A legal guide to starting a tech business
We have recently published a guide on key legal issues you should bear in mind when starting your business where we talked about protecting your ideas, business structures, contracts and permits.
If you are a tech entrepreneur, you need to consider all those issues and more. The tech industry has its own legal challenges and needs, but what does it take to start a successful tech business? In this article, we will explain everything you need to know.
Table of contents
- Confidentiality and Intellectual Property
- Personal Data Protection
- Cybersecurity
- Contracts for each type of tech
- MVP and what happens next
- Hiring resources from overseas
- Finding funding
- Pivoting
- Where to go for additional help
- Wrapping up
Confidentiality and Intellectual Property
Confidentiality and Intellectual Property are relevant for every business. But if you are starting a business in tech, these topics are of paramount importance. After all, the success of a tech business depends a lot on its novelty and ability to match a market need. You don’t want your competitors to know about what you are developing before you are ready to launch it. After launch, you want to keep the secrets of your business secure.
Therefore, whenever you start negotiations with potential business partners, developers and even investors, before you share any confidential information with them – in particular any information about your business plan and the product you want to develop – it is essential that you put a confidentiality and non-disclosure agreement in place. Don’t wait until you have told them all your ideas to ask them to keep them confidential. It may be too late!
If you have a confidentiality and non-disclosure agreement in place, the party that receives confidential information from you will be obliged to keep it confidential and not disclose it without your consent (except under limited circumstances where disclosure is required by laws and regulations). You may also add that the party can only use the confidential information for a specific purpose (for example, the discussions about a joint project or an investment) and nothing else.
When it comes to Intellectual Property, you should not only protect your ideas, trademark and software but also make sure you have the Intellectual Property rights you need to develop your product. You should not use any third party Intellectual Property if you don’t have the right to do so. If you are not sure if you can or cannot use a specific piece of Intellectual Property, our strategic partner LawBite has expert IP lawyers that can help you make the right decisions.
Your contracts with co-founders, developers and providers of any kind should establish that the ownership of any Intellectual Property they develop belongs to the company – or at least it is assigned with broad rights to the company. If you don’t have these provisions in your agreements, you may end up having tough discussions on who owns the Intellectual Property and who can use it for whatever purposes.
Personal Data Protection
If you operate in the tech sector, chances are that you are dealing with personal data. If your business is data-driven and involves data analytics or data science, these chances are even greater.
Therefore, it is crucial that you assess which types of personal data you process and how this process occurs. Based on this assessment, you should put a privacy policy in place. Your privacy policy must be tailored to reflect what you actually do with the personal data and a general template may not be enough.
Cybersecurity
Cybersecurity is another key point if you own a tech business. You should thoroughly assess the cybersecurity risks surrounding your business and the services and goods you provide to your clients and consider measures to manage and mitigate these risks.
If you are providing services and goods to bigger businesses, it is important to check if they have any cybersecurity requirements you need to comply with when you work with them.
If you are operating in a regulated industry, like financial services, accounting services and legal services, you must also comply with the cybersecurity standards set out by the applicable regulations.
Your tech business may also provide cybersecurity services. If that’s the case, you should carefully consider the service levels you add to the contracts with your clients to avoid promising protections that you are not technically able to deliver.
Contracts for each type of tech
When you start a tech business, how exactly you will engage with your clients depends on what products and services you offer. After all, there is a wide range of tech within tech – and you will need different types of contracts for different types of tech products and services.
If you provide hardware and other pieces of equipment that your client will acquire, you may consider a contract for the supply of goods. If you expect your client to return the equipment to you, you should think about a lease.
If you are in the business of maintenance services, you should put in place a services agreement that describes the scope of the services you provide and any service levels to which you commit.
If your tech business is focused on the development of software for third parties, you will also need a services agreement. However, you will need to include the exact features that will be included in the software and what you need from the other party to achieve that.
Goods and services may also be provided under long-term framework or master agreements which are usually combined with order forms for each specific project.
If you are selling software, you will need to decide if your clients have access to the software through a licence agreement, if you will use the software as a services model or other subscription model.
If you plan to offer online services via a platform under a subscription model, you should consider a contract that deals with the subscription plans you have.
Last but not least, your tech business may involve a combination of more than one type of goods or services.
In any case, it is essential that you have contracts and/or terms and conditions that reflect what you have included in your business plan. Otherwise, these documents may not be fit for your purposes.
