The buzz around Tech City got me thinking about what 20 years advising technology businesses has taught me about which start-up tech businesses do well and which get themselves into murky waters. Lawyers love to bang on, but I’m under strict orders to keep this short and sweet – so here goes:
Eyes on the prize
I’ve seen a lot of start-ups focus (rightly) on rolling out beautifully-engineered technology and let their attention slip off the duller legal ‘housekeeping’ issues – on which more below. Sooner or later, companies may want investment or to be acquired or to go public – and then someone really does focus ‘on the legals’. Lesson: strike the balance between keeping legal fees manageable in the early days, whilst still getting the essential legal bits in place.
Shares and options can be a great incentive tool, particularly where cash for salaries is tight. But remember the general rule that shares are much easier to give out than they are to get back, so treat them with care. Lastly, don’t forget the tax man, and do protect yourself by getting some valuable advice on how to structure your equity incentives to make them the most cost effective.
Hire the right people!
No one gets this right every time, so understand enough employment law to manage the risk of claims when you have to let them go. Make sure the contracts protect the confidential information of the business, stop the leaver poaching your other staff and provide for the company to own all IP.
Whatever you do- don’t get this one wrong– the documents for founders, employees and contractors should always assign into the company all the IP which is of potential use to it. Don’t risk trying to find them years after they have left – get the right documents signed at the start.
Patents – not always the Holy Grail people think, but they are powerful tools where you can get them and can really hike valuations, so in the right sectors, think about them early and sit down with a legal adviser before you show the idea or the technology around – leave it too late and you could lose the ability to patent. Check any names you want to use – steer clear of a name even if you love it where someone else has it already. Don’t spend money on websites and marketing and only to discover you are not entitled to use it.
NDAs (Non Disclosure Agreements) – use them! People leave and often go to similar businesses – sometimes taking stuff with them, however, proving this can be difficult. Good NDAs can be a crucial tool to protect important information and valuable technology in such cases.
Most professional advisers will talk you through the issues and options for an hour or so without charging – take advantage of that.