Development

Every successful venture begins somewhere. Founders deep in the “development” stage are in the earliest stages of product development: heads down building wireframes or prototypes, funded by the Founders themselves or generous family and friends. Revenue is usually non-existent. Keep your head up.

Legal Needs:
At this point, basic legal structures and protections should be in place to protect the assets of the company and prevent near- and long-term issues. Typical legal needs include:

• Basic legal entity formation or conversion
• Early intellectual property protections
• Simple agreements between Founders
• Contracts with service providers
• Founder equity grants

MVP

Founders armed with prototypes or an MVP (a “minimum viable product” that contains enough features and functionality to be usable) are ready to begin entering the market. At this point, many Founders seek capital by raising money from high net worth “angels,” debt financing or even raise an early equity pre-seed/seed round of financing to further fuel development, inventory and sales.  

Legal Needs:
Founders with an MVP should be planning for growth by defining their business structure and ensuring their products and brand are protected. Typical legal needs include: 

• Fundraising guidance and support (SAFEs, convertible notes, equity rounds) 
• Additional intellectual property protections 
• Conversion to a Corporation (if needed) 
• Guidance on securities compliance 
• Sales, vendor and other contracts 
• Employee agreements  

Acceleration

As a startup moves from Alpha to Beta testing, and later to a full product launch, increased sales lead to accelerated revenue growth and market share. Revenue growth usually starts slowly and then begins to rapidly climb (resembling a hockey stick). Founders can add additional speed and a steeper trajectory by raising additional capital (Series Seed and Series A/B financings) to accelerate revenue growth and capture of market share.  

Legal Needs:
Equity financings at this stage begin to increase in complexity. Additionally, during this critical period, Founders should be focused on warding off internal and external legal threats and attracting and retaining the best talent. Typical legal needs include: 

• Further intellectual property protection 
• Terms of service, privacy policies, etc. 
• Fundraising guidance and support 
• Employee option plans 
• Employment contracts 
• Cap table management 
• Corporate contracts 
• Product compliance 
• Marketing issues 
• Litigation issues 

Growth+

Once a startup has its initial product in more mature iterations, is developing additional products and is expanding into new markets, the company is ready to raise larger amounts of capital through Series C and later funding rounds (often $30MM to $60MM+). Revenues at this point are often in the millions of dollars.  

Legal Needs:
Leaving the “startup” phase, a company’s legal needs become much more complex as the company faces litigation, increasingly complex relationships, changing regulatory regimes and the possibility of additional financing rounds and exit opportunities. Developing a partnership and deep relationship with legal counsel is key. Typical legal needs include:  

• “Secondary” liquidity opportunities for Founders and employees 
• Merger and acquisition support 
• Commercial contract support 
• Regulatory compliance 
• Litigation counsel

Angel Investing

An angel investing strategy is typically followed by individual Investors who are usually required to be “accredited” and who invest their own money in early-stage ventures with high-growth potential. A single investment or “check” will typically range from $5,000 to $50,000+. An Angel Investor’s aim is to provide sufficient capital to help a Founder take a raw idea, wireframes or a prototype and turn it into a product that will generate revenue and attract larger venture capital investments. 

Legal Needs:
Angel Investors should ensure that appropriate investment agreements are in place, that they understand the terms, and that securities and tax regulations are complied with. Typical legal needs include: 

• Investment agreement review 
• Investor accreditation checks 
• Legal due diligence support 

Syndicate Investing

Syndicate investing allows accredited Investors to pool their money, usually through a special purpose vehicle (SPV) and invest the pooled funds into a single company (while only occupying a single seat on the company’s capitalization table). A syndicate typically has a lead or sponsor who has experience in early-stage investing, has a large Investor network and will commit capital to the SPV. The syndicate lead manages the investment and will often receive a carried interest or “carry” as compensation for leading the syndicate.  

Legal Needs:
Syndicate leads should seek counsel to support their dual focus: (1) forming and raising an SPV and (2) negotiating the terms of an investment in a startup venture. Typical legal needs include: 

• Drafting and negotiating investment documents 
• Drafting SPV documents 
• Regulatory compliance 
• SPV entity formation 
• Investor onboarding 
• Legal due diligence 
• Advisor filings 

Funds I-II

Formally raising a first or second “proof-of-concept fund” is an Investor’s opportunity to formulate and prove an investment thesis. A “general partner” will manage the fund consisting of capital raised from “limited partners” (LPs) such as family offices and high net worth individuals. These early funds usually range from $20MM to $80MM and invest in promising Founders whose needs for capital and other support are beyond what an individual angel or syndicate of Investors can provide.  

Legal Needs:
Fund managers at this stage should seek to develop a close partnership with counsel to support the fund’s operations, both in fund formation and investing. Typical legal needs include: 

• Drafting and negotiating investment documents 
• Negotiation “side letter” agreements with major Investors 
• Formation of multiple simultaneous fund entities 
• A full suite of regulatory compliance support 
• “Deal counsel” for making investments 
• Legal due diligence support 

$100M+ AUM

While the fundamentals of operating a fund do not change once a fund manager crosses the threshold of $100M in assets under management (AUM), the scale and complexity of operations, the team and compliance can increase significantly. The size, sophistication and needs of LPs also increase as sources of capital expand to pension funds, university endowments and more. 

Legal Needs:
At this stage, the need for a close legal partner is even more important to develop a deep understanding of the fund’s operations, preferences and objectives. The ability to scale and expand here is key.