Defining The Needs Of An Emerging Business

by | Oct 14, 2014 | Small Business Growth

Recently, I was reflecting about the emerging company niche as seen through the eyes of the business world. I noticed a tremendous amount effort is focused on distinguishing companies into different categories: startups, early stage, growth, emerging, enterprise, small, mid-sized, and/or enterprise.
There are obvious differences in all of these categories from a financial and marketing perspective.
From a financial perspective, there are extremely different ways to secure capital for example a publicly traded company vs. a company just getting its feet off the ground. Similarly, in marketing the company, a smaller company is not going to have the ability to market using multiple channel strategies like larger companies do. Furthermore, many times those small companies may not even have the capital to build a captive sales force like larger companies are able.
In my legal career, I have represented everything from start-ups to established businesses. Of course, there are differences in legal strategies I employ for large vs. small companies. For example, large publicly traded companies need to file a plethora of securities regulatory materials that small privately held companies do not have to. Related to this difference, large companies need to have more complex operating structures and accompanying employment policies in procedures.
Even with these differences, there are many fundamental similarities of businesses of all sizes that require the same level of legal sophistication in their governance and legal structure. In fact, because the consequences are existential and the runway is far less, smaller companies arguably have the need for more exacting legal services (there are numerous examples of Fortune 500 companies taking the wrong strategy and surviving just fine). Some examples include:

  • Operating Agreements and/or Corporate Documents: Have you ever heard of a founder, a partner and/or a seed investor getting “screwed”? This usually happens when a term sheet and/or corresponding document includes relatively complex terms that have serious ramifications for the future of the current business owner. Some examples include dilution protection (where new investors percentages of equity are fixed or dilution limited), preferred liquidation preference (where an investor gets paid before the other equity holder), drag along rights (the ability for certain investors to force the sale of the company without the consent of other investors), and governance (where the ability to run the company is influenced heavily by the new investor). Investment and/or partnerships can get very sophisticated very quickly and form the foundation of the business. Terms always need to be expertly negotiated, drafted and supported. Otherwise, there will be very little to address later (e.g. an exit) because the foundation is so weak/vulnerable.
  • Intellectual Property: I just was visiting a brewery who I would guess expended over $2 million in equipment and infrastructure. However, the brewery did nothing to protect their brand name or design. If that name or the design is then taken by another entity, their investment will be seriously compromised. Furthermore, a great deal of legal fees expended just to get them to a place where they were before.

I then met with another company who just was written up as a feature in the New York Times. A problem was that they tried to trademark their brand name without counsel and were DENIED. Accordingly, all the good publicity of that brand is at risk because the business owners may not be able to use the brand name.
In summary, in intellectual property protection especially, the name of the game is sophisticated analysis, drafting and pleading/registration from inception, instead of a defensive strategy later in the growth of the company.
I founded EmergeCounsel attempting to balance the need for sophisticated legal representation and support, with the need of businesses expending as little expense as possible in line with maximizing capital returns. In other words, businesses should be paying appropriately expertise and competency and not fringe. Companies of all sizes benefit equally from sophisticated legal planning and execution, and paying as little for it as possible.


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