staff
  • A shift in the company’s focus to CBD-infused soda away from its syrups

In 2018, the company incurred a net loss of $58,343 for the year. The net loss gradually increased throughout the year as more money was put into developing the business.

As of August 2019, the company had approximately $75,000 in cash on hand. Thus far in 2019, the company has had an average monthly burn rate of $7,595 giving it apprimately 10 months of runway assuming the burn rate stays consistent. The company is currently looking to raise up to $750,000 as part of a bridge-round of financing (of which this crowdfunding raise is a part). If the company is able to raise the full $750,000, it believes it will have approximately 18 months of runway.

Industry

In 2017, the U.S. CBD industry grew by nearly 40% to reach a total market size of $367 million and is expected to reach nearly $2 billion by 2022. The CBD industry can be split into two categories, hemp-derived CBD, and marijuana-derived CBD. The U.S. hemp-derived CBD market is expected to reach $646 million by 2022, while the U.S. marijuana-derived CBD market is expected to reach $647 million by 2022. In 2017, hemp was grown in 19 different states across 25,500 acres of farmland with 70% of land allocated for CBD production, 20% for seed, and 10% for hemp fiber production.ix

Within the CBD industry are CBD-infused beverages. According to Zenith Global, a market research firm, U.S. sales of cannabis-based drinks reached $86 million in 2018. Zenith believes the market will undergo substantial growth in the coming years, reaching $1.4 billion by 2023. Key growth drivers of CBD drinks could include a loosening regulatory environment, investment from major beer brewers, and innovation by startups. Additionally, there has been a cultural shift towards drinks with natural ingredients with potential health benefits as consumers look to reduce their alcoholic intake.x In addition to being part of the fast-growing cannabis industry, CBD beverages also stand to benefit from the recent trend in wellness beverages.xi

While infused beverages currently only make up 2-3% of total sales in the adult marijuana industry, Mark Hunter from Molson Coors believes it could soon account for 20-30% of cannabis sales. As a result, large alcohol brands like Molson Coors, Anheuser-Busch InBev, and Heineken have invested in cannabis-infused drinks in recent years.xii Additionally, beverage companies Coca Cola, Pepsi, and Starbucks have all indicated they are monitoring development in cannabis-based or infused beverages.xiii

In 2018, the U.S. Farm Bill designated hemp as an agricultural crop and made it legal to farm nationwide.xiv Increasing consumer interest in hemp and CBD is driving new market entrants to fill shelves with hemp-derived products to meet the growing demand in an evolving regulatory environment.xv Hemp and marijuana are derived from different varieties of the Cannabis sativa species. Marijuana is grown by selectively breeding for high concentrations of the psychoactive tetrahydrocannabinol (THC), whereas hemp is cultivated for high concentrations of cannabidiol (CBD). According to the Farm Bill, hemp is legal provided that it contains no more than 0.3% THC.xvi According to a study by Harvard University, CBD is commonly used to address health issues such as anxiety, insomnia, and chronic pain. The strongest scientific evidence for CBD’s treatment of health issues is its effectiveness in fighting childhood epilepsy syndromes such as Dravet Syndrome and Lennox-Gastaut syndrome (LGS).xvii

Although the Farm Bill changed the federal government’s position on hemp farming and the production of CBD oils, individual states have not responded in-kind and the debate on the substance’s legality is still murky. The Department of Agriculture, which regulates hemp production, has promised to issue a framework outlining hemp production before the end of 2019. Also, in testimony before Congress, former FDA commissioner Scott Gottlieb suggested that potent CBD products be regulated as a pharmaceutical product requiring FDA approval, while low-dose products continue to be allowed to stay on the shelves of CBD merchants.xviii​​​​

In 2018, venture capital financings in cannabis companies surpassed $1.6 billion, a record high, and a 193% increase from 2017. Deal count in 2018 was also record-setting, with 225 venture financings. 2017 also saw significant growth in funding towards cannabis companies, with nearly $555 million invested, a 143% year-over-year increase, across 173 total deals. Deal count surpassed 100 total deals for the first time in 2015, with 123 such venture financings, a 124% increase from 2014. Between 2008 and 2018, there has been $2.97 billion invested across 722 venture capital deals in cannabis companies. Over 70% of capital invested from 2008 to 2018 occurred in 2017 and 2018.xix

