Top 10 tips to starting a tech business
This is a list of items which starts from before you set up the company and it's very important that you do it in this area, so first and foremost you need to decide assuming that you're a team of founders you're not just one you need to decide how many shares are going to be held by each member of the team having done that you then need to have at least a discussion as to what happens if one or more of the team decide to leave the company for whatever sometimes reason founders are very comfortable with the idea of one of them leaving and keeping their shares more often than not founders take the view of a member of the team decides to leave then they should lose some or all of their shares I think there is a view that this sort of discussions maybe should be not had between the founders until they look for investment and that this type of thing is something that is dealt with by the investors because they impose it on the founders but actually the interest the founders are very much aligned with the investors and in most cases founders who are left behind don't want the departing founder to keep all their shares.
So how's it dealt with well there are a couple of ways the shares could be subject to some form of vesting schedule which means that shares are in effect acquired although they're actually owned from the beginning but the absolute right to keep them is acquired over a period of time the alternative is to subject the shares to good leaf or badly provisions which means that in certain circumstances some shares are lost or alternatively there can be a combination of the two, so for example in the seed investment documents that we have which are on our website on the TWU tech focus website we have a three-year vesting schedule with a one-year cliff that means that if someone leaves within the first year they lose all their shares after that the shares vest over the mining three-year period and indeed at the end of the first year a third of the shares have vested and when it comes to someone leaving if they're a good lever they actually keep all the shares that have vested to date and if they're a bad lever which is dismissed for cause, or they walk out on the company for no reason then they lose all their shares but there are many variations on that having discussed vesting and the other thing that needs to be discussed is what is the trigger for losing the shares because typically vesting provisions are drafted on the basis that if someone ceases to be an employee or a consultant then that's a trigger for losing some shares in many cases when founders are setting up a company then either an employee nor a consultant, so you need to then come up with a series of things that a particular person is expected to do and if they cease to be doing those things or working towards those things and that's a trigger for the vesting having sorted out the vesting than the next thing to do is to look at incorporating the company and for that you need to firstly choose the name and in choosing the name you need to look at Companies House website to see if someone has got the name or something very similar in which case you might want to reconsider you should also check out that the name is available as a domain name having done that the next thing is to incorporate the company when incorporating the company don't make the classic mistake particularly if you're one founder but even if you're a few founders of just having one one-pound share each it's a good idea for the founder team to have between them about a hundred thousand shares this means that as more shares are issued you can actually provide future shareholders with a small percentage of shares whereas obviously if you've only got ten shares you can't do that under English law shares have a nominal value which is the minimum amount that must be paid for the shares but it's very common nowadays for the nominal value to be said a thousandth of a pound or so a very small amount has to be paid out next up once you've incorporated the company and you've got this wide share capital then the articles will be changed assuming that the founders have decided they want to have investing provisions included alongside the vesting provisions.
We also think it's a good idea to include a provision which prohibits any shareholder selling their shares without unanimous agreement of all the shareholders and that way you've ensured that the founders don't wake up one morning and suddenly find they've got a new shareholder at the outset really the only thing that binds the founders together are the shares and therefore we don't think there is any need for a shareholders' agreement because as wonderful as the law is it doesn't ensure that founders will get on and therefore if they don't get on a shareholders' agreement isn't going to ensure that they do get on, so we wouldn't bother with a shareholders' agreement once the company's been set up once you've got the articles in place then you need and only then you need to start thinking about transferring the IP and the know-how into the company one of the classic mistakes that is made is that people think that if they pay a consultant for his or her work then whatever the consultant is developing will become owned by the company it will not another mistake people make is that they assume that because their shareholders in the company some by some process of osmosis the company has acquired the IP again absolutely not, so it is very important that all the IP and know-how is translated into the company that should be done by way of what's called an assignment as a deed not paid for because one doesn't want to put a monetary value on the IP on the know how that's been transferred into the company the other thing that the founder team the company should get in the habit of doing is to schedule all the IP and know how you should list just have a list the first column should describe what the IP and know-how is second column should then set out who develop the IP and know-how and the third column should then set out the contractual relationship between their personal persons and the company and details of the contract under which the IP is used this is important because was in any investment process the question will be asked what IP does the company what know how does a company own and on what basis is it used and once all the IP now has in the company then you start thinking about an investment you may be talking to investors already but you shouldn't be signing a term sheet up until you put all the IP into the company the most common mistake is that people rush in, and they assume things, and they do things and actually setting up a tech company from a legal point of view is very simple it's been done many times it's tried and tested.
However, that simplicity goes out of the window if people don't do it in the right way English law is very flexible and therefore it is usually possible to recover from mistakes people have made provided everyone is in agreement and the problem is quite often we have situations where people have rushed in and done things and then people are no longer in agreement and then you have a real problem yes I mean if you took a sort of man park corner shop they'd get the property they start buying some stock in and in due course they made juice Wi-Fi into the shop, and they would gradually build it and each stage there is maybe some legal work to be done the challenge of tech companies is there is actually a significant amount that needs to be done at the beginning and it needs to be done in the right way and if it's not done in the right way then as I've said with previous question there can be problems and that is the difference between a tech company and many other businesses don't be afraid to ask questions because you've come up potentially with a great idea you can't be expected to know everything and the butler up this is a tried and tested course and there is no such thing as a stupid question except the question that you don't ask and you're about to exit the company for a lot of money and you find out the answer at that stage and you realize you could be extinct for a lot more if you'd asked at the right time.