While contracts, agreements and all the other legal complexities should not be the main thing you focus on, they should always be in the back of your mind.
In this week’s session we learned about what you should look out for in legal terms when starting and a few pointers what investors look at when they are interested in investing in your start-up.
What does a founder need to know about law to launch a successful start-up?
• How do you pick a law firm to work with?
• What is the process of setting up a company?
• How much do you need to know about law?
• What agreements do you need to run a company?
• What are common legal mistakes?
• How do you handle intellectual property, including confidentiality, copyrights, trademarks and patents?
• How much does the law actually matter?
Our mentors this week
- Antti Perli, a former senior aasociate at Raidla, Lejins & Norcous and currently legal counsel at the Estonian Development Fund and member of the managment board at AS SmartCap;
- Mihkel Miidla and Paul Künnap, senior associates at Law firm Sorainen.
Practical tips about the legal side of a start-up and IP
Although every situation has its unique actions plan, here are a few practical pointers that our mentors shared with us:
• One of the biggest values of your start-up is the team. It is also one of the biggest sources of problems. When founding your business it is important that all the contracts and documents are correctly done between the co-founders. If not, it can be very hard to decide later who was right.
• If you do end up in court with your co-founder you also have to consider the resources that this is going to take. By the time you have settled your dispute your competitors could already have a huge advantage.
• It is not possible to protect an idea!
• When it comes down to copyright you have to make sure that your start-up owns the proprietary rights.
• When you make a confidentiality agreement with someone you have to make sure that all the people involved in the deal are somehow connected with the contract otherwise they are not legally bound to stick to it. Also make sure you are very accurate when describing the confidential information in the contract.
• When you are protecting your intellectual property you should make a registry so you mark down who made what when and which contracts have been signed with whom. So, when trying to strike a deal with investors they will have a complete overview of what contracts have been signed etc.
• When you’re trying to get foreign investments then you should probably move your business to the UK or US because usually the investors can’t be bothered to research the Estonian business laws.
• Potential investors will be more positive about your start-up if they see that you have used the help of a lawyer.
• When it comes to start-ups investors don’t want to see a passive founder who still owns a piece of the business. They prefer start-ups where all the owners are actively developing the business.
• Investors also look at things like unusual contracts between third parties, e.g. a contract with someone saying you can exclusively work together with them.
• When looking for legal advice for your start-up you have to take into consideration that in Estonia the start-up field is quite unique and not everyone knows how to handle it. You should do a bit of research before you sign anyone on. Just because the person has signed big deals before doesn’t mean that they know how to advise start-ups.
• If someone is offering you pro bono or a very cheap deal think twice. This might be an indication that the person involved doesn’t actually know what’s involved in working with start-ups. It can also be that since there isn’t that much money involved your case might be at the end of the list of their priorities.
• If you lawyer is trying too hard to protect you from everything this might lead you to not striking a good deal. Also if your lawyer is too conservative and says some things can’t be done in Estonia, he probably doesn’t know how to do it. Remember, start-ups are a fairly new thing here!
• Talk to other start-ups and investors and see whose help they have used when it comes to legal matters.
Reading suggestion from the SmartCap team:
Venture Deals by Brad Feld and Jason Mendelson