The new year brought news that a prominent startup had folded and, with the newspapers incessantly warning of a worsening economic climate, I thought it would be good to reflect on some tips that startups sometimes ignore--intentionally or otherwise.
There will be a myriad of reasons why startups fail, and attempting to answer all in one blog post is impossible. But the idea is to reduce the surprises, and so the focus will be on reducing legal problems. After all, startups are born to fly, not to spend time sitting in court.
Additionally, while the adage to always seek professional advice as early as possible still applies, resources and time may not be luxuries available to a startup.
As such, do read your contracts carefully--a guarantee and indemnity are serious obligations while a license should not be confused with an assignment. Confidentiality clauses and warranties should also be noted. Some people think that a MOU (memorandum of understanding) is not binding, but there are some that may be binding depending on the wording used. A large portion of problems may be cut down by understanding the true nature of contracts before signing.
If possible, consider putting in mediation or arbitration clauses in contracts. While it is not possible to prevent litigation, these clauses try to bring any disputes to quick and confidential resolution instead of getting dragged out in court.