Start & Grow 4/4: 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:

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!