Generic risk factors for startup LLC investor in units of the LLC. -Needs to be MSCD'd -Need to be broken down into major sections and those gists broken down as well into individual pieces to be added as appropriate. -Those pieces should be revised to be more accommodating of universal applicability and limited customization (move customization…

startup risk factors

Exhibit A

Startup Machine, LLC
Risk Factors


FORWARD LOOKING STATEMENTS
THESE DOCUMENTS, INCLUDING THE FINANCIAL FORECASTS, CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. YOU MAY GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS BY USE OF THE WORDS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “ANTICIPATE,” “ESTIMATE,” “BELIEVE,” “INTEND,” “PLAN” OR “FORECAST” OR THE NEGATIVES AND VARIATIONS OF SUCH WORDS OR COMPARABLE TERMINOLOGY. THE COMPANY HAS BASED THESE FORWARD-LOOKING STATEMENTS ON THE COMPANY’S CURRENT EXPECTATIONS AND FORECASTS ABOUT FUTURE EVENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE SET FORTH UNDER THE CAPTION “RISK FACTORS” AND THROUGHOUT THIS MEMORANDUM.  THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. IN LIGHT OF THESE RISKS, UNCERTAINTIES AND ASSUMPTIONS, THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS MEMORANDUM MAY NOT REFLECT ACTUAL FUTURE RESULTS.
STATEMENTS AND FORECASTS IN THESE DOCUMENTS OR IN ANY EXHIBIT OR SCHEDULE TO THESE DOCUMENTS THAT ARE FORWARD-LOOKING ARE BASED ON THE COMPANY’S LIMITED PREVIOUS EXPERIENCE, MARKET ANALYSIS, CURRENT BELIEFS AND ASSUMPTIONS REGARDING A LARGE NUMBER OF FACTORS AFFECTING ITS PROPOSED BUSINESS. THE COMPANY’S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS. THERE CAN BE NO ASSURANCE THAT: (I) THE COMPANY HAS CORRECTLY MEASURED OR IDENTIFIED ALL OF THE FACTORS AFFECTING ITS BUSINESS OR THE EXTENT OF THEIR LIKELY IMPACT, (II) THE COMPANY’S ASSUMPTIONS REGARDING ITS BUSINESS AND THESE FACTORS ARE CORRECT; (III) THE PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO SUCH FACTORS ON WHICH THE COMPANY’S ANALYSIS IS BASED IS COMPLETE OR ACCURATE, (IV) THE COMPANY’S ANALYSIS IS CORRECT OR (V) THE COMPANY’S STRATEGY, WHICH IS BASED IN PART ON THIS ANALYSIS, WILL BE SUCCESSFUL. THE COMPANY’S PLANS AND PROJECTIONS INVOLVE NUMEROUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANTICIPATED RESULTS.

Risk Factors
  An investment in the Units involves a high degree of risk.  Accordingly, this investment is not suitable for persons who wish to avoid risk. You should evaluate carefully the information contained in the Term Sheet and any other investigation you have made and should independently make about the Company and its prospects and consider this investment if you, in addition to other considerations: (a) have no need for liquidity with respect to an investment and (b) can sustain the loss of your entire investment. Therefore, you should carefully consider the Risk Factors described herein, among others, before making a decision to invest. 
We believe that the following list identifies some of the significant risks you could face as an investor in the Units, but the Risk Factors listed here are not an exclusive and an exhaustive list of all risks associated with an investment in the Units. The risks described below are intended to highlight risks that are specific to the Company, but they are not the only ones that the Company faces. Additional risks and uncertainties, such as those that apply generally to the Company’s industry or to companies in its industry, also may impair its business and operations. You should carefully consider those additional risks before making a decision whether to invest in the Units. You should also refer to the other information set forth in the Operating Agreement. You should rely only on the information contained in the Operating Agreement and information you obtain from your discussions with management of the Company. The Company has not authorized anyone to provide you with information that is different. The information herein only accurate as of the date hereof. The Company has no duty and does not assume any duty to update the information contained herein.

