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Ten Biggest Legal Mistakes Tech Start-ups Make

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Ten Biggest Legal Mistakes Tech Start-ups Make

By Karen Holden is Founder of A City Law Firm 

This month my company (A City Law Firm) marked our ten-year anniversary, which has made me think back to our first year, how we started and some of the early mistakes we made. For one thing, within a year of our launch, we had to restructure the entire business and there were so many hurdles we had to overcome – in the early days it really was about survival.

What’s fascinating is many of the mistakes we made back in 2008 are the same mistakes that many tech start-ups make time and time again. I know this because over the past decade we have represented hundreds of tech businesses – from start-ups to big businesses – and I find that time and time again the same issues crop up.

So, what are they? 

  1. Not having a strong shareholders agreement or discussing, formulating and documenting the business plan with co-founders 
Karen Holden

Karen Holden

I intended to found my business with three others, however, I soon realised that our goals and objectives were sadly not aligned; our work ethics were very different and our long-term motivations out of sync. Luckily, I had drafted a very good partnership agreement so managed to break free from what would have been a disastrous relationship. Luckily this enabled me to continue with A City Law Firm with just me at the helm, but not all businesses I have encountered can say the same.

Not only do you have to be careful to choose the right partners, but you need to clearly document your goals in a shareholder’s agreements. This means that as founders you can build upon the platform you have created together, but if it goes wrong you have a means to address the problem not just having to wind up the company. The key is choosing the right partners, talking candidly and asking the tough questions at the beginning. 

  1. Having poor contracts or no contracts hitting your cash flow 

You need to understand your marketplace, your competitors and what you need financially to be able to grow.

Cash is king. Be realistic with budgets and prices and ensure your contracts protect you – not only with clients but with employees, suppliers and contractors. It is fundamental that you closely monitor payment timescales with clients, especially if you are working on large projects. Corporate clients may expect 60 – 90-day payment terms but your sub-contractors will not.

It’s also important you pay yourself a reasonable salary, especially when you are seeking investment, otherwise, if the founder is distracted, the business is not going to progress. Any investor will want to see this factored into any business plans and financial models. 

  1. Not having good staff contracts or options to incentivise them 

A large part of any company’s budget will be put towards recruitment, training and retention of its employees. Despite this, there is a real risk that those key people could walk out of the door leaving you without the requisite skill pool you need, but worse yet, there is a real possibility that they may also take all of their knowledge of your business and pass it to a competitor.

Many businesses focus on many things but staff retention and protection against staff competition is often neglected. This is especially key in the tech world as the opportunities for work are so great. 

From a legal standpoint, it is important to: 

  • Have tight employment, contractor, consultancy and sub-contractor contracts in order to protect your IP and confidentiality. It is also important to have restrictive covenants to avoid staff taking your know-how in terms of clients, IP or staff to a competitor or setting up on their own.
  • Consider EMI options as they can give staff the feeling of being part of the fabric of the business and as you succeed so do they in terms of profit sharing without actual cost in the short term to you. This also can attract more specialist experts to the team where cash is not readily available;

Overall though the key is to find ways to incentivise and look after your team. If you can communicate your vision to the team so that they are working side by side with you, this inspires loyalty and dedication as you are all working from the same plan with the same goal. 

  1. Intellectual Property & the mistake of that handshake deal 

IP ownership can only be granted or transferred (“assigned”) in writing. As such, if your freelance coder or developer has no contract with your business then they could actually own the IP that they have helped design, not you.

If there is a dispute, then they could hold this to ransom causing a costly dispute or loss of your code or design. You need to ensure you have checked these contracts carefully and that you actually have one carefully drafted in your favour. Many tech companies work with friends and often make arrangements based on goodwill, but when a dispute arises without a contract you are at the mercy of the designer.

If you are bringing your designing or coding in-house, then it is especially key to convince an investor you have secured long-term staff and that the IP ownership will effectively transfer to you.

Many businesses fail to check that their proposed company name or branding is free to trademark. This should be carefully checked before a large budget (or large budget relative to the size of your business) is set aside for branding and marketing as otherwise, you may find yourself having to start all over again. 

  1. Rushing to Investment and giving up equity in the company 

I managed to self-finance my business throughout without taking in partners or investors. I did consider these at points along the way and even had offers of mergers and partners coming into the business but having carried out checks into these entities, I often found hidden skeletons and things I was too anxious to continue to explore.

If you are seeking investment, which is often a necessity for tech companies scaling up, it is vital that you carry out your due diligence on what’s available, what the risks are and who the investor actually is.

  •  Do they understand your sector?
  •  Have they got the resources to add more money at a later date if that’s what you need?
  •  Can you approach them if things go wrong?
  •  Do they have competing interests in the marketplace?
  •  What is your exit plan for them?
  •  Have you also explored grants available for tech, innovation offerings, R & D credits and other means of funding?

