As the host of Startup Success, I recently had the pleasure of speaking with Charu Satia, a partner and startup attorney at Silicon Legal Strategy. Our conversation provided valuable insights into critical legal aspects all startups need to consider. In this article, I’ll share highlights of what I learned from our discussion. Don’t miss the full episode here.
The Importance of Early Legal Counsel
One of the key takeaways from our discussion was the importance of engaging legal counsel early in the startup journey. Many founders view legal counsel as an unnecessary expense, but Charu emphasized that betting on your success means laying a strong legal foundation from the start. This approach can save time, money, and headaches down the road.
…betting on your success means laying a strong legal foundation from the start.
Key Legal Areas for Startups to Address Early On
- Entity Formation: Deciding between an LLC or a C Corp and choosing the right state for incorporation are examples of crucial considerations when setting up a new business. Mistakes here can complicate and slow down future funding rounds.
- Founder Equity: Allocating shares from the company’s inception, at an appropriate valuation, and with proper legal documentation establishes clear ownership and avoids future legal complications.
- IP Protection: Ensuring from the start that all intellectual property (IP) is owned by the company—as opposed to owners, employees, or contractors—can prevent significant issues later. This includes things like product source code, as well as less obvious examples like logo designs.
- Corporate Governance: Properly documenting directors, officers, and corporate governance practices establishes a solid foundation for future growth.
- Tax & Security Filings: Startups must ensure early completion of important tax and securities filings to establish legal compliance and avoid future complications.
Charu also noted a few key examples of areas where startups are likely to need professional legal support as they scale. These include things like privacy policies and other customer-facing corporate policies, employee documentation, and fundraising.
The Pitfalls of DIY Legal Solutions
While platforms like LegalZoom offer templates for basic legal needs, Charu emphasized that these don’t address important details and critical nuances. Legal templates can be a good starting point, but they lack the personalized advice required to fill in the specific inputs. Founders who rely solely on DIY legal solutions are likely to find themselves needing expensive and time-consuming legal cleanups later.
Issues During Due Diligence
Investors and acquirers perform rigorous due diligence, and any missteps can raise red flags. If legal issues are found during due diligence, it can erode investor confidence and complicate the funding or acquisition process. Being proactive and transparent with legal counsel as you scale can help manage these risks effectively.
If legal issues are found during due diligence, it can erode investor confidence and complicate the funding or acquisition process.
Final Advice for Founders
Charu’s advice for founders is to bet on their success by treating their company as if it’s going to be successful from day one. This includes surrounding themselves with supportive, growth-oriented business partners who can help navigate the challenges of startup growth.
My discussion with Charu underscored the critical role that sound legal guidance plays in the success of a startup. By addressing legal issues early and thoroughly, founders can focus on what they do best: developing their products and scaling their companies.
About Silicon Legal Strategy
Silicon Legal Strategy is a law firm specializing in corporate transactional work for startups and venture capitalists. They support startups throughout their entire lifecycle, from company formation to building a customer base, scaling a team, securing financing, and ultimately IPOs or M&A deals.