Risks Related to the Company.  
A purchase of the Units is suitable only for a person who can perform such person’s own investigation of the Company (or with an advisor), because each purchaser is responsible for such person’s own investigation.  A potential investor should ask questions of management of the Company to receive answers to the questions such potential investor believes are necessary or appropriate to form the basis of a decision to purchase the Units.  
Risk of Loss of Investment.  
Investment in a company with limited operating history involves a high degree of risk.  Any potential investor must be willing to risk the entire loss of his or her investment.  No assurance or guarantee can be given that any of the potential benefits will prove to be accurate or available, nor can any assurance or guarantee be given as to the actual amount of financial return, if any, which may result from an investment in the Company.  As a result, any investment in the Units should be considered a high-risk investment and any such investment should be restricted to an investor’s risk capital only.  You should be able to bear a complete loss of your investment due to the risks associated with the energy and performance drink industry.  You should carefully consider the following factors before deciding to make an investment in the Company.
Inability to Accomplish Growth Strategy.
We plan to develop, manufacture, market and sell [______________________] and related products. Successfully achieving this goal depends upon a number of factors, some of which are beyond our control, including, without limitation, our ability to compete and differentiate our brand, our ability to obtain raw materials at reasonable price points, develop and market products and services that are attractive to our target consumers, our ability to distribute our products and related products in a cost-effective manner and on acceptable terms, retain key personnel and hire and train competent managers. The Company’s ability to manage its growth effectively depends on its management and could require it to continuously attract, retain, motivate and manage qualified employees and attract retailers and customers in a variety of circumstances. The failure of the Company to manage growth in its business effectively will have a material adverse effect on its results of operations and financial condition.
Exposure to Litigation; Availability of Insurance
In recent years, manufacturers of [_______] products have increasingly been the targets of litigation for personal injury and related legal theories. Many of these lawsuits involve large claims and substantial defense costs; others may be frivolous yet require legal assistance. To the extent that any of our distributors becomes a party to a lawsuit involving our [_______________] products, we are obliged to indemnify it. Nonetheless, we intend to maintain general liability insurance in amounts deemed appropriate by the Company based on the nature and risks of our business. Although we are not currently a party to any litigation, we can provide no assurance that we will not become involved in such litigation in the future, that we will not have to pay for the defense and any judgment against our distributors and retailers, that any claims or claims arising from such litigation will not exceed our insurance coverage or that such coverage will continue to be available, any of which could have a material adverse effect on us. We intend to have general liability, products liability, and property and workers compensation insurance for our facilities with commercial carriers on standard commercial terms.

Distribution of Our Product
We expect to hire a small number of sales persons to support the efforts of our distributors in our current markets and in other markets as we sign additional distribution agreements in those markets and to manage the process of developing our products and placing them in retail and other outlets. Much of our success will be dependent on entering into distribution agreements and arrangements with  distributors who will have the ability to successfully place our products with various types of retail outlets. We will face competition with other [_______________] companies who have established distribution networks and will resist our attempts to gain increased market presence. If we are unable to enter into a sufficient number of distribution agreements with  distributors that will permit us to grow our brand, it will have a material adverse affect on our long-term prospects and financial condition.

