Contracts on a shoestring - bootstrapping in the early stages
You are a founder in a company just taking off. A small team of founders is adding some key recruits. You got your first round of fundraising, doing your first commercial deals. Financial resources are coming in, but you must be extremely mindful of where to spend them.
You need those contracts to get the company going, and you want them to be correct. However, you feel you don't have the resources to get all the external help needed at this company stage. And you are aware that the other party will always be able to outspend you 10 to 1 even if you try.
Here are some thoughts from my first-hand experience in your shoes:
- No compromise over bookkeeping, taxes and overall internal economy
It doesn't matter if you are broke or not; you have a liability there and a responsibility towards your shareholders, society (and your family). Get as much help as you need and be 100% on it. Everyone can make bad business decisions, but no one should run a company on shaky internal economy and accounting. Be bold and take risks on the right things.
- Use standard well, established contracts
It just removes complexity and diminishes risks in the transactions. If you cannot find any, ask your fellow founders. Look for something already vetted, used and widely accepted.
- Resolve any legal twists in your country
Any contract has a clause (usually in the end) on where to go when things go badly, and you cannot get to a commercial settlement. Has that been set in your own country or the country where your company resides? The complexity, risks, and financial commitments skyrocket when you are in another judicial system. Plus, your possibility to access valuable inputs in your network is much higher in your own country. It is not about settling all the disagreements in court; knowing you have that option frees you from having an open and fair negotiation since you have a clear alternative (even if it is unlikely to be used).
- Understand obligations and exit conditions
These are mainly commercial points, so you are well suited to understand those. Don't underestimate the power of having mutual exits without a fuzz in the short term. Especially if you offer a service where you can front-load your investments in that contract. Yes, it is nice to have more extended binding contracts at first, but think about it: Do you want unhappy customers working with you just because of a contract? Is its product-market fit, then? What if you pivot (we have been doing significant pivots three times over the years)? In the end, if you have a product-market fit, your customers will order more and want more of you anyway.
- Keep ownership of your IP
Self-explanatory :)
- Last but not least. Build a paper trail of everything
Make it a habit. Document any internal decisions or informal agreements. Did you agree on a phone call on something? Write it down and send it via mail for clarity. You want to build evidence on the internal and external discussion you are having, and, meanwhile, you get the benefit of generating clarity and alignment. Plus, you have something to refer to in case of disagreement to establish a firm ground between the two parties.
I guess I read enough American blog posts to feel compelled to write something like this: This is not official juridical advice, do not keep me accountable. Just act according to logic and don't read anything you find online as the single source of truth. It is my opinion, take it as such!
Lastly, if you can afford help: get help. It is always the safest thing, and the last thing you want to do (unless you are working in that area) is to spend all your precious resources and time debating views on clauses in the contract. Put that in your budget when fundraising; it signifies that you are seriously building your company.