Therefore, a conversation with your lawyer is essential to assess what exactly the documents you need for your tech business are. As there are many variations and potential combinations of goods and services, copying and pasting templates from random websites is unlikely to be enough to protect your business and your relationship with your clients.
MVP and what happens next
Most tech businesses start trading with a minimum viable product (“MVP”). An MVP is an initial version of your product which, although not fully completed, contains key features that allow you to sell it (usually for early adopters that will provide feedback on such features).
If that’s your case, it is important that the contracts you put in place in relation to the development and trading of the MVP set out what will happen after the MVP is launched – in particular, if the MVP is not successful or if you need to pivot the business.
Who will decide what happens next (if anything at all) and which metrics will be used? What if you need to pivot? What if a co-founder or investor disagrees and wants to leave? Your contracts should address these questions so that you don’t need to fight over them further down the line.
If you are trading an MVP and you expect that changes will be needed in relation to such MVP, it may be advisable to address the particularities of such MVP in your contracts with co-founders, investors, suppliers and clients.
Hiring resources from overseas
Tech companies have been struggling to find resources to develop their products. With such scarcity of professionals and the growth in remote work following the Covid-19 pandemic, the race for developers is now a worldwide championship.
If you want to engage professionals based overseas, you need to take into consideration several cross-border issues like currency and exchange rate, overseas payment processes, working hours and time difference, employment regulations and processing of personal data outside the UK and the EEA.
After you assess these elements, you should formalise the engagement of the professional in an appropriate contract that contains the details of the engagement – including how you will deal with these elements.
Finding funding
If you want to start a tech business, funding will certainly be one of your key concerns. Although you may start as a one-man band, scaling a tech business requires effort and (lots of) money.
Tech SMEs are usually familiar with terms such as angel investors, pre-seed and seed investment and venture capital. What you may not know is that all these “rounds” involve paperwork – which gets more complex as you move forward in the funding journey.
Legal advice on these documents will ensure that they reflect the commercial arrangements you make with your investors – and that you don’t give away more than you want for those amounts of money.
Quite often, investors ask to participate in the decision-making process of the company. For example, they can request to put restrictions on the founders and/or ask to create rights over Intellectual Property owned by the invested company. Getting the paperwork right will ensure that you won’t have legal issues in the future.
Watertight documents will also help you give a good impression on new investors. When they do their due diligence – which gets deeper and more detailed the more money you raise – they will see an organised business that follows its corporate obligations.
If your financing route involves banks and other financial institutions, the terms and conditions of their loan agreements may also contain traps you should be aware of. They may require that you use the assets of the company and your own assets as guarantees for the loans.
Making sure that your legal issues are well looked after allows you to be more focused on the tech that will make clients love your product.
Our partner LawBite, offers a free 15-minute consultation, don’t hesitate to get in touch!
Pivoting
Many tech businesses develop products and services that are brand new in their entirety or involve new technologies that introduce new ways of doing things. It is quite often hard to predict how the market will react. Sometimes it is a success from the beginning. But, usually, changes are required along the way. Pivoting is very common for tech businesses.
Whenever you pivot your tech business – whether it’s just a bit or in its entirety – it is essential that you revisit your legal documents to assess what needs to be amended. If your legal documents are not up to date on how you conduct your business, you should change them accordingly.
Where to go for additional help
If you are starting a business for the first time, it is vital to take legal advice so that you can ensure that you are protecting your business from the start.
Tide has teamed up with LawBite, the leading online legal platform, to provide easier access to expert help that is fast and affordable.
Tide members get a free 15-minute consultation from one of the friendly lawyers at LawBite, and also receive extra discounts (10% for Tide Members and 20% for Tide Plus members) on any commercial or corporate legal advice your business needs from LawBite.
Wrapping up
The tech industry is a very dynamic sector. Deciding to start your own tech business can sound easy, but it is important to keep up with new developments and adopt the right strategies for your business in order to succeed.
To ensure you are covering all possible future legal challenges, you need to:
- Make sure you are protecting your ideas and Intellectual Property
- Remember that data protection and cybersecurity are key
- Ensure that your contracts deal with MVP
- Make sure you take into consideration cross-border issues when hiring overseas
- Find the right investors for your business
If you have any legal questions, you can contact our partner LawBite to discuss your legal issues in a free 15-minute consultation with one of their expert lawyers.
Photo by Tima Miroshnichenko, published on Pexels
