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5 Legal Tips for Startups Seeking Venture Capital

By Ephrat Livni, Esq. on March 31, 2016 | Last updated on March 21, 2019

You have a great startup idea and you are hoping to get funding from venture capitalists. To do so you will need to know in advance the kind of questions they will ask and how to communicate your big idea, formulating everything from an elevator pitch to a detailed analysis of the market.

In an effort to anticipate all the questions you may face when seeking venture capital, Forbes put together a list. It has 65 questions, some as basic as "where are you headquartered?" For our purposes, however, we'll focus on five critical areas and the legal issues you must be aware of when seeking investment.

  1. Incorporation Issues: Your investor wants to know if you have formed a corporation and what kind. The type of incorporation you choose can influence financial management and taxes. It can always be adjusted as your company grows. But you should know the basic legal lingo of business and the structure of your company.
  2. Licensing Concerns: Is your big idea in an industry that requires licenses or permits to enter and how much will these cost? Are they generally difficult to obtain or is it a simple administrative process
  3. Industry Regulation: Are you aware of all important industry regulations and how they affect what you want to do? For example, say you start an HR services firm that also sells insurance -- like Zenefits, which generated much investor enthusiasm not too long ago -- do you know the requirements for brokers from state to state? Zenefits ignored these and seemed to be doing fine for a while, until the law caught up to them.
  4. General Compliance: Are you following all the rules that could possibly apply to your business? That means you are aware of compliance requirements with respect to workplace safety, insurance, employment, and more. There is a whole slew of rules spanning many areas and though you may not need to know them all, you should have an awareness of all that is involved in starting this business legally and keeping it going.
  5. Consider Intellectual Property: Is your idea patentable? Should you be seeking a trademark for your intellectual property? Do you already own all you can or are you planning to apply for protections? Are you aware of any property someone may claim that you are infringing upon or potential issues or disputes?

Talk to a Lawyer

If you wish to start a company and need venture capital, the first move you should consider is hiring a lawyer. Find someone who can guide you through these questions, do the research, give you answers, and help you prepare to wow any potential investors.

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