Many people are often dazzled by the cheque and sign a contract…  but that’s just the start of the journey.

It is important that you consider whether you want to get involved unless you are certain you have aligned goals, exit plan and can handle a crisis together. 

  1. Not being investor ready 

When start-ups do find the right investor, a common pitfall is they are not investor ready because they haven’t got their house in order.

For example, they have not allocated and issued shares correctly. Their articles do not reflect the workings of the company. If an investor picks this up, it can make tech founders look careless and could scare off the investor.

More broadly other things that put investors off include inaccurate statements that have been put in writing… such as:

  •  “This is unique to the market, no one else is doing this”. This is often a bold statement that just isn’t upheld or accurate;
  •  “I don’t need a salary for 1-2 years; I can use 100% investment on the business”; wrong! No one will invest in someone who can’t eat and pay their bills!
  •  “My business is valued at £10 million because it’s going to be worth that in two years when we build our technology”. Can you support that with figures and market research? Be realistic and able to evidence all assertions. 
  1. Not understanding how markets are regulated 

Many businesses, especially those in disruptive markets, need to be regulated or are covered by additional regulations or laws.

Many fintech or ICO companies need to be regulated and choose to risk investment or token raises prior to taking proper advice or considering the proper process exposing you to an FCA investigation.

This is not an issue which only affects those in financial markets but includes among many others those in advertising, legal services/legal tech, recruitment, packaged holidays etc. Knowing your marketplace, sector and taking advice is essential prior to any public offering. 

  1. Not taking experienced advice and creating an ecosystem

Tech developers are necessarily geared to be financial directors or HR managers yet running a business these roles become fundamental.  Not getting good advisors on board early enough is a common mistake. A good lawyer, accountant and tax advisor saves you money and pain at a later stage, especially if they can secure you EIS or another favourable structuring. A good FD helps secure investment and cash flow by managing the budgets and financial forecasts, they also add the commercial know-how into your passionate pitch deck. Downloading templates; googling advice I appreciate happens because of the costs involved, but if you want your business to succeed you need tailored, personal advice and support. I know this is something I have benefited from greatly as I brought in consultants to help me and train me in my areas of weakness. Admitting these gaps in my knowledge and bringing experts in has helped me scale up. 

  1. Not having skin in the game & asking too little 

If you are seeking investment for your tech business, you need to start with securing some capital yourself or through your contacts. This shows investors you have faith in your offering, which then means they are more likely to match. This is something I hear frequently from equity investors, so try friends and family first. Another common mistake is asking for too little which cannot be sustained and then you have to go back to the platform or investor for money which could result in them losing faith in your financial model. You need to forecast and present realistic figures, so you don’t ask for too much or too little. 

  1. Dont let the cat out of the bag 

If you don’t have a signed NDA and if you discuss a potential or pending patent you could lose the rights. Discuss the details of your tech, design or offering in as much detail as you can to secure an investor or client, but where possible secure an NDA to protect your confidential trade secrets or ideas or Patents. They may be hard to enforce, often a concern of many so they don’t bother, but it’s a deterrent; it protects you Patents and it’s a good starting point for an injunction if someone tries to reproduce your tech.

Business

Young adults lean towards ‘on-the-job’ learning as 6 in 10 say pandemic has impacted educational plans  

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Young adults lean towards ‘on-the-job’ learning as 6 in 10 say pandemic has impacted educational plans   1
  • Six in 10 (61%) of 16-25s agree learning ‘on-the-job’ is the best way to get on the jobs ladder in the current environment
  • 59% would rather study a degree subject connected to a profession than one they are good at
  • 59% believe tech sector offers strong career opportunities and is voted most futureproof sector by 16-25s following the pandemic
  • QuickBooks launches free online programming course with Amigoscode to help young people kickstart their tech career

Nearly two thirds (63%) of 16-25s have seen their future educational plans impacted by the pandemic, new research from Intuit QuickBooks1 – the financial software provider – reveals, with the uncertainty caused by COVID-19 driving young people to look for faster and more secure ways to get jobs.

And with more than half a million young people now unemployed – a rise of 35,000 from the previous quarter2 – six in ten (61%) 16-25s agree that learning ‘on-the-job’ is the best way of getting on the careers ladder in the current environment.

With COVID-19 highlighting the importance of more ‘futureproof’ career options, the technology sector has been identified by 16-25s as offering particularly strong career opportunities (59%).

To help young people kickstart their tech career, QuickBooks – home to top UK tech talent – has launched a free online programming course with Amigoscode.

Careers-focused learning takes priority 

If they were to attend university or study for a degree, 59% of 16-25s would rather study a subject connected to a profession than one they’re good at, while nearly a third (31%) would only consider studying for a degree that would help them get a job in a sector that is likely to grow in future.

