COVID-19 Update

Starting a Technology Start-Up? Dream big and plan to avoid your dreams come crashing down

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There is an abundance of material available for those thinking of establishing a start-up, including a multitude of lists of the top do’s and don’ts.

It is estimated that there are 50 million new businesses launched every year in the world (or 137,000 a day). Australia-specific figures are not readily available but some estimates put the number of new Australian business each year at around 350,000, of which around +/- 1,000 are technology start-ups.

R&D and technology innovation is seen by some as a key path through COVID-19 disruptions and current economic challenges. The spotlight on the start-up sector is only likely to shine ever brighter as both federal and state governments look at ways to build upon and leverage Australia’s undoubted strengths (strengths that to date are yet to be fully realised).

With so much information available, it is difficult for those involved in a new start-up to make head nor tail of it, or know where to start.

To help cut through the confusion, if there is one thing that those contemplating a new start-up should do to navigate the maze of information and put their best foot forward, it is this:

Set up your business as if it is going to be the next Wi-Fi technology or black box flight recorder (both Australian inventions) because you never know, it might just be.

In other words, start as you mean to finish.

That doesn’t mean that you should expect such worldwide success or spend disproportionate sums of money seeking to obtain it.

But thinking in these terms does have the effect of focussing the mind on the what ifs, and what you would hope to expect from such success.

Would you expect to benefit from the success, whether that is financially or some other benefit?

Would you expect others to piggy-back off your success for free and reap their own rewards?

Even those who go into a start-up with the most altruistic intentions are still likely to want to have the say over how their technology is used and by who.

Whether the start-up begins its life on the proverbial kitchen table or you are fortunate enough to have the resources to start off in a high tech research facility, the considerations are the same:

  • Who owns the technology? If more than one person, in what proportions?
  • How will your rights in the technology be protected?
  • Who decides how the technology will be developed?
  • Who will be responsible for developing the technology and how much time (and money) will they commit to the development?
  • Who will decide when the technology will be launched on the market and how?
  • How will revenues be divided up to repay start-up funding, compensate those that have devoted their time, and reward those that originated the idea and have supported its development?
  • How much tax will you need to pay when you sell the business?

The entrepreneurial spirit lends itself to dreaming big and there is nothing wrong with that. It is especially useful when facing the inevitable obstacles and setbacks as a reminder of why the start-up began in the first place.

Use those big dreams and what it will mean to your life, and then work backwards to that kitchen table or lab.

What do you need to do to ensure that if your technology flies at the height of a black box your dreams will be realised?

Sketch out a roadmap to your dreams and then identify things that might go wrong. What can you do to try and make sure that they don’t happen?

Often the solution will be having a clear plan and a clear understanding between all those involved in the start-up across all stages of its life.

Those involved will evolve and change but if expectations are clear at the outset of each stage then it is far less likely that a start-up will become a battleground from which no one – except the lawyers, emerges victorious (and certainly not the technology and start-up itself).

Clearly, it is best for formal legal agreements to be put in place around the technology and start-up venture. In that way, issues can be more comprehensively addressed and nothing overlooked.

If that is not possible (likely at the kitchen table stage), then at least record the key terms on paper and get each party involved to sign them. It is always much easier to agree terms in the initial excitement of a start-up than when the going starts to get tough (as it will).

Dream big but don’t lose sight of the end goal. Start off as if your technology will achieve worldwide success and then make plans to avoid those dreams come crashing down.

FAL has been assisting clients achieve their start-up dreams for over 25 years. Please contact us to discuss how we can help realise your own start-up success.

Contact FAL Lawyers for all enquiries