Over the past five years of providing legal services to startups, we’ve seen hundreds of entrepreneurs walk through our doors – some have succeeded, a few have failed and many are yet to be determined. The perspective of a lawyer in an interesting one – we are often intricately involved in our client’s business affairs, however we have no equitable interest in their success.
It’s this combination that allows lawyers to do valuable work. We can offer advice and discuss decisions with real insight without having a bias towards an outcome. Obviously, we want our clients to succeed, but their success can’t get in the way of us giving good legal advice.
With that in mind, here are five tips we want to share with early stage startups. This may not be the article you’d expect from a lawyer, and it’s certainly not the advice you’d hear at our offices. But it’s insight we’ve noticed from hundreds of cups of coffee, boxes of chewed pens, a pile of phone bills and the incredible vantage point of a career as a lawyer working with entrepreneurs.
1. Have the hard conversations
Starting a business is exciting. You get to conceptualize wild ideas, strategize expansions and create branding. But there are parts of your business which you may not want to think about – what happens if it needs more money, how do you resolve potential disputes with your partners, and who’s in charge of the mundane tasks such as buying printing paper?
Many of the issues we see with startups don’t arise from the areas where founders agree (or disagree really) but from the areas that they didn’t consider or discuss. Spend an afternoon with your co-founders and have the hard conversations – think of the things you haven’t thought of or make you a bit uncomfortable. It’s a tough ask, but, the road to entrepreneurial success only gets harder, and the unknowns becomes bigger. Start practicing this useful skill.
2. Be open to fluidity
Unfortunately, things don’t always work out exactly as planned. Visions develop, people change, circumstances vary, priorities shift. While having written agreements in your early stages is important, don’t let them hinder your potential trajectory – you have to give some room for things to be fluid. The actual commitment to a business must stronger than the commitment on paper. When starting a business, it’s important to give some time for the ground to settle and everything to fall into a set position to understand the practical operation of the business, beyond the big idea. It’s at this point that partners need to make the big commitments. While you can certainly put things on paper too late, you can also do it too early. If you’re thinking this is confusing – you’d be right. Welcome to starting a business.
3. Don’t give anyone money without the FULL details
This may sound obvious. But it happens a lot. Most startups are either self-funded or funded by the amazing trend of angel investment which is growing in our ecosystem. But if you’re investing in a startup – even if you’re involved hand-on – it’s important to know the details of what’s going to happen to your money. Are you loaning the money or is it an investment? When do you expect that money back? And who decides when its repaid?
If you don’t have clarity on these topics – that’s fine. But just understand it’s a riskier investment. If you are throwing all your money behind your business, just make sure your fellow shareholders understand what you expect in return.
4. This probably won’t be exactly like in the movies
Just like Hollywood gave us unrealistic expectations of romance and an unrealistic understanding of the consequence of jumping out of moving cars; the current startup trend on TV is no different. While it’s great to get educated on investment vehicles and international company structures, just be aware that TV entrepreneurship is not the same as a textbook. Not everything you see or learn is applicable to an early stage company.
Startups should keep things as simple as possible. Play the hand that’s in front of you and plan maybe one or two steps further. If you are not currently working on expanding internationally, you probably don’t need an international structure. If you are not making profits, your tax efficient multi-national operations can sit on ice. Focus on the job at hand – starting up.
5. Figure out your legal road map
While you don’t need to plan all your steps in advance, it’s not a bad idea to start to interact and understand what’s coming up, legally. It’s a good idea to draw out the legal road map for all aspects of your business. There are regulatory issues, client relations, labour laws and intellectual property that needs protection. Each of these challenges fits into a different stage of your journey. I recommend sitting with a lawyer and drawing up a road map of your legal needs so you can understand what you will need and when and plan accordingly.
Thoughts and Words by Eitan Stern