However, almost half (45%) of 16-25s are now reconsidering attending university at all. A quarter (26%) believe it is now more important to get on the job ladder than get a degree, while 19% don’t want to go to university because they are worried about their safety.

As remote learning becomes the new norm, more than a quarter (28%) of 16-25s now plan to carry out an online university degree (such as those offered by the Open University) instead of physically going to university.

Technology sector is voted most futureproof 

The research reveals 16-25s believe the technology sector is the most futureproof (40%), ranking significantly higher above the second most popular option (construction – 27%).

Almost a fifth (19%) of the 16-25s surveyed already have a career in the technology sector, while 34% are considering it – rising to 38% of those aged 16-19.

Of those who are interested in the sector but are not currently considering it, the biggest barrier is simply not knowing how to get a job in this area (32%), closely followed by having never received any information about the sector from careers advisors etc. (30%). A quarter (25%) don’t think they could afford to undertake the necessary training or qualifications to get a job in the sector.

Ben Brown, Head of Engineering at Intuit QuickBooks, comments: 

“With COVID-19 causing economic uncertainty and driving unemployment levels, young people are increasingly looking for ways to fast-track onto the careers ladder. And getting straight into the tech sector, which has proven to be resilient in the face of the pandemic, is particularly appealing. Technology, after all, is the fuel that has allowed many other sectors to continue operating.

“On-the-job learning is common in the tech sector, but to be a successful candidate, applicants need to demonstrate genuine interest and enthusiasm by having carried out their own independent learning. Employers can enable this by creating opportunities for young people to take part in free training courses and taster sessions, which helps them to gain valuable skills and decide if the sector is for them.

“QuickBooks engineers frequently host and coach participants through Code First Girls sessions – which are aimed at women looking to learn more about programming – and we are thrilled to be partnering with Amigoscode to offer a free programming course.”

Nelson Djalo, Founder of free coding resource Amigoscode and Software Engineer, comments:

“The perception of not having enough knowledge is the main barrier to young people getting into the technology sector. Skills can be built over time – passion, drive and a willingness to learn are the most important qualities to have. People from lots of different backgrounds and interests can get into the sector, and there are a whole host of roles aside from programming and software engineering.

“I offer programming courses and coding tutorials because I believe the sector should be accessible to anyone. I’m pleased to be partnering with QuickBooks to offer a tailormade course for anyone who is interested in getting into the industry and wants to learn more about programming.”

The Amigoscode x QuickBooks course is available here as a video, and here as a playlist. The 2.5 hour course and video playlist covers the basics of programming; the basics of Python and a project task (building a CV). Participants will also build a portfolio which could be the starting point of their tech journey/career.

Watch Nelson’s other tutorials on the Amigoscode YouTube channel here.

Case studies of young QuickBooks software engineers are available on request. 

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Five things to consider when organising a remote work Christmas party

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Five things to consider when organising a remote work Christmas party 2

By Kate Palmer, HR Advice and Consultancy Director at Peninsula

Christmas is usually a time of cheer and celebration, and the perfect way for employers to incorporate this in the workplace is by organising a Christmas party for their staff. However, things will have to be a little different this year due to the ongoing disruption caused by the coronavirus pandemic. While the easiest, and cheapest, option for employers is to not go ahead with their annual festive plans, in the spirit of keeping Christmas alive some may choose to organise a remote party.

There are, however, some important things that employers should be aware of.

  1. The coronavirus pandemic has highlighted the need for employers to keep their employees’ wellbeing in mind, much more than ever before. This is why, even with something that can be considered a ‘treat’ for employees, people who are working carers, have been struggling with work-related stresses, may not want to partake in a Christmas party this year, however well-intentioned it may be on the employer’s part. It is therefore advisable that remote parties should be optional and not constrained to a certain timeframe in which staff must be in attendance.
  2. Employers should ensure that those in attendance do not feel excluded from any activities during the party. For example, if an employee does not drink alcohol and a virtual wine tasting activity makes up the bulk of the event, such a person would not be able to contribute to the fun and may therefore feel left out. Consequently, it may be better for employers to ensure that there is a wide range of activities available that cater to the individuals who are attending.
  3. When attendees and potential attendees, have been established and the activities have been finalised, it is in the best interest of the company to send out emails to them. It should detail what is expected of them at the event and highlight that the same conduct is expected of them at a remote party as it would be at an in-person event. It should also outline that the same disciplinary procedures would apply in a situation where an employee commits a form of misconduct during the event.
  4. Similarly, employees should be made aware that the same grievance produce applies – to ensure that if company rules are broken by an employee or a grievance with the company itself, the affected employee will be able to raise this with the company.
  5. Finally, while employees can use their social media accounts in their own personal time, including at work social gatherings, employers must ensure that the use of social media should be done in a manner that does not adversely affect the company’s reputation.

