Lived Legal Experience – A key to Successful Innovation
There are plenty of pitfalls for an entrepreneur starting-up a new business venture. One area a founder tends to leave towards the bottom of the ‘to do list’ is seeking advice from a lawyer with genuine lived start-up experience. Ultimately, significant time and money can be saved by engaging an advisor who takes time to understand the idea and apply the law to the circumstances in a practical and efficient way. Simple right?
Empirical studies and associated literature confirms that the best way to incubate an idea is to collaborate and share (e.g. Marullo, C, Casprini, E, Di Minin, A, Piccaluga, A. ‘Ready for Take‐off’: How Open Innovation influences startup success. Creativity and Innovation Management. 2018; 27). However, a lawyer is likely to tell an entrepreneur that the sharing needs to be done in an informed and staged way, with suitable contractual protection. Many entrepreneurs think these two conflicting propositions are impossible to reconcile and the legal approach stifles innovation. That may be in part because the legal advice seems impossible to apply in practice. One way to navigate this and many other contradictions is to partner with a lawyer who has an appropriate level of practical experience in all aspects of the evolution of a start-up venture.
3ME Technology Pty Limited (3ME Tech) is a Hunter based business that supplies clean-tech for tough industries, including mining, military and marine. 3ME Tech offers state-of-the-art battery systems to improve electric vehicle (EV) performance, safety and sustainability.
In 2017, 3ME Tech’s founding team approached SWS Lawyers to provide advice on what would become 6 key areas of legal focus. Since the beginning SWS has worked with 3ME Tech across all 6 areas. Justin Bain, CEO, says:
“Our founding executive team partnered with SWS because it has the track record for providing practical legal advice to start-up ventures from inception to exit. Over time we have found our relationship with the firm has evolved as quickly as our commercial requirements have and it has been efficient and effective to be supported by a legal team that has developed a holistic understanding of the business”
Founders need advisors who can predict and manage issues before they arise, freeing the entrepreneur to focus on ideas and business development. 3ME Tech says the advice SWS provides goes beyond answering the legal question. Most issues require collaboration and common understanding and purpose to achieve the best result. The key areas of involvement with SWS include:
- IP protection – 3ME Tech sought IP commercialisation and registration advice early and before publication of any aspect of the central ideas that underpin the business. The founders and investors did their best not to divulge (publish) key information, including through innovation forums, promotion or marketing or networked start-up and capital raising events. 3ME Tech also put contracts in place before discussing its business plans and ideas with third parties.
- NDA – Any discussion about any idea needs to be backed by an enforceable confidentiality agreement or “NDA” – and not one downloaded from the web or ”borrowed” from a corporate. The tailored document needs to cover what the entrepreneur considers to be “confidential information”. It must confirm the ownership of ideas (the intellectual property) to be disclosed, and set a term and purpose for the use of the information that is shared. 3ME Tech has template documents which can be rolled out to various parties, but it is important to note SWS created it for the specific circumstances of its business.
- Employee Contracts – All entrepreneurs need help. People who join the venture, whether as employees or contractors, must enter a contract. Promises made to these ‘early stage participants’ need to be documented and the venture must secure all created intellectual property on and from its creation. Failure to properly document a contractual relationship with employees and contractors (or consultants) to clearly secure ownership of intellectual property can cause significant headaches in a future fundraising or strategic transaction. These and other issues should be dealt with before development of the idea, capital raising and expansion of the venture proceeds.
- Business Structure Advice – Early in the venture, the entrepreneur will need structuring advice. 3ME Tech went to SWS for this advice and before they went to an accountant. The founders recognised that they needed advice on how to establish and structure a company for the venture. But they also recognised that decision would require an understanding of future activities such as capital raising and exit. An appropriate business structure, and associated accounting and tax treatments, ‘fell out’ of the dialogue concerning how the founders wanted to develop, manage and future-proof the business.
- Shareholder Documents – A lot can be said about shareholder arrangements. For 3ME, perhaps the most significant aspect was the need to look ahead. There are future events – such as unexpected share sales, calls for urgent loan funds, rounds of capital raising and (ultimately) exit – that must be addressed in a document. These aspects need to be thought through right when the entrepreneur is focused on the core idea and expansion. Looking into the future requires guidance and experience. Getting this done at an early stage of the process has been very significant for 3ME Tech and assisted the founders in unexpected ways.
- Governance – All ventures need governance, which is a system “by which an organisation is controlled and operates, and the mechanisms by which it, and its people, are held to account” (Governance Institute of Australia). In 3ME Tech’s case the shareholder documents and constitution of the company have been important. In time an advisory board (in addition to its formal Board of Directors) may be used to add insight and direction. Ultimately, however, regular advice and a clearly defined governance system that clarifies the relationships between a company’s management, its board, its shareholders and other stakeholders (including its collaboration partners) has been critical in the success of the venture.
The 3ME Tech business is now at a point where the company has several business to business contracts, has been through seed capital raising (coupled with inevitable shareholder changes), is rapidly adding engineering and technology specialists to its team and is preparing for a Series A offer to expand on its competitive position.
Justin and his Board recognise the value added by early and tailored legal advice, as well as the benefit in dealing with people who have done it before and bring genuine expertise to the table:
“The SWS team includes people with specific skills. They have the skills needed to get the little things right. The money saved by taking early advice and really thinking about some of the key things has been significant for our company”.
SWS Lawyers offers expert and specialised legal services in corporate, commercial, employment and intellectual property law. The firm has a long track record working with Hunter based entrepreneurs. Further information can be found at www.swslawyers.com.au.
3ME Technology Pty Ltd is a tech company, providing battery systems, software & power electronics, who works collaboratively with vehicle/platform manufacturers and end-users (static energy storage systems) to electrify their offerings. Further information can be found at www.3me.technology.