Lifecycle of a tech startup series: Case study

In the last instalment we talked about the ways in which the founders of KNow Wear Limited could protect the intellectual property in their business. Since then, the business has been progressing well and our founders have been working on developing a prototype.  

In our last instalment our founders, Sarah and Chris, considered the basics in establishing their tech startup and they incorporated a company under the registered name ‘KNow Wear Limited’. 

Welcome back to the blog series covering the lifecycle of a tech startup, from a legal perspective.

Alex (tech), Andy (tech), Emer (investments) and I (investments) work alongside startups and founders day to day and thought it might to helpful to some of you out there to bring together our expertise on the legal issues that tend to arise and how we deal with them. 

This week the government announced a further loan scheme to help small and medium-sized businesses affected by coronavirus. In a reaction to the criticism received for the Coronavirus Business Interruption Loan Scheme (“CBILS”) and its implementation, the Bounce Bank Loan Scheme is promised as a simplified scheme which allows small and medium-sized businesses to borrow up to 25% of their turnover, capped at £50,000.

Since the start of the coronavirus outbreak, the UK government has launched a number of schemes offering financial support for businesses. This support includes the Coronavirus Job Retention Scheme, the Small Business Grant Fund, the Self-Employment Income Support Scheme and the Coronavirus Business Interruption Loan Scheme (“CBILS”).

The grandly titled Coronavirus Business Interruption Loan Scheme (“CBILS”) was announced by Rishi Sunak as part of his first budget on 11^th March.  Sunak, in the position of chancellor for only a matter of days, set out a series of plans which he claimed would represent the biggest fiscal boost to the economy in 30 years, and which were also intended to protect the UK economy from the impact of Covid-19.

You own your own home, and potentially have a second investment property. You make the maximum payment you can (while still receiving tax relief) into your pension each year and have funds invested in the stock market. You have maxed out your yearly ISA allowance, using it as a tax efficient wrapper for your investments into stocks and shares.

So, you're a founder of a start up business, you've worked hard to get it off the ground and you have even found investors who are willing to provide the funds you need to grow your business and achieve your goals.

If you are involved in investing, either as a startup or an investor, you are likely to come across an advanced subscription agreement. So what is an advanced subscription agreement and what do you need to consider when entering into one? 

Convertible loan notes are a great way for start ups to generate an initial chunk of cash in order to advance certain aspects of their business, at the same time as they try to secure a direct equity investment. As a result, convertible loan notes can act as a short term solution to financing needs and, once in place, can be an indication to future investors as to the potential of the business.

You have successfully incorporated your new startup company and are all set to grow your business. What is one of the first things you should do? Without a doubt, if you have two or more shareholders, you should consider a shareholders’ agreement. It is easy to postpone putting a shareholders’ agreement (aka founders’ agreement) in place, but it is important. Why? Because it can regulate how changes in the company in the future will be dealt with including how decisions will be made, what would happen if a shareholder wanted to leave or became ill and, most importantly, what would happen if the shareholders had a disagreement.  

Company jargon can be intimidating and confusing. However, once you get to terms with the key terminology and concepts of company law, it all becomes a lot more digestible. If you’re planning to set up your own company, or considering investing for the first time, this blog should help you get your head around some of the main company documents you’re likely to come across during the process.

If you are a founder, entrepreneur or a potential investor, at some stage you are likely to encounter a term sheet. So, what are term sheets actually for and what issues do you need to consider?

The UK has almost 60,000 tech businesses which together employ over 1.5 million people, and the numbers continue to grow. Much of the growth in the tech industry has been fuelled by startups which have benefited from the UK’s ability to attract talent from across the EU and the rest of the world.  However, following the Brexit vote there were concerns that the UK’s days as a magnet for tech talent may be numbered in a so called Techxit. As we wait to see when/if Article 50 will be triggered and try to manage the uncertainty this brings, we also need to monitor the changes that a new USA administration will bring. Will Trump help or hinder the UK tech sector?

In February 2016, less than a year after raising £800,000 through an online crowdfunding platform, the claims management company, Rebus, went into administration.  This episode highlights the risks associated with equity crowdfunding and raises questions as to the extent of investor protection required. The FCA bolstered their rules protecting retail investors in October 2014. These rules are now being reviewed and the FCA has published a ‘Call for input’.  

Do you worry about the extent to which corporations protect your personal data? An Austrian law student (Max Schrems) acted on such concerns and, as result, toppled a 15 year old international legal agreement between the EU and the US which facilitated the flow of huge quantities of data across the Atlantic. On 6 October 2015, the Court of Justice of the European Union (in Maximilian Schrems v Data Protection Commissioner) invalidated the EU-US Safe Harbor agreement with immediate effect, sending shockwaves through the digital world.

There’s a good reason why Farringdon and the surrounding areas are known as Tech City.  Some of the UK’s most promising tech startups are based around Clerkenwell and Old Street, making it a community for entrepreneurial talent and access to angel investment.

“Britain is open for business” – a campaign driven by many successive UK governments attracting talented entrepreneurs worldwide to set up or invest in an existing business in the UK. The Tier 1 (Entrepreneur) visa is the natural visa to obtain for those wishing to start or invest in a business they will actively be involved in running in the UK. To qualify under this route, you must show you have access to at least £50,000 in capital from a registered venture capital firm, seed funding competition or government department or £200,000 of personal wealth, which can include third party backing.

There’s no getting away from it - lawyers like making lists.  Over the last 12 months or so, we’ve seen a number of lists setting out “top tips” for startups and entrepreneurs, but most have related to specific areas such as securing third party investment.  Not wanting to be left out, we’ve put together our own list of top tips for startups.