Top 3 Legal Mistakes Most Startups Make in the First Year

In honor of Venture Atlanta’s ten year anniversary, we are featuring the incredible sponsors who help bring the event to life year after year. Recently, we had the chance to sit down with Brian Gordon from DLA Piper, a global law firm helping clients with legal needs around the world. The DLA Piper team has coached dozens of companies through Venture Atlanta, and today, they’re sharing their startup legal expertise with you.


 

It’s every founder’s worst nightmare – you have an idea, you’re putting blood, sweat and tears in to turn your dreams into a reality, and everything is moving right along. Then you find you’ve made a critical legal mistake early on that is threatening to take all your hard work and ideas back to square one.

But this does not have to be your story. In fact, the most common legal issues entrepreneurs face are due to a few common misconceptions that can be easily fixed.

Taking a proactive approach to protecting yourself and your business early on can make all the difference. Here are three fundamental legal mistakes most startups initially make that should be on every founder’s radar:

1) Adopting the “Fix it Later” Mentality

From hiring your first employees to locking down product/market fit, the first few weeks or months of starting a company can be incredibly involved. The brunt of the work falls on founders who find themselves running on overdrive and who are forced to leave critical issues to be dealt with later on.

“Get your legal strategy right the first time to save yourself a major headache later on.”  – Brian Gordon, DLA

For example, while it may be difficult to imagine running into intellectual property problems when you’re first getting started, it’s naive to think that you will avoid a problem later on. Get your trademarks, copyrights, patents, trade secrets and confidentiality agreements in place early on to protect your unique product, service or technology. You won’t regret it.

2) Relying on a Handshake

One of the biggest legal mistakes we see is startups promising or issuing stock or options without completing necessary paperwork first. Relationships are formed, promises are made, and transactions finalized all through a handshake. While this gesture is kind, it offers zero legal protection to both sides. No matter how much you trust your employees, colleagues, vendors – every relationship you engage with from here on out must come with the proper paperwork to keep everyone on the same page.

Make sure all agreements and contracts are ready to go BEFORE you open for business. Money is often tight for early stage businesses looking to get up and running as quickly as possible.  Downloading do-it-yourself legal contracts from the internet may seem like the ultimate quick-fix, but this can cause major and expensive problems down the road. With e-signature technologies like DocuSign,  there is really no excuse for forgoing paperwork these days.

“Successful startups understand that a contract is binding and that the details matter.”

3) Not Securing Professional Backup

If you’re an early-stage startup founder, prioritize seeking and locking down the RIGHT advisors for your business early on. Whether you’re looking for legal, financial or marketing help, find advisors that work with startups on a regular basis and understand your unique goals and challenges.

Unless you’re a lawyer, there’s a good chance that law is not your specialty. It’s smart to form relationships with expert advisors early on that you can turn to in the face of a legal issue. We promise – they will come. Rather than seeking out an industry expert, find legal advisors who specialize in your company’s size and growth profile. For example, a venture-backed startup will face very different legal issues than a self-funded startup..

Summing up, a strong legal foundation can make or break your chances of startup success and founders can’t afford to take shortcuts when it comes to securing a legally sound business. By forming a legal strategy to bolster all business decisions, founders can take a proactive approach rather than waiting to react to every problem as it arises. Remember, the time, money and effort needed to establish and achieve a legal defense (successful or otherwise),  in the absence of good records and proper preparation – will far outweigh the cost of preparing properly in the first instance.

About DLA Piper

How long have you been a Venture Atlanta sponsor?

We’ve been sponsoring Venture Atlanta since 2009.  In the past 4 or 5 years we became premier sponsors. Our team has been involved on the selection committee as well as chair members.  

Why did you get involved with Venture Atlanta in the first place?

Being one of the pre-eminent venture firms in town, it was only natural for us to get involved. A lot of our clients apply and present, so it’s exciting for us to see it all come together. Whether we’re serving on the selection committee or coaching founders, it’s been great to get to know these businesses on a deeper level.

What services does DLA Piper provide for local startups?

We primarily offer legal counseling ( fundraising, employment issues, taxes, benefits, legal issues, etc.) and business advice to startups. In today’s ecosystem, everything is incredibly connected. Smaller businesses typically can’t afford a separate legal function, so we are there to bring our knowledge of the emerging growth world to solve problems. We think carefully about fundraising strategy which always crossed from legal to business. We go to board meetings for free for our clients. That’s the best way for us to learn about the business and see what’s coming around the corner.

What makes DLA Piper different?

We really get to know our clients. We attend their board meetings (for free) to fully immerse ourselves in their goals, challenges and culture. It’s the best way for us to learn about the business and see what’s coming around the corner to prepare them for.

Want more legal advice for your startup from DLA Piper? Get in touch with their amazing team of experts today.

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