From the practice can conclude. The inability, or rather unwillingness to work with numbers is one of the main problems of most start-UPS. In my opinion, in the initial stages, the entrepreneur needs to understand and understand all business processes, budgeting and planning is no exception. The start of the project — this is the time when you live only project, if you dont know something, you are obliged to figure it out.
For myself, I chose this rule. With the development of project financial accounting, you can outsource to the investor or to hire a qualified employee, if finances allow. But this is at the growth stage. In the beginning you need to build a prioritization of necessary and sufficient actions in accordance with the budget.
Statistics show that a huge number of startups closes without showing your idea with real customers, too long to develop something, trying to realize maximum functionality without watching the financial side. In the early stages to find an investor for the next round is not an easy task, especially if you have Luggage not checked in reality, the hypothesis, a significant history of expenses, no financial business plan.
At the conclusion of any agreement, both parties are responsible for the content of the signed document and these commitments. The unpleasant situations occur when the wrong choice of second side. To avoid such stories, I advise entrepreneurs.
— Choose the experienced investor. The investor with the reputation values reputation not only of his Foundation, and, of course, and reputation of portfolio companies. — The experienced investor there are already ready “proven” packages therm-Shitov for different stages of investment and scale of transactions. And conditions prescribed by it, the put the investor and the entrepreneur in the position of “win-win” because both sides are interested that the business owner was held.
— Before signing the contract, in any case, the entrepreneur needs to involve a professional lawyer for independent examination and further details. It is important that the lawyer possess experience in support of transactions in the venture capital industry. Investing in startups is not a war, but to the investor, and the founder should be attentive to the documents at each stage of the investment.
We prefer to always maintain a transparent relationship with startups and insist that at each stage, the founder understood each item of the contract which is signed by. If something is unclear, we are always ready to clarify any point, do not be shy to ask questions. By the way, this also applies to the preparation of the contract for use of the product, contracts with contractors and so on.
Even us, despite 20 years of experience and strong legal expertise, sometimes trying to infringe on the rights of. Recently in one of the treaties at the intermediate stage of the investment we have excluded from the list of investors and the rules of the contract that has not spread. The situation was corrected in our favor only because of our legal literacy. Now we regularly act as the leading investor, and the members of the syndicate will often rely on our legal expertise.
In one of the recent transactions our startup has failed to review the agreement with new investors after the completion of our angel investments. In the contract remained the points that a new investor was able to strictly interpret in their favor. The founders found themselves in a difficult situation, was experiencing great discomfort, she turned to us for help and we were able to support them.
Despite the soft reading of the wording of the contract, we supported the team of a startup. However, it should be remembered that many of the provisions may prove vital. In any case, always try to coolly analyze the situation and rely on the help of those who can help.
When talking about the formalization of relations between the founder and investor, founder needs to carefully read the documents and consult a lawyer, if something seems unclear. This is the right approach both in business and in life. If we are talking about the operations of the company, then, of course, impossible to read all. You need to enter, for example, the threshold amount or by a contractor, but to read the documents still have at least worth checking out what kind of money will get the company and what they need to do.
Operational employment of the lawyer in house makes sense at an early stage, and when a turnover of more than N million. Investors have two models support the operating activities of portfolio companies. For example, in Rocket Internet ( Germany) and Impulse VC ( Russia) lawyers, accountants and the tax investor are essentially the back office of portfolio companies, but not in the details, of course.
In DFII, where more than 200 portfolio companies complete back office for startups it is impossible to organize, but in the process of acceleration we help portfolio projects with legal work, and later on the key documents help investment managers that lead those or other companies. In the end, you need to understand that a lawyer for our business, and a lawyer for investment transactions is different people. Youre lucky if your lawyer can accurately do both, but do not put on itself experiments.
A good founder needs to understand all the details of your business. Including in the documents. The devil is in the details — neither the employees nor the lawyer, the accountant and the contractor will never be able to see the documents as part of the overall picture, from the point of view of how growth and changes in organization will affect changes in the legal framework of business.
Without understanding these things you can not hire qualified professionals and to put them to task. Consequences of lack of attention to documentation are at best dreadful captable, stopping new investors or, for example, debts of customers, and at worst eight-digit account to the patent war. So better get used to understand these certainly not the most interesting and exciting parts of business, from the very beginning. Me on the legal part help sister is a lawyer and a couple of lawyers-consultants.
But anyway, I dont trust anyone and dont sign a contract until you read it yourself. Time to fix the bugs would take much longer. And time is one of the most valuable resources for a startup. I would suggest two things.
1) Read and take in key documents ( term sheet, convertible note, NDA & partner agreements); 2) to Have a “short leg” of the lawyer who will highlight the key points and “doubtful” provisions, and you decide to accept them or not. This is fundamentally important — at the end of the day the responsibility on you. I wouldnt want to give an example from practice, because it would hurt, but believe me, the cases where a lawyer saves you from the loss of a significant proportion of the company happen often.
And can add that partnership. Try to figure out why a particular item appears in the document. For example, one partner agreement, we were required to undergo a rather expensive and lengthy certification ( 30 thousand dollars and 3 months), but while discussing with a partner it became clear that you can do without it. Just in large companies it is customary to “copy” documents for all cases, but in fact may not be necessary. Key documents should be the founder under control.
First of all, it any kind of agreement associated with the investment, for example, share holders agreement, purchase agreement, term sheet. And here s doesnt just need to understand the essence of documents, but be sure to consult with competent lawyers, because often, in order to understand the nuances, he simply did not have enough expertise. And later — at the stage of active growth — not enough knowledge of the instrument can be devastating for the business development implications.
Such cases are known. For example, the document can be includes conditions that do not identify the founder as the key person, making management decisions, potentially reduce the value of the company in the following rounds, give investors veto power over important decisions of the Board of Directors, allow investors to withdraw dividends at a time when strategically it would be better to invest in further development of the company. Secondly, and this is critical for technology companies, founder should pay their attention to patents on the technology. It is an expensive pleasure, especially on a global scale, but the thing is essential because it not only provides excellent protection against competitors and future patent trolls, but it also allows in many cases to increase the companys valuation in subsequent rounds.
On the contrary, ignoring this issue can cause huge losses estimated at hundreds of millions of dollars. For this reason, evaluating the company for a potential transaction, Phystech Ventures pays great attention to patent cleanliness — check the availability of the patent and its potential value. Well, in addition to investment agreements and patenting technologies, founder should not ignore the other basic documents — whether documents related to internal trafficking ( for example, IP transfer agreement) or strategic materials governing the relationship with partners and customers.
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