10 Legal Hurdles You Have to Tackle After Raising Your Series A

Raising a Series A is a significant milestone for any startup. It signals investor confidence and proves your business has real potential. But the achievement brings a new set of responsibilities. From here on, you have to show you can scale quickly and hit the next milestones on the way to Series B and beyond. That includes legal challenges, which will cross your path many times. As you grow, the business gets more complex and you need to build a more mature company around it. Navigating these legal waters well is crucial for keeping your momentum and setting the stage for future success. Below are 10 key legal hurdles to address after securing Series A funding.

1. Implement your new corporate governance and comply with it

The influx of Series A funding usually brings changes to your corporate governance. New investors typically seek board representation, and you will have negotiated a whole new set of reporting obligations and consent requirements. The task now is not just to implement these changes but to stay compliant with the new framework. If you don't comply with your articles of association or shareholders' agreement, you could even trigger a bad leaver event.

What to look out for:

• Organize your new board: Agree on board meeting dates for the next 12 months in line with your shareholders' agreement, typically a quarterly cadence. In your first board meeting, discuss the structure of future board packs and standard investor-specific agenda items.
• Review consent requirements with the management team: Every member of the management team should be aware of the consent requirements around decision-making. Complying with them is crucial. Make sure no contracts are signed and no decisions are made without the necessary approvals. It makes sense to implement a governance tool to manage shareholder and board resolutions from now on.
• Set up new investor reporting: Your shareholders' agreement sets out reporting obligations to your shareholders. Start right away and prepare your new standard reporting package.

2. Discuss legal due diligence findings and tackle them

During the Series A process, investors usually run thorough legal due diligence on your company. It may have felt nerve-wracking before signing, but now you and your company can really benefit from it. Due diligence often surfaces areas needing legal attention, from contract irregularities to compliance issues. Addressing these findings is crucial for mitigating risk and solidifying investor trust.

• Ask your investors for due diligence findings: Talk to your lead investor about any findings you are not already aware of. It shows you are running the company professionally and gives you a chance to mitigate risk.
• Renegotiate contracts where needed: Investors often find risks in contracts you previously signed. Review those contracts and renegotiate where needed.
• Enhance compliance measures: Now is the time to put robust compliance measures in place to fix any regulatory shortcomings identified.

3. Grow your team in compliance with employment law

You finally have the money you needed to grow the team. Now it's important to do so in compliance with employment law, with the right contractual structures to hire quickly. This involves:

• Develop comprehensive employment agreements: Get templates for different types of employment relationships (fixed-term, part-time, freelancer agreements, working student contracts).
• Think about your first policies: With a small team, workplace policies were not a priority. That changes as you grow. Set up home office and remote work policies, and make sure employees comply with data privacy laws and other important security measures.

4. Check if you have the right incentive structures in place

Incentives are key to attracting and retaining top talent. Post-Series A, reassess your incentive structures to make sure they align with your growth objectives and stay competitive in the market. This includes:

• Equity compensation plans: Review and potentially restructure your stock option plans to balance employee motivation with shareholder interests. If you are a German company, consider whether now is the right time to invest in setting up the new tax-beneficial EIP structure. You can find more about it here.
• Salary structure: Now is the right time to plan a proper salary structure and set ranges for different roles (for example: junior, mid-level, and senior developers).

5. Review your contracts against your monetization plans

Post-Series A is an ideal time to revisit and realign your contracts with your monetization strategy. This is a crucial step to ensure all agreements support, rather than hinder, your business model. Key areas to focus on:

• Customer and vendor agreements: Review these contracts for terms that could affect revenue recognition, service levels, and liability.
• Licensing agreements: If your business relies on intellectual property, make sure your licensing agreements are optimized for revenue generation and asset protection.
• Partnership agreements: Align partnerships with your monetization goals, ensuring mutual benefit and legal compliance.

6. Set up the legal tools you need to scale quickly

Scaling a business requires not just financial capital but a solid legal foundation. The right legal tools and processes are essential for smooth scaling. This includes:

• Automating legal processes: Implement tools for contract management, compliance tracking, and legal document automation.
• Creating scalable legal frameworks: Develop legal templates and frameworks that adapt easily as the business grows.
• Risk management strategies: Establish clear procedures for identifying, managing, and mitigating legal risks in a scalable way.

7. Decide if it's the right time to hire your first legal team member

As your startup grows, so does the complexity and volume of legal work. Consider whether it's time to bring on a dedicated legal professional. The decision depends on factors like:

• Volume and complexity of legal work: Assess whether the current workload justifies a full-time legal hire.
• Cost-benefit analysis: Compare the cost of an in-house lawyer against outsourcing legal tasks.
• Strategic importance of legal issues: If legal matters are central to your business strategy, in-house expertise may be crucial.

8. Check your intellectual property protection

Intellectual property can be a startup's most valuable asset. Post-Series A, it's critical to ensure all IP is adequately protected. This involves:

• Conducting an IP audit: Identify all IP assets and ensure they are properly protected (patents, trademarks, copyrights).
• Securing IP rights: If there are gaps in protection, take immediate steps to secure these rights.
• IP strategy alignment: Ensure your IP strategy aligns with your business goals and strengthens your competitive advantage.

9. Data privacy and security laws

In an era where data is king, complying with data privacy and security laws is non-negotiable. This is especially crucial if your business handles sensitive customer data. Key steps:

• Understand applicable laws: Be aware of all data protection laws relevant to your markets, such as GDPR in Europe.
• Implement data protection measures: Establish robust data security protocols and privacy policies.
• Run regular audits and updates: Continuously monitor and update your data protection measures to ensure ongoing compliance.

10. Prepare for your next financing: now

Finally, while it might seem premature, start preparing for your next financing round immediately. That means storing all legal documents in a proper data-room setup, managing your cap table properly, and always being ready for your next financing conversations.