To conclude, remote parties are the perfect way to ensure that social distancing rules are adhered to and that employees are rewarded for their efforts, there should be a mutual sense of responsibility on the part of the company and its employees.

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Reasons to remote manage in a socially distanced world

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Reasons to remote manage in a socially distanced world 3

By Paul Routledge Country Manager D-Link UK and Ireland

As the world continues to adapt in varying degrees to the ongoing COVID-19 pandemic, many businesses and enterprises will find themselves adjusting to more permanent, new ways of working, problem-solving and service delivery. Governments and global leaders have already introduced new measures to support these adjustments, and as a result we have already seen many companies re-evaluate how they work as well as how teams are organized and provided for. As the pandemic remains a fixture of this year of which the impact will continue to be felt in the year ahead, it’s becoming clear that the role of technology and the innovation therein will be key to ensuring businesses can weather ongoing the crisis.

For many businesses, until recent years, the vast bulk of network management was conducted and carried out on location at the client site. However, the value of remote network management has fast become an asset to businesses in the 21st century – giving IT service providers more capacity to manage a larger number of customer sites at any given time.

In addition, remote network management solutions play an important role in increasing transparency across sites by providing a complete view of the status of different networks via comprehensive interactive dashboards and informative management systems. For example, Nuclias by D-Link offers an easy to set up network management solution that provides flexibility to make onboarding, studying, troubleshooting, and reporting network activity quick and easy.

For IT service providers, establishing new ways of working is particularly important. As they seek alternative methods of supporting customers in different locations, many will be looking to the advantages that remote network management has to offer.

Before the pandemic, D-Link Europe explored the state of play of network management and challenges its partners were facing in this space. The study found that, 75% of IT service providers in Europe were already using remote access tools to support or manage network infrastructure on customer sites, yet a quarter (25%) were still relying on in-person visits to resolve network issues for customers.

Interestingly, the findings show that the larger the number of clients a provider has, the less likely they are to use remote management tools. Only 22% of European IT service providers surveyed provide more than 50 customers with remote management services. Complete adoption of remote network management methods will be a gradual process, yet the pandemic and the government restrictions in place across much of Europe have a part to play in creating the circumstances where in-person visits occur much less often if at all.

As a result, it is likely we will see a more permanent adoption of remote networking management systems – as businesses work hard to adapt to a ‘new normal’ and an unpredicatable year ahead. The point of this will not only to provide network management services in a more efficient and less time-consuming way but also to uphold the safety measures now expected of most workplaces.

This is particularly pertinent in an environement where businesses are limiting contact in the workplace and adhering to safetymechanisms also seen more widely in society – including technologies such as group temperature screening cameras as well as track and trace systems. There is a clear opportunity for IT service providers to make the most of remote networking management tools’ benefits to uphold the safety and health of their own employees, as well as personnel at client sites by reducing unnecessary human contact.

An additional benefit to be reaped from remote network management is how IT service providers can economise on time spent travelling to and from client sites, in addition to time spent resolving issues on-site. D-Link research found that 60% of European IT service providers spend between four to six hours per week installing and configuring new wireless or wired networks at client sites. This additional time spent travelling to and from client sites puts employees at particular risk, especially as they often travel long distances to get there.

What’s more, in terms of the time technicians usually spend at client sites, when it comes to configuring a replacement wireless access point, only 31% of providers feel they can keep this service under one hour. Remote network management allows technicians to use this time more effectively. Nuclias by D-Link, for example, will enable administrators to stay on top of any management tasks like creating guest networks, adding Wi-Fi to additional locations, updating devices and upholding network security.

Furthermore, IT service providers will be able to offer their clients more benefits, by providing centralised management and more visibility of their network, allowing them to act on network disruptions and problems before they become pervasive issues. Nuclias Cloud is designed for smaller businesses who lack in-house IT skills, such as hospitality and retail chains. These companies can benefit from easy network expansion and implementation of updates without the need for additional training.

Remote management solutions, like Nuclias, are also well-placed to support the growth of IT service providers as they look to offer more managed services. Not only do they enable teams to provide deployments but also increased administration services and supervision of client networks; resulting in improved reactivity to issues and better quality of service. The added advantage of unlimited scalability, thanks to the use of cloud-enabled devices, means providers can also keep resources and costs low – generating a more significant return on investment.

Right now, it still feels like there is some way to go before normal life resumes – however, as the long-term impacts of COVID-19 become more apparent, companies worldwide will need to continue to relying on innovative technology to tackle workplace concerns. With solutions such as remote network management playing an important role in supporting service providers and their clients as they do.

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