The Top 4 Legal Mistakes To Avoid As A First-Time Founder

Using Frontline VC’s newly published Startup Navigation Manual to get your ducks in a row as you are ‘starting up’.

When you first start a company, legal matters are some of the least sexy issues to be allocating mindshare towards. As long-time tech operators and investors, the Frontline team also know that these very same issues can quickly become disasters if not properly laid out from the beginning.

Most of the main things are actually really easy to get right from the start, but have the biggest repercussions when they go wrong. Frontline and Siofra Flood take a look at the top 4 legal disasters for first-time founders that are the easiest to avoid:

1. Your cap table is uncertain.
Keeping an accurate track of what shares you have issued and what share options you have promised is definitely easier to do along the way and far harder to fix later on. Not only can inaccurate records lead to disputes down the line, a messy cap table can make your company “un-investable” in the eyes of VCs.

2. Your founding team is imbalanced or misaligned.
While it may take some time to determine, it is important not to stick your head in the sand if it becomes clear that a founding team member cannot or does not want to grow with the company, or if the founders do not agree on the growth trajectory of the company. Those problems won’t rectify themselves over time, and it is far better to self-address any issues at founder level before your investors make you address them.

3. Your IP is not rock solid.
The core value for so many software companies is in the software they develop. While it is perfectly normal to use third-party (or open-source) software, a startup needs to be absolutely certain which IP it owns and which it licenses in when developing commercial products. Outside of some very limited exceptions, a startup should own all software developed that is core to its business, and written agreements should be put in place to ensure this.

4. You close your eyes and ears to it all.
No one expects first-time founders to know all about the intricate legal requirements of running a company, establishing a board, hiring employees, and granting share options. But it is very important for those founders (as well as potential investors) that they are at least willing to learn about why certain legal aspects are important and how they help to build a business. At the CEO level, believing that key legal matters “should be left to the lawyers” is not an option.

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When you’re first starting up, it is easy to delay tackling these issues and focus solely on building your product and team. It is easy to dismiss the thought of future founder conflicts?—?not when you’ve just started. It is easy to ignore some of the foundational “must-haves” around incorporation, employment contracts, IP & confidentiality, etc.

Because we kept seeing these same operational and legal mistakes come back to haunt first-time founders, Frontline Ventures and Siofra created the Startup Navigation Manual to examine these issues and outline the pitfalls that often trip up early-stage startups.

We strongly believe that “an ounce of prevention is worth a pound of cure”?—?founders should spend as much time and energy as possible building their businesses, rather than worrying about (or worse, fixing) legal problems.

The Startup Navigation Manual is the first step towards securing your startup’s future.

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