Competitors

Recess

Founded in 2017, Recess is a consumer wellness brand offering sparkling water infused with hemp extract. The company offers flavors for sparkling water like blackberry chai, peach ginger, and pomegranate hibiscus. Each flavor of sparkling water is made with hemp extract (typically 10mg of broad-spectrum oil), American ginseng, L-theanine, schisandra, filtered water, flavor concentrate, and cane sugar. An eight-pack of 12oz cans sells for $39.99 on the Recess website.xx Since the company launched in October 2018, it has sold around 400,000 cans.xxi It has raised $3 million in total as of February 2019.xxii​​​​

Queen City Hemp

Founded in 2015, Queen City Hemp is a provider of a range of CBD products including seltzers, oils, and topical creams. The company’s seltzers come in four different flavors: blood orange, passion fruit, guava, and lemon lavender. Ingredients in Queen City Hemp seltzers include carbonated water, natural flavors, sorbate, and 5mg of CBD from hemp extract. A twenty-four pack of 12oz cans can be purchased on the company’s website for $89.99.xxiii Queen City Hemps’ oils and topical creams come with higher doses of CBD and range in price from $39.99 to $59.99. In January 2019 the company expanded its product availability to all 50 states.xxiv​​​​

Sprig

Founded in 2015, Sprig produces CBD-infused sparkling water. The company currently offers flavors including citrus, citrus zero sugar, lemon tea zero sugar, and melon zero sugar. Each can of Sprig sparkling water is made with 20mg of CBD isolate, derived from hemp. Other ingredients found in Sprig sparking water includes carbonated water, cane sugar, flavor extract, gum arabic, fruit and vegetable juice, and beta carotene. A twelve-pack of 12oz cans sells for $50.00.xxv Sprig became the most-widely distributed CBD drink in the United States in 2019.xxvi The company has raised $2.8 million so far in funding.xxvii

Sweet Reason

Founded in 2018, Sweet Reason is a CBD-infused beverage brand. The company currently offers three flavors of CBD-infused sparkling water, grapefruit, cucumber mint, and strawberry lavender. Drinks are made with carbonated water, natural flavors, and 7mg of CBD isolate from organic hemp. A six-pack of 12oz cans sells for $39.99 on the Sweet Reason website.xxviii Sweet Reason drinks are currently offered in around 200 retailers in New York. The company raised $2.5 million in a seed round led by Lerer Hippeau with participation from RiverPark Ventures, Max Ventures, Subversive Capital, and angel investors in July 2019.xxix​​​​

Weller

Founded in 2017, Weller provides an assortment of CBD-infused products including a water-soluble CBD powder, CBD-infused sparkling water, and CBD-infused coconut bites. These products contain 0% THC, are lab tested and verified for potency, and contain 25 mg of broad-spectrum hemp extract per serving.xxx Weller Snacks products can be purchased through the company’s website, with prices ranging from $14.99 for three packages of coconut bitesxxxi to $80 for the Barista Blend water-soluble CBD powder.xxxii In July 2019, the company raised a $3 million Series Seed round, of which MicroVentures participated, bringing its total funding amount to date to $4.25 million.xxxiii

Team

Jonathan Schultz

CEO

As CEO of Backyard Sodas, Jonathan is responsible for managing all operations, product management, and sales. In addition to his current role, he also co-founded and continues to serve as an advisor to Trigram Software, a medical management software company. Prior to his current roles, Jonathan was the founder and a product manager at Phoncert, where he managed a cross-functional team and delivered a mobile fan engagement platform. Other work experience includes management and advisor roles across a variety of industries such as financial and statistics. Jonathan holds an undergraduate degree from Colgate University and an MBA from Case Western University.

Leah Schultz

Administrative Manager

As administrative manager of Backyard Sodas, Leah is responsible for all accounting functions, administrative duties, and monthly payroll. In addition to working at Backyard Sodas, she also currently works as a bookkeeper for Trigram Software. Prior to her current roles, she worked in bookkeeping for several different companies in the exercise, insurance, and outdoors industries. Leah holds an undergraduate degree in Environmental Geography from Colgate University.