Protection of Intellectual Property Rights—Our Trademarks and Trade Dress
We have registered the [_____________] trademark with the United States Patent & Trademark Office (“PTO”) and own the [___________________] URLs.  We are aware that there is a prior registration with the PTO of the [_______________] name for use as an [__________________], but we believe that our right to the trademark is paramount and we will prevail in any challenge to our use of the trademark. If, however, our right to use the [_______________] trademark is successfully challenged, the cost to the Company of changing its trademark and packaging may be substantial and could have adverse financial consequences for our business.
Our inability to protect our trademarks, patent and trade secrets may prevent us from successfully marketing our products and competing effectively.
Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, copyrights and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly our trademarks and trade secrets, to be of considerable value and importance to our business and our success. We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. There can be no assurance that the steps taken by us to protect these proprietary rights will be adequate or that third parties will not infringe or misappropriate our trademarks, trade secrets (including our flavor concentrate trade) and/or similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to: market or sell our brand, be profitable, exploit our unique products or recoup our associated research, development and marketing costs.
We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success.
Our business is substantially dependent upon awareness and market acceptance of our products and brands by our targeted consumers. In addition, our business depends on acceptance by our independent distributors of the [_______________]  brand as a  brand that has the potential to provide incremental sales growth rather than reduce distributors’ existing product sales. We have only begun to establish the [_______________] brand and it is too early in the product life cycle of the brand to determine whether our products and brands will achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers. Any failure by the [_______________] brand to achieve or maintain acceptance or market penetration would likely have a material adverse effect on our revenues and financial results.
Our business is subject to many regulations and noncompliance is costly.
The production, marketing and sale of our unique products[, including their contents, labels, caps and containers,] are subject to the rules and regulations of various federal, provincial, state, and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial conditions and operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, these rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.
Need for Additional Financing.  
Even in the event that the maximum offering amount is raised, the Company anticipates that it will need additional funding for the continued implementation of the Business Plan by obtaining borrowings and/or through the offer and sale of additional securities.  The availability and terms of such additional financing cannot now be determined and no assurance can be given that such terms will not be more favorable to the future investors, in terms of price of equity interests in the Company, than the terms of this offering.  The decision to offer additional securities, which could cause a dilution in the percentage of the Company that could be acquired by investors in the Units reflected in this offering, is in the sole discretion of the Company.
Lack of Qualified Personnel.  
The Company’s business will suffer if it does not attract and retain additional highly skilled personnel. For the Company to succeed, it must identify, attract, retain and motivate highly skilled managerial, sales and marketing personnel.  Failure to retain and attract necessary personnel will limit the Company’s ability to compete effectively and provide services.  
Limited Operating History
The Company started its operations on a limited scale in [_______________]; therefore, the Company’s operating history is limited.  Our principal members’ and Managers’ past successes in developing and managing large businesses provide no assurance of success for us. Our lack of long-term operating history makes it difficult to assess the ability of our Managers to control expenses and manage the problems frequently encountered by all companies in the early stages of development. In deciding whether to purchase Units, you should consider our prospects in light of the risks, expenses, and difficulties, including but not limited to bankruptcy, encountered by start-ups in the [_______________] industry.

Implementation and Marketing Strategy
We intend to engage in large scale sales and marketing programs focused on building interest in and excitement about our products through a variety of media channels, such as the Internet, public relations, advertising, direct marketing campaigns, and co-marketing arrangements with key retailers. If these media channels are unavailable or if they prove more costly or less effective than anticipated, then our growth and ability to generate revenues could be adversely affected. In addition, if we fail to provide our products when required by retailers and consumers, we could adversely impact the sales we need to make to operate the business on a break-even or profitable basis, resulting in losses to the Company and possible losses with respect to your investment.

Adverse Economic Conditions
Adverse economic conditions could result in our target consumers having fewer surplus funds to spend on our products and other products. In addition, increased costs of energy could increase our costs in transporting the products to the United States and other countries and the costs of distributing the products within each country. Consolidation of our suppliers and other vendors could result in increased prices to us for the raw products, manufacturing and packaging. Any of these events could reduce our revenues and could result in the loss of your investment.

Competition and Misjudgment of Market Potential
Based on the marketing studies we obtained and the results of our operations to date, we believe that the brand we are developing will appeal to those persons we describe as our Target Consumers. However, the [_______________] market is already populated with other well-established brands, such as [_______________], produced by competitors with much greater strength and resources in the [_______________]  industry. It may prove difficult to differentiate our product sufficiently from those of our competition to permit us to obtain wide scale market acceptance. 

The [_______________] industry is intensely competitive. We will compete with established companies ([_______________], etc.) with much larger financial resources as well as with smaller companies with compelling brands and product offerings for consumer acceptance, distributor attention, and retail shelf space. We anticipate significant competition for each of these elements, as is typical in the highly competitive [_______________] industry. Given the fierce competition, we may not be able to distribute our products in the numbers we need to break even or show a profit and we may lose money if price competition is severe. Accordingly, we cannot assure you that our business will grow or that our forecasts are accurate, and you could lose the entire amount you invest in our Company.

