We sat down with Ana Maria Andronic, Head of IP Practice and Technology and Cristina Bucur, Counsel Corporate M&A representing DLA Piper Romania, Legal Infrastructure Partner of How to Web 2018, to talk about impact of early legal counsel for startups.
Q1: Why doing it so early?
At DLA Piper we have seen few start-up founders with their eyes sparkling with bliss when being asked to contact a lawyer.
At the same time, we have also witnessed the confidence many founders exhibit when they are prepared to answer investor questions like ” How the cap table looks like?” or “Who owns the technology?”. This means that they had their legal infrastructure done right before that great investment opportunity occurred.
Start-ups tend to postpone dealing with the legal infrastructure. They see it as another hurdle to deal with, one that is perhaps not even so important and sometimes too expensive to deal with. The reality is that for a while, it is probably Ok to have just a minimum of legal input.
DLA Piper practice shows that there might be a Golden Moment when it is actually recommendable to get legal things in order, so that founders avoid losing precious time, money and opportunities, later on. That moment is when the team has developed a prototype, they all feel great about it and confident that they want to turn it into a product and launch it commercially. That is precisely when founders tend to focus on getting anything else done than dealing with lawyers.
That is precisely the moment when founders should engage a lawyer to set straight the foundations of their start-up. Why doing it so early?
In short, many things can happen to a team of founders. We all know the 4 stages of creating a functional team: forming, storming, norming and performing. Legal infrastructure should be put in place before storming. Why? Because experience shows that in time, many things can happen, some founders are leaving the boat, others get into contradictory discussions about their contribution, others have different views on how the product should be marketed etc. And all these will limit the chances of building a great business as you move on.
This means a few things should be done:
- Incorporate the start-up — this is helpful when the prototype is ready to be turned into a product and the founders are thinking of launching it to the market;
- Start right as founders: allocate shares — (this means having the cap table in order for the investor!); decide how decisions are made; what happens if a founder leaves? discuss if the founders want to put in place a share option plan in the future
- Make sure the company owns the Intellectual Property over the technology that is prototyped (this means your answer to the investor’s question “Who owns the technology?” should be “The Company”);
- Have good quality contracts drafted for collaborators, employees, partners and clients.
Q2: Can you name four legal documents that tech startups need ?
- The right articles of association and a shareholders agreement which might be needed when an investor is coming along;
- IP assignment agreements;
- Employment / services contracts;
- Commercial contracts.
Q3: Which are the three big legal mistakes made by startups?
- Believing that the Intellectual Property over the technology the founders develop is owned automatically by the company because they are its founders;
- Postponing having the right legal infrastructure in place at the right time;
- Getting any funding, including seed or initial funding, without having proper legal advice 🙂
Q4: What are two legal aspects that founders don’t think through and end up wasting money ?
- Protect the Intellectual Property;
- Understand certain Venture Capital terms before starting the investment negotiation process.
Q5: What is your number one piece of advice for early-stage tech startups ?
- Find the right legal partner to help you on the road of building a great company; your legal adviser should be a partner in everything that you do, you should trust him/her and believe that he/she is there to enable your business to move on the road you lay ahead.
Remember that you can meet Ana Maria and Cristina at this year’s How to Web – both on stage and for Office Hours meetings ! Registration is available to conference ticket holders only, so grab your ticket now !
Don't miss out
Subscribe to receive updates about new interviews with entrepreneurs, investors and innovators and other conference news.