If you visit a startup, your pitch has to be about making them investment ready – so that you can help them get on the growth trajectory.
Here are some of the contracts you should know how to draft for that:
- Co-Founders Agreements
- Terms of Service, Privacy Policies
- Employment Agreements and Consultancy Agreements
- NDAs
- Client and vendor Agreements
Bonus: shareholders agreements
1 – Co-Founders Agreement
A co-founders agreement is very important for any startup. Not having a clear co-founders agreement can be a cause for dispute later on.
Here are the questions that a co-founders agreement determines:
- How much equity should each co-founder have?
- How much salary can they draw? Can they perform other assignments on a part-time basis if the startup is not generating enough revenues to sustain them?
- How long should the co-founders be committed to the business? What is the minimum period of commitment?
- What happens to the equity if a co-founder leaves before? What happens if a co-founder dies?
… and many other questions
We will discuss a full-length co-founders agreement later today.
2 – Terms of Service, Privacy Policy and other policies
Today, any website which has a sign-up form, or asks you to give your email address to subscribe for updates, or download a free report, needs to have a terms of service and a privacy policy.
Terms of service differ based on the function that the website performs – a social media website (e.g. Facebook/ Twitter/ LinkedIn), e-commerce (Flipkart / Amazon) or D2C platform (Mi online store), an edtech platform (Byju’s/ Upgrad/ LawSikho) , or a SAAS company (e.g. Dropbox) will have different terms of use/ terms of service.
For example, compare Dropbox Terms of Service (here) with Amazon (here) – they are quite different.
If you are helping an entrepreneur, you can’t copy-paste terms and conditions from the internet – it will not work, but with some training you can draft it, and your work will be appreciated.
A tech company may have various other policies too.
3 Employment Agreements and Consultancy Agreements
A startup needs to engage employees and consultants to perform various roles to make it grow. It is highly likely that these arrangements are not documented at all or very loosely documented, which can create serious risks for the startup in future.
The most challenging situations early stage startups face with respect to their employees are:
- Use of the company’s intellectual property in another job or startup that the employee/ consultant pursues, leaking or stealing secrets
- Persuading other employees to quit the company
- Working with competitors or starting a competing business, and soliciting the company’s clients for this
Here is a sample of the executive employment agreement with Vishal Sikka. See this article on Infosys’ employment agreement with its next CEO.
4 – Non-Disclosure Agreements
Non-disclosure agreements are usually executed when parties are discussing a potential investment or collaboration deal, before which they need to share proprietary details and business secrets with each other.
Maintaining confidentiality, and preventing any unauthorised use of confidential information is a key focus, irrespective of whether the deal goes through or not.
Startups need NDAs executed very frequently. Depending on which party has the non-disclosure obligation, they could be one-sided or “mutual” NDAs.
5 – Client & Vendor Agreements
Any startup is likely to have arrangements with vendors who provide products/ services, and agreements with clients to whom it is selling its products.
Often, these arrangements are not documented at all, or not standardized, or poorly negotiated. They may not have anyone to negotiate vendor agreements for them, or to standardise their agreements with clients.
This can hurt when the startup is raising investment.
The startup may also have committed to extraneous obligations or risk.
I’ll give you an example. Imagine that a startup has created a unique file storage system like Dropbox, which has special applications for large businesses.
It is approaching enterprise clients for large deals. These clients insist that in case a document is inaccessible, even if for a short while, the startup must indemnify or pay for any and all losses caused to the business. It’s a big business, so these losses could run into 1 million dollars, or 10 million dollars. There is no ceiling on the indemnity.
Can you imagine how this could harm the business?
Several startups agree to these clauses due to lack of legal guidance during their early stages.
Bonus: Shareholders Agreements
Learning how to draft a shareholders agreement for an early stage investment transaction is a very valuable skill to help a startup.
If you can help a startup with its first round of investment, they are likely to consult you for all their contract and investment related needs in the future. They will also be in a position to pay you better.
International contract drafting work is soaring right now – it is a good time to tap into international opportunities before the market saturates with a few hundred big players or millions of individual service providers.
Five years down the line, we can expect the success story of remote contract drafting will be so evident that everyone will be rushing to grab these opportunities.
It will be harder to establish yourself, or even find your place in that frenzy, unless you have already built a track record earlier.
You don’t want to start at the bottom 5 years later, look back at this day and wonder why you didn’t take timely action.
So, how many of you want to build a career in international contract drafting?
Remember, it’s not just for the purpose of securing international remote freelance work (although it pays more), contract drafting is relevant no matter what kind of legal work you want to do, as we explained in the beginning.
Imagine having a week to learn and practice this with study materials, live classes, an exercise to draft this yourself and receiving corrections.
Imagine learning 100 such skills in one year.
How much can it improve your earnings, your ability, your network, and your CV?