Unanticipated Obstacles to Execution of the Business Plan. 
The Company’s Business Plan may change significantly.  The Company’s anticipated business endeavors are capital intensive.  While we believe that the Company’s chosen activities and strategies are achievable in light of current economic and legal conditions with the skills, background, and knowledge of the Company’s founders, executives and advisors, the future results of operations of the Company described in the Business Plan are based on numerous assumptions that may not occur. Accordingly, there can be no assurance that such projections will prove correct. Future operations will also be affected by many factors over which the Company will have no control.

Management Discretion as to Use of Proceeds.  
The Company reserves the right to use the funds obtained from this Offering for purposes not presently contemplated which it deems to be in its best interests and in the best interests of its Members in order to address changed circumstances or opportunities.  As a result of the foregoing, the Company’s success will be substantially dependent upon the discretion and judgment of management with respect to application and allocation of the net proceeds of this Offering.  Investors for the Units will be entrusting their funds to the Company’s management, upon whose judgment and discretion the investors must depend.

Risks of Illiquid Units; Lack of Managerial Control.  
None of the Units will be freely tradable.  All of such Units are subject to limitations imposed by the Operating Agreement among the Company’s Members.  There is no public market for the Units, and the Units are subject to substantial restrictions on transfer.  
The Units have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).  Instead, they are being offered under certain exemptions from the registration provisions under the Securities Act and certain rules and regulations promulgated thereunder.  The Units are “restricted securities” as defined under the Securities Act.  The resale of the Units may not be made without registration under the Securities Act and state securities laws or the existence of an exemption from such registration requirements.  Furthermore, the Units will not be deemed acceptable collateral for loans.  Consequently, owners of the Units may have to hold their investment indefinitely and may not be able to liquidate their investments in the Units or pledge them as collateral for a loan in the event of an emergency. 

Absence of Public Market and Determination of Offering Price.  
The offering price for the Units being offered hereunder has been determined by the Company based on its own projections of the Company’s financial needs.  Such amount may bear no relation to the fair market value for the Units now or at any later time.  The fair market value of the Units after this offering may be subject to significant fluctuations from time to time in response to numerous factors, including restrictions on transfers of Units, the depth and liquidity of the market for the Units, variations in the financial results of the Company, investor perception of the Company, and changes in conditions in the economy in general and the [_______________] industry in particular.

Lack of Broker-Dealer.  
The Units are offered by the Company and its management without compensation and will be sold without the use of an independent broker-dealer. 

Forecasts and Assumptions May Prove to be Incorrect
Although we believe our forecasts and assumptions are reasonable, we cannot predict the accuracy of these assumptions and we may later learn that these assumptions were incorrect and inaccurate. We cannot provide you with any assurance, representation or warranty as to the probability or reliability of any of our business, financial, economic or tax assumptions or other forward-looking statements set forth in or underlying any forecasts as to future income, revenues or any other events. If any of the assumptions underlying our business plan or forecasts prove to be incorrect, some of or all of the forecasts or conclusions that are based upon those assumptions may vary materially and could negatively affect the value of your investment and the value of the Company.

Tax Considerations. 
The Company will elect to be treated as a partnership for federal income tax purposes.  Each investor will be required to include in computing his or her federal income tax liability his or her allocable shares of the items of income, gain, loss and deduction of the Company, regardless of whether any distributions have been made by the Company to that investor.  In addition, an investor may be subject to tax on his or her distributive share of Company income or loss in the state and locally where the investor resides.  THEREFORE, INVESTORS MAY BECOME LIABLE FOR FEDERAL AND STATE INCOME TAXES ON COMPANY INCOME EVEN THOUGH THEY HAVE RECEIVED NO DISTRIBUTIONS FROM THE COMPANY WITH WHICH TO PAY THE TAXES.  EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING AN INVESTMENT IN THE COMPANY AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES THEREOF.