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25/09/2020
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by Christian Meisser

Start & Grow Series 4: Startup Growth Stages and Legal Needs

Get the timing right for your startup's legal tasks

Timing is everything: There is no need for a full-fledged data protection compliance program on day one, but you definitely have to make sure that your social security and intellectual property basics are sorted from the very beginning.

The LEXR Framework has already given you the five key areas (C RICH, i.e., Corporate, Regulatory, IP, Contracts and HR) as well as the three types of legal challenges (strategic, one-off projects and day-to-day operations). In this post, you will learn what legal tasks to take care of at what moment in your journey to unicorn.

In short, there is the 'Start & Grow' phase in which you set up all the basics of your company and are focused on one-off project based legal work (e.g., incorporation, closing a financing round, establishing an ESOP). As you scale up, the Start & Grow phase transitions into the 'Manage & Automate' phase: The basics are set, and the day-to-day legal tasks are increasingly requiring your attention (hiring & firing, contract management, corporate housekeeping). All along the way, strategic legal tasks require expert legal services, be it for regulatory questions and procedures, co-founder disputes or contract negotiations, and new projects need to be tackled (expansion abroad, acquisition of a competitor, data protection compliance).

 

Start & Grow – Scale your startup with a solid legal foundation 

With a solid legal foundation, scaling a business becomes much easier as the amount of 'fire drills' or unexpected legal issues are reduced, and you can dedicate your time and effort on growth.

The key phases of the Start & Grow journey are:

  • Pre-incorporation: Validate your idea, set up a solid founding team, ensure all IP will belong to the future company.
  • Incorporation & legal basics: Once you decide to really do it, a 'check the box' exercise starts to get the legal basics in place. From incorporating a business to registering social security and getting standard contracts in place, you can get it done fastest if you rely on best practice templates and avoid re-inventing the wheel.
  • Regulatory compliance: This is highly sector specific, but no matter in which field you operate, getting the right licenses to operate your business, if any, and complying with applicable laws is a necessary step. Data protection is a regulation that affects all, and while you do not need an in-depth compliance program, getting the basics in place impresses your customers, reduces risk and does not take much time if you follow established standards.
  • Startup financing and growth: Unless you can bootstrap or have early revenue streams, growth will require external capital. The typical journey is to get convertible loans and equity financing, alternatives include token offerings or other types of crowdfunding. Also, setting up an employee participation plan (ESOP, PSOP) is key to attract and retain talent.

 

Manage & Automate - Day-to-day legal tasks when scaling your business 

As you scale up, the day-to-day legal tasks start to increase. Contracts need to be drafted, reviewed and signed, the cap table updated, and employees hired. Operational excellence in managing these tasks is crucial: If you neglect them for too long, risks will materialize, and you will spend time and money on fire drills to clean up the mess. If, on the other hand, you strive to do everything by the book without standardization and automation, it will drain your resources. Fortunately, the day-to-day processes are where LegalTech can already help the most, and with a few tools and good processes, you will speed up your sales cycle, decrease legal risks and let your employees focus on high value work instead of admin.

The key areas to manage & automate are:

AreaTasksOperational Excellence
Corporate housekeeping
These tasks are not easily delegated within the company due to the sensitivity – to avoid top management time sunk into this, automate and standardize as much as possible.

Keep the shareholders' register in order

Use Excel in very simple cases, else opt for software, e.g., with Ledgy (www.ledgy.com)

Corporate housekeeping

 

Ensure valid transfer of shares (ink-signed document)

Request and keep a copy of the written deed for every transfer.

Corporate housekeeping

 

Annual general assembly and quarterly board meetings

Automate the creation of standard documents (invitations etc.), e.g., with LEXR Bridge.

Contract management

For different types of contracts, the focus is on different areas. For sales, a solid standard contract with automated creation and e-signature is key to sell faster. For procurement, the focus is on supplier contract review. With partnership contracts, strategic advice may be needed. In all contracts, having the relevant contractual data visible is an essential management tool.

Contract creation

Have a solid template for customer contracts and automate the creation to ensure consistency and speed, e.g., with LEXR Bridge.

Contract management

 

Contract signature

Get an e-signature solution for day-to-day contracts (e.g., DocuSign, Skribble). Ensure ink or qualified e‑signature where needed (e.g., transfer of shares, employment agreements).

Contract management

 

Contract review

For important contracts, make sure you get them sanity checked by a professional. AI-based contract review is not yet there to really help unless you have dozens of the same documents on a daily basis.

Contract management

 

Contract insights

Keep a database with key contracts and key facts, in particular with reminders for key dates (e.g., termination dates to avoid auto-renewal). Excel is a good start, ask us for tailored advice for good software.

Contract management

 

Contract storage

Have a naming and storing policy to ensure consistency and ability to search and find for contracts. Minimum retention period is 10 years. Consider outsourcing it.
Intellectual propertyIP management (renewals, monitoring)Set internal reminders or engage a professional third party to ensure no deadlines are missed (for renewal as well as objections against competing registrations and usage).
HR

Contracts

Employment agreements should contain a mechanism for updates – your company policies will change and it should be easy to change the contracts as well.

Regarding creation, storage and insights, see contract management above.
HR

Day-to-day questions and termination of contracts

Build up know-how internally or get an expert on speed dial for the regular HR questions. When letting people go, make sure to do it professionally and that you check all pitfalls in advance. Employment disputes are among the most common and costly.

Regulatory

Data protection compliance

For companies handling personal data for customers, having a professional Data Protection Officer to handle day-to-day requests is advised – it speeds up the sales process, establishes trust and mitigates compliance risks.

Regulatory

Sector-specific compliance

From know-your-customer requirements to environmental standards, make sure you have good processes and where possible automation to manage your day-to-day compliance work.

 

Expert Legal Services

During the entire lifecycle of your company, you will require expert advice on specific topics. Be it a dispute with a business partner, the registration of a patent or the acquisition of a competitor, expert legal advice can make the difference between failure and success in the strategically important moments of your company.

Build a relationship with a trusted legal partner that understands your risk profile, your business, as well as your sector. When legal problems arise, quick action is often needed and you will want to have an expert on speed-dial (or your Slack channel) that is familiar with your situation and committed to resolve the problem.

 

Conclusion & Outlook

In the last few posts, we have covered all the necessary groundwork for legal success: With a simple framework (CRICH), categorization of legal problems (operational, projects, strategic) and the right timing (Start & Grow, Manage & Automate), you can solve your legal challenges smarter and focus on your business challenges.

In the next posts, we deep-dive into specific topics that are evergreens among entrepreneurs, from financing option to employment law, you will be equipped to tackle anything legal entrepreneurial life will throw at you. We hope you've enjoyed it so far and thanks for reading on!