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Lessons from Silicon Valley for start-ups
Mon 13 March 2017 - 10:08 amFeatured | Raising capital | Startup | Tips | Advice
On recent business trips to Silicon Valley, we’ve met with a number of investors, lawyers and other advisers who are active in the start-up community. These meetings have yielded some very interesting lessons for Australian start-ups, particularly those seeking to expand into the US market or take on US investors. Here are the key highlights:
1. Know your market
Silicon Valley investors and advisers see a lot of pitches – including many from companies similar to yours. You may have been working hard on your unique offering for many months or years, only to find that someone else is doing it too. Attending industry conferences and meetings with investors will help you to test if your offering really is unique.
2. Be ready to “pivot”
While you need to be resilient in the face of setbacks, you also need to be flexible. “Pivoting” a start-up company is common and many leading US companies began life using a different business model. For example, Slack (a team messaging app which is changing the way millions of people communicate in the workplace) was spun out of infrastructure built from a failed gaming app, and last year became the fastest start-up in history to reach a $US2 billion valuation.
3. Understand what US investors are looking for
The US market is awash with capital, but you need to have a good story to get a piece of it. Silicon Valley investors will quickly get to the heart of any potential risks associated with your business model, so be ready for some pointed questions! On a pitch night you’re likely to go home empty-handed if you don’t:
- know your customer needs intimately;
- recognise who your global competitors are; and
- understand the regulatory environment in each of your potential markets.
Silicon Valley investors will almost certainly want to know about your growth plans in the US – and if you don’t have any they are likely to pass. If they do invest and want a board advisory seat, they will want to be close to you (and you should interpret this as you moving to the US, not them moving to Australia!).
4. Get your IP sorted from the start
Investors and Venture Capitalists are savvy. They recognise that the intellectual property of a company they want to invest in is often its most valuable asset. This is why you must ensure that you own all the IP rights in your ideas and products and get ownership organised correctly from the start.
One of the most commonly held misconceptions about IP law is the idea that if you pay for something to be developed, you automatically own it. You may not! Don’t fall into this trap. Also, be careful how you license third parties to use your IP, especially when giving someone an exclusive licence.
5. check your company name, domain and trade mark early on
If you’re keen on using your Australian company name in the US (or any other country), you’ll need to check that the name and domain name is available in that country. We also recommend doing some trade mark searches so you can limit the threat of infringing someone else’s rights through the use of a particular name. You should be doing all of this in the early stages of an overseas trip so that you don’t have to change your name after producing all your collateral.
6. Know what you should (and shouldn’t!) say about your idea
There’s a fine line between saying too little to others about your business or idea, and saying too much. Potential investors in Silicon Valley don’t often sign up to confidentiality agreements and they will expect you to be transparent and open, but you still need to ensure you protect your “secret sauce”. Talking in too much detail about your business or idea may compromise your rights to get a patent for example. There are some basic steps you can take here (such as marking your documents as “confidential”) but it’s an area that you should get advice about beforehand. In these situations, sometimes less is more.
7. Use your legal adviser wisely
Good legal advisers in Silicon Valley see lots of start-ups and will only take you on if they think your business model has legs. They will have template documents, which mean small-scale capital raisings can be done relatively cost-effectively, and they will also have a good network of investors and other contacts who may be able to help you. They also have deep experience in issues relevant to start-ups – for example, understanding the requirements of start-up investors and rules about employing interns. Your start-up may be facing a particular issue for the first time, but remember that a good lawyer has probably seen it many times before.
How can you get involved in start-up communities?
If you’re looking to get more involved in the Australian start-up community, try education courses such as the Wade Institute, accelerators such as the Melbourne Accelerator Program (MAP) or specially designed programs such as Springboard. If you want to start tapping into the global start-up community, the internet offers a wealth of information, including online courses run by leading universities such as Stanford and organisations such as Y Combinator.
As you progress along the path of starting up, you will no doubt make some mistakes along the way. But by seeking good advice early and learning from others, you will help to set your business on the right path to success.
About the authors
Jonathan Farrer and Philip Catania are both Partners at Corrs Chambers Westgarth lawyers. In 2016, Corrs launched CorrsEdge – a specialist legal offering for start-ups that provides them with access to experienced lawyers and an online platform to help them anticipate and manage their legal needs.