I already asked permission for hijacking this phrase from José Alberto Sanchis, a US-based serial entrepreneur I met at an alumni event early this year. Back then, global crisis seemed falling rock-bottom with little hope for a quick end.
“No jobs, all the opportunities” is so true in times of crisis. Not only for moguls with enough cash flow for shopping bargains, but for the increasing interest on start-ups from investors and entrepreneurs.
Tech startups are on the spotlight as a key business niche for economic recovery that even governments aggressively support them.
In Mexico, Federal Government has included IT industry into the lines of SMEs projects. E-Government Commission from Mexico City Government organizes Ciudad Movil DF, an IT event where coders access public data and write mobile apps for improving the City. Even, Telmex, Latam telephone mogul, has joined on the quest for finding profitable tech startups through its Innovation and Technology Center.
Business means risk. Startups are riskier by definition. Tech startups are riskiest by nature. Nobody knows if a project only has fantastic coding, magnetic GUI or real money behind it. Hopefully all of them.
Crisis forced us to slow down and rethink business models that were profitable before, and of course, made us think on new legal models for getting the deal through.
A lawyer is a risk filter for an investor to close a deal with a reasonable risk. Then, it is crucial for a pitch to learn about the lawyer´s vision. Here are some hints:
1. Show trustworthy if you are. Lawyers hate mixed signs and contradictory documents. It is important to prepare a small brief of the business for the lawyer or write a specific legal risk section into the business plan, including of course, assets and guarantees to cover contigencies. Most probably, investors/buyers will require full disclosure of your sensitive information for assessing any funding or investment. Be prepared with a good non-disclosure agreement with specific provisions on how to identify confidential information, persons authorized to read and process such information, as well as an enforceable penalty.
2. Corporations are less risky. Corporations could be vessels to make a sell, a joint venture or secure a loan (with stock options, handover deals or the like). In my opinion corporations are more transparent in relation to liabilities than people. Laws have more controls on corporations, so it is cheaper, faster and more secure to perform a due diligence on a company than a person.
3. IP property is a must do. Tech business is all about IP and its legal protection. Tech startups might not have big budget already, but IP must be on the top of priority expenses. Having IP in good standing might not cheap, but not having it could be a deal breaker.
4. Put all agreements in writing. There will be a time when people want look back at negotiations for reference. Verbal agreements and handshakes are hard evidence to discover. Remember, any deal could end up in court, so be careful on reviewing terms in writing.
5. BYOL (Bring on Your Own Lawyer). Remember that all deals are unpredictable storms, and you will require an experienced team to maneuver to safe harbor. A lawyer from acquiring/investing party will not protect your interests. In fact, most probably will not advice you in order to prevent a complaint due to conflict of interest.
Before skipping 9 to 5, it is important to understand that a successful startup requires time, planning and talent to execute. Who knows? Maybe your project is the Internet’s next big thing? And honestly, I hope it is.