In the high-stakes world of startups, where innovation meets ambition, legal missteps can be as costly as they are common. Chris Simpson, a shareholder at Polsinelli and a seasoned guide in the labyrinth of startup law, offers a blueprint for success that every founder should heed.
Simpson's experience with thriving startups has led him to a clear conclusion: "The companies I have seen be successful and go through multiple rounds of financing have clean corporate governance," he asserts. "Their legal structure is clean, they have no cofounder issues, they have a very clean pitch deck, and they have clean ownership of their intellectual property." This comprehensive approach to legal tidiness forms the bedrock of startup success.
For entrepreneurs with their sights set on raising capital, Simpson emphasizes the critical importance of proper legal structuring from the outset. "The first thing an entrepreneur or founder who is looking to raise capital needs to have is their legal structure properly set up," he advises. "So that means you need to be incorporated as a corporation or organized as a limited liability company." This initial decision sets the stage for a startup's entire legal journey.
But the legal considerations don't stop at the company's structure. Simpson urges founders to think deeply about co-founder relationships. "Furthermore, if you are a founder that has a cofounder, you need to start thinking about what that relationship is going to look like," he cautions. The dynamics between co-founders can make or break a startup, and having clear agreements in place from the beginning can prevent costly disputes down the line.
As startups grow, protecting their innovations becomes paramount. Simpson explains, "Let's say that you have a company in place. Then you start to think about how you are protecting the secret sauce, and that is when you start to think about how you protect your intellectual property." He advises, "Often, you want to be executing intellectual property assignment agreements. We want to make sure that the company owns the ideas and work." This proactive approach to intellectual property protection can be a crucial differentiator in a competitive market.
For founders eager to engage with investors, Simpson offers a reality check tempered with practical advice. "When you are just getting off the ground, you can certainly start the conversations with venture capitalist funds in the area," he notes, "but they aren't going to be interested until you reach a certain revenue or milestone." This insight underscores the importance of focusing on business growth alongside legal preparedness.
Networking plays a crucial role in attracting investor attention. Simpson advises, "If you're a founder and you want to start talking to investors, it's up to you to do a little bit of the legwork to find where they're at. Look for events that can help you start to network with those individuals." This proactive approach not only opens doors but also helps founders understand the expectations and preferences of the investment community.
Throughout his guidance, Simpson returns to the central theme of intellectual property. "IP can mean a lot of things. It can mean general ideas, patents, or trademarks," he explains. His parting advice resonates with the weight of experience: "First, once you have incorporated or organized a company, you want to make sure that you and your cofounders are agreeing that any ideas are assigned to the company. Have honest conversations with your cofounders."
In a startup ecosystem often fixated on rapid growth and disruptive ideas, Simpson's legal wisdom serves as a grounding force. His message is clear: behind every unicorn, behind every successful funding round, lies a foundation of solid legal groundwork. For founders willing to invest time and resources in getting their legal house in order, the path to success becomes clearer and more navigable.
To hear the full conversation with Chris Simpson, check out season 2 episode 15 of City Entrepreneur.Â
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