Legal advice for startups (with tips from the guy who sued Spotify)
Whether you like it or not, at some point in your entrepreneurial journey you’ll have to get legal advice. It can be very basic, from incorporating your business to very complicated — like filing for patents.
At The Thinking Hut in Amsterdam, the Founder Institute once again organized a fully packed evening with inspiration for aspiring entrepreneurs.
Let’s start with legal basics. Suzanne Knottnerus, tax advisor and transaction lawyer for startups at blended.law stated the most important thing for a startup upfront: sort your legal affairs from the start. “This way, later, your position towards an investor is way, way stronger. As a startup, you have a small budget and big dreams. So always be in control of your own files.”
Of course, that’s easier said then done. Here are some tips from Suzanne to get (and stay) in control when dealing with a lawyer.
- If you have a request, don’t make it hard for yourself by trying to write ’legally’. Write down the request in your own words, and tell why you request it. This makes it easier for the lawyer to understand what you want.
- If you don’t get something, speak out and just ask.
- Be clear about a budget — and maybe ask for a fixed fee.
Next where Suzanne’s tips for things you should do from the start, to benefit later:
Write down a cooperation agreement with your team
You don’t need a lawyer for this, but just write down who should do what in the team or what you are doing together as a group. Check every once in a while and adjust when necessary. Why? As a startup, you are vulnerable. So at least have this on paper.
Have a shareholders agreement
You should have thought about what happens when someone wants to join your business, share wise. What happens when someone gets married? What happens when someone gets health issues? What is someone runs out of money? Have this on paper!
Keep track of funds
Record all money loans in a loan agreement, and keep track of current account positions and expenses. Getting funding also means a clean administration.
Work & fee arrangements
Eventually, an investor might want to join to take the business to the next level. Make sure all the founders are on the same page when an investor joins. Also, create a decent NDA. You can do this yourself, better is to have a lawyer do a quick check.
It might seem a bit ’conservative’ and a hassle to do this from the start, but we’re speaking about the future of your own business. And nothing’s more important when you start being an entrepreneur!
Why you should consider patenting
You see it a lot in startup pitches: patents. Either some startups have them already or they mention they have some pending. Why is that? Well, one thing is sure: investors love it if you have some. “It’s a safety for them, patent advisor Marc van Oldenborgh tells. “It’s part of their strategy.”
Marc once got Spotify to settle a case about a patent he filed in 2001, it was about sharing data via devices. Then it went quick — he just sent subpoena’s to other big tech companies, who were more than happy to settle.
It immediately showed why it can pay off the have an invention patented. “You need to think long term though, Van Oldenborgh says. “It costed me 180.000 dollars over 18 years to keep my patent alive.
So patents are useful for investors, and for yourself if you are willing to sue big companies. Because: “Don’t think you’re rich if you filed a patent. It’s worth nothing if you don’t go to court.”
But when can you patent something? When is something an invention? Marc summarized:
- It has to be something new, and have a link to technology.
- It has to be inventive and it has to be not obvious to a skilled person. You can even combine two existing things to one, like cars & GPS. If it’s non obvious, it’s an invention.
- It should be useful, people should be willing to buy it.
Next, when you think you can patent something: file a claim. Your patent will be judged by that! A claim should be short. Then you need a patent attorney to make that claim a bit longer and better.
For startups it can be worth the money to file a claim. You can protect a patent for 10.000 dollar a year, worldwide.
Last tip: don’t talk to anyone outside your own circle before the application of a patent. And do not publish anything, not even a small social media update, before filing.
Think you have what it takes to start your own business? Then enter the Founder Institute, a three-month program designed to transform yourself from employee to entrepreneur. Legal matters, like in this post, are of course part of the curriculum. Enroll now!