Shawn Walker

Director of Business Development

As director of business development, Shawn is responsible for managing all sales and marketing efforts. He also oversees distribution agreements, events, promotions, and potential new partnerships. In addition to his role at Backyard Soda, Shawn is also currently a market manager for Wild Tonic Jon Kombucha, an alcohol brand. Prior to his current roles, Shawn worked in sales and marketing for Brew Dr. Kombucha, an alcohol brand, and in marketing and operations at Encompass Media Group. He also has prior experience in business development, digital marketing, and sales. Shawn holds an undergraduate degree from Indiana University.

Past Financing

This raise is part of Backyard Soda’s Convertible Note round in which it aims to raise up to $750,000 in total. Money raised outside this platform will be through a convertible note with the same valuation cap ($2.5 million) and discount (20%). So far, $100,000 has been raised this round though a convertible note from CanopyBoulder in April 2019 following the completion of CanopyBoulder’s accelerator program.

Since inception, Backyard Soda has raised $130,000, all from CanopyBoulder. The $130,000 consists of $100,000 from a convertible note and $30,000 in common stock. The $30,000 worth of common stock (i.e. 8% of the company) was issued to participate in CanopyBoulder’s 16-week accelerator program.

Discussion

Risks

Investment Risk

The information provided herein is not intended to be, nor should it be construed or used as, investment, tax or legal advice, a recommendation to purchase, or an offer to sell securities of the company. You should rely on the offering statement and documents attached as exhibits to the offering statement when making any investment decision. An investment in the company is not suitable for all investors.

An investment in the company is speculative, and as such is not suitable for anyone without a high tolerance for risk and a low need for liquidity. You should invest only if you are able to bear the risk of losing your entire investment. There can be no assurance that that investors will receive any return of capital or profit. Investors should have the financial ability and willingness to accept the risks (including, among other things, the risk of loss of their entire investment and the risks of lack of liquidity) that are characteristic of private placement investments. There will be no public market for the securities being offered, applicable securities laws will restrict any transfer of the securities, and the securities will not be transferable without the company’s consent.

Company Risk

The company’s industry is highly competitive, and the company may not be able to compete effectively against the other businesses in its industry. The company is subject to a number of significant risks that could result in a reduction in its value and the value of the company securities, potentially including, but not limited to:

  • Rapidly changing consumer preferences and market trends,
  • Inability to expand and maintain market acceptance for the company’s services and products,
  • Inability to gain access to international markets and comply with all applicable local laws and regulations,
  • Inability to achieve management’s projections for growth, to maintain or increase historical rates of growth, to achieve growth based on past or current trends, or to effectively manage rapid growth,
  • Inability to develop, maintain and expand successful marketing relationships, affiliations, joint ventures and partnerships that may be needed to continue and accelerate the company’s growth and market penetration,
  • Inability to keep pace with rapid industry, technological and market changes that could affect the company’s services, products and business,
  • Technological problems, including potentially widespread outages and disruptions in Internet and mobile commerce,
  • Potential costs and business disruption that may result if the company’s customers complain or assert claims regarding the company’s technology,
  • Failure to adequately address data security and privacy concerns in compliance with U.S. and international laws, rules and policies,
  • Performance issues arising from infrastructure changes, human or software errors, website or third-party hosting disruptions, network disruptions or capacity constraints due to a number of potential causes including technical failures, cyber-attacks, security vulnerabilities, natural disasters or fraud,
  • Inability to adequately secure and protect intellectual property rights,
  • Potential claims and litigation against the company for infringement of intellectual property rights and other alleged violations of law,
  • Difficulties in complying with applicable laws and regulations, and potential costs and business disruption if the company becomes subject to claims and litigation for legal non-compliance,
  • Changes in laws and regulations materially affecting the company’s business,
  • Liability risks and labor costs and requirements that may jeopardize the company’s business,
  • Dependence on and inability to hire or retain key members of management and a qualified workforce,
  • Ongoing need for substantial additional capital to support operations, to finance expansion and/or to maintain competitive position,
  • Issuance of additional company equity securities at prices dilutive to existing equity holders,
  • Potential significant and unexpected declines in the value of company equity securities, including prior to, during, and after an initial public offering, and
  • Inability of the company to complete an initial public offering of its securities, merger, buyout or other liquidity event.

Endnotes