Five top tips for tech start-ups
Coffin Mew lawyers Charlotte Allery and Andrew Jerrard share their top-five tips for tech start-ups with big ambitions
- Staff retention is key…
Joining a start up business can be unnerving for employees, who may be concerned about how long their job will be around. Business owners therefore need to consider how they can retain key talent at an early stage.
Options for incentivising team members include offering a stake in the business, whether now or in the future, through EMI [Enterprise Management Incentive] option schemes for example. Start ups should also promote their flexible working environment and collaborative ethos, that workers often would not get in a larger business. Most important, be honest with your employees: keep them abreast of the business's journey, including its highs, lows and upcoming milestones.
- ...But don't forget employment restrictions
At the beginning of the journey, entrepreneurs often recruit family, friends and acquaintances to get the ball rolling. However, this does not mean that key restrictions in their employment contracts should be forgotten.
Confidentiality obligations, restrictive covenants, and outside interests' clauses are crucial, particularly when your company is young, with an idea that may be easy to replicate. Unfortunately, relationships can quickly turn sour without these commercial protections in place. If those in your network are supportive of your venture, they should appreciate the importance of these provisions and that these might be fundamental to future investors.
- Protect your intellectual property
Intellectual property is of huge importance to tech companies. If you don't take steps to protect your work and stop employees or third parties from appropriating your ideas, you risk someone else pinching your concepts, improving on them and surpassing you in the market. Depending on your business, you may need to consider applying for registration of patents or trade marks, and should take steps to protect copyrighted works, trade secrets and know-how.
You may think of a good name for your business or a product or service, but have you checked if anyone else is using it? Where have you checked? There are UK and EU trade marks but these won't help you in China or the US. You need to think about where you will be marketing your products and services, and be comfortable you can do so without legal action being successfully taken against you.
Do you own your intellectual property? You may think that because you instruct a developer to create something for you, that you own the software, but that isn't necessarily the case. This can cause a major issue when it comes to selling the business or if you want to share your software with others. You can be held to ransom if the developer realises they own the intellectual property and you are trying to sell it.
It is also helpful to have standard non-disclosure agreements that you can use when dealing with suppliers or customers to prevent them sharing your sensitive information. Having ready-to-use non-disclosure agreements (NDAs) is handy if you want to get things moving quickly, rather than having to trawl through someone else's.
- Prioritise the important documents
We often see fledgling businesses spend too much time and money on purchasing all legal documents at an early stage. While it is important to seek professional advice and formalise various arrangements and relationships, start ups should take a step back to think about what documents are fundamental now and what can wait until later.
While consultancy agreements may be important if engaging third-party consultants, and basic employment contracts crucial to meet your legal obligations as an employer, there is little need to have an extensive staff handbook when you only have a handful of employees. Furthermore, tech start ups should hold off on a privacy policy and terms of use until their app or website is near, or ready, to launch. This should avoid numerous time-wasting iterations of the documents required to keep up with changes to the developing technology.
- Keep records
Running a company comes with its own requirements for retaining and filing information. At investment or exit stage, lawyers will likely delve deep into the business' history, wanting to check ownership, that decisions were justified, that formalities have been followed and identifying where the risks lie in the business. Missing records and issues can make investors nervous and buyers requiring increased liability on your part, as well as a decrease in the purchase price. This may seem an obvious step, but future potential investors will notice gaps in your record keeping.
Always use protection
While trying to gain investment, take advantage of an opportunity or just grow the business, it is important for start-ups to give some thought to ensuring their business is protected throughout this process. Ultimately, any investors or future buyers will want to be reassured that the underlying framework of the business is stable and see weaknesses corrected before devoting time and effort to the venture.
While it can seem daunting and an unnecessary cost, taking effective professional guidance from trusted advisers at an early stage and throughout the life of the business will help ensure the right steps are taken.
Charlotte Allery and Andrew Jerrard are lawyers in the Technology sector of law firm Coffin Mew. Allery and Jerrard run the First Call service at Coffin Mew, which is designed for start-ups and ‘scale-ups', giving businesses and entrepreneurs the legal support they need in the early stages to protect their business, ideas and plans.