By Adv. Assaf Ben-David
Globes, Tel Aviv, Israel
WWR Article Summary (tl;dr) Before you get your business up and running, you may want to check in with a lawyer. While legal advice is certainly a top priority, business strategy from a legal professional can help entrepreneurs avoid costly mistakes.
Globes, Tel Aviv, Israel
It’s no secret that 90% of all startups fail. Until recently, not everyone could say why, and even fewer knew what could be done to remedy this. It is my opinion, that ‘Legal Mapping’ (notice the word “app” in it, in accordance with today’s startup fashion) can increase a startups’ success rate dramatically.
Before I explain what Legal Mapping is, we should first understand why 90% of startups fail.
In 2014, CBSInsights set out to do just that, and interviewed founders from 101 startups that failed, before compiling a list of 20 key reasons. I would like to focus on five of them, but just to satisfy our curiosity, the two most common reasons were “No market need” (42%) and “ran out of cash” (29%) (notes: (1) the percentages represent the amount of times the reason was mentioned, and (2) most startups mentioned more than one reason — therefore the total percentage exceeded 100%).
The five reasons I would like to focus on are: “not the right team” (23%), “lack of a business model” (17%), “no financing”(8%), “legal challenges” (8%) and “don’t use advisors” (8%) — quick math shows that 64% of the startups cited these reasons, along with others, as the cause for their startups’ failure.
Legal Mapping is a simple concept. It’s a meeting, preferably at a fairly early stage (after ideation, before alpha version) during which the entrepreneurs tell a lawyer about the startup, the team and the business plan, and the lawyer verbally provides a ‘legal map’.
The map should contain the landmines that the entrepreneurs need to be aware of, and the signs that point the entrepreneurs and their startups in the right direction.
Such a ‘map’, assuming it is done by a lawyer with the necessary legal and business experience, even prior to drafting a single document, can decrease the chances of the above five reasons occurring.
For example, “not the right team” can be avoided by the lawyer surveying the key issues in a founder’s agreement and “lack of business model” dealt with by steering them in the right direction from day one. Also, “no financing” and “don’t use advisors” can easily be solved seeing how most law firms are well connected with investors and industry leaders and are happy to network. As for “legal challenges”, no explanation is needed.
Seeing how most lawyers in Israel do not charge for the first introduction meeting, it is surprising that so few entrepreneurs approach lawyers for such a preliminary mapping. The only logical reason for this would be the entrepreneur’s lack of awareness. In reality, most entrepreneurs seek legal counsel only when they’ve hit a legal barrier, feel that they’re doing something illegal, think that they’re about to get funding or are told by investors to ‘tidy up’ the legal aspects.
In light of the above, the IDC Legal Clinic for startups and its partnering law firm, Pearl Cohen Zedek Latzer Baratz & Co., have been working together to encourage startups to seek ‘Legal Mapping’. I believe that the more Legal Mapping given, the more quality startups Israel will have, which will ultimately lead to more investments, jobs and international success stories for Israeli startups.
Although initially providing free counseling might seem counterintuitive, I urge lawyers to support Legal Mapping and am confident that it will return personal, commercial and social dividends.
The author is the Director of the IDC Legal Clinic for Startups at the IDC Herzliya. The clinic provides free legal services to technological startups from target communities and works in partnership with Pearl Cohen Zedek Latzer Baratz law firm.
The services are provided by top tier third and fourth year law students at the IDC and will soon begin its third cycle.