Do not underestimate the value of getting organised from day one, from a legal point of view - Maria Belén Vazquez, Vs Consulting

Maria Belén Vazquez is an experienced business lawyer and the founder of Vs Consulting, a Spanish consulting company supporting early stage startups build a solid legal foundation from the beginning. Over the course of her career, Belén has worked both at a law firm and within companies, which gave her a complete picture of the legal challenges businesses face.

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Working mainly with startups now through her consultancy company, Belén has seen again and again important legal aspects being deprioritised in the early stages of a business. She says that in order for entrepreneurs to lay a strong, strategic foundation, they need to focus on two main legal areas from day one:

“On one hand, commercial regulations, licenses, permits and everything that allows a business to operate legally, depending on the industry and jurisdiction. 

On the other hand, the contractual structure. 

The first one is hard to ignore because without it, the business simply cannot operate. The second one tends to be more deprioritised because founders can be overconfident sometimes and don't believe anything will go wrong.

An impact business usually has a complex architecture: suppliers, partners, communities, freelancers, co-founders. Everyone involved in the process is a relationship that, if it´s not properly documented, is a risk waiting to happen. What complicates things is ambiguity, not knowing what to do if something goes wrong. Taking the time to put a clear written agreement in place professionalises the relationship, separates it from the personal and protects everyone involved.

When things go wrong, they tend to go wrong in a big way: a penalty with no clear responsible party, a labour dispute because the independence model was never defined, a supplier who leaves abruptly and forces the business to reorganise from scratch. 

Structuring things properly from day one does not eliminate the uncertainty that comes with building something, but it does significantly reduce the risks that are completely avoidable.”

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Regardless of the startup’s industry, Belén recommends that the first step on a founder’s legal process is getting organised. 

“From a legal perspective, that means understanding what you have, what legal needs your project is generating and what impact each of those needs has on the business. Without that initial diagnosis, it is really hard to prioritise well.”

From there, prioritisation can depend on what the startup is actually building.

“If your startup relies on a software or a tech development, protecting that is the first thing to do because everything else depends on it. 

If the core is a food product, the most urgent legal needs are probably different, like the contractual structure with the supplier chain you need to put your final product together and the development and registration of the brand you want people to choose.

At the end of the day, you always need to be very clear about what the other person is buying and what's the tool that defines your product because that's what's gonna make the difference with other startups that are developing in other industries and therefore, the legal needs or priorities related with your project.”

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Using AI to generate legal documents can be very helpful, but Belén emphasises the importance of using it as an assistant and not to replace the experience of a lawyer because that leaves room to real risks.

“There’s no problem in using AI to generate an NDA template, for example. What I do think is irresponsible is stopping there, without reviewing or adapting that document with a professional, taking into account the legislation that applies to the business and the specifics of each relationship. 

You might save on legal advice in the short term, but if that document is not properly adapted to your actual needs, it is a short sighted solution that can get very expensive when any future conflict arises.

AI complements, enhances and helps someone who is not a lawyer get oriented, understand what they need and even save time in the process. Legal advice is still the step that turns that starting point into something that actually protects the business and, ultimately, it is about prioritising the responsible growth of your project.”

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Putting together all the correct documents from the early stages is also critically important from investors’ point of view, Belén explains.

“The biggest red flag a startup can show an investor is being unprotected. An investor is coming in to give you a tool to grow and expand aspects of a project that is already running. In that context, there are legal areas that need to look solid so that whoever is putting their money in, feels confident they are doing it in the right place.

I would recommend 3 things to an impact startup:

• Operations: you need to understand the legislation related to your industry. If you don't have the right permits, licenses or local approvals, your business can't operate and that's an immediate red flag for any investor.
• Contractual structure: this may not feel critical at first, but it becomes dangerous when your entire operation depends on those contracts. If a provider faces a labour or commercial inspection and doesn't have everything in order, and you don't have a proper agreement in place, you could be held responsible (not just financially, but operationally).
• Founder / Co-founders: Investors want to see a united, well-structured partnership. A shareholders agreement that reflects clear arrangements, thoughtful decisions and solid mechanisms to keep the partnership strong. A united front is non-negotiable.

The most important red flag is showing an investor that your startup is unprotected and that what you consider yours or "verbally good”, legally speaking, is not. Before going out to raise capital, it is worth doing that exercise: reviewing how protected are the things that actually make your business run.“

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The most important legal documents will always depend on the context, Belén adds, but the ones on company structure, contractual structure and IP will always be extremely relevant.

“Every business is different and even if two projects are in the same industry, they do not necessarily have the same needs or the same risks. The most important legal documents are the ones that help solidify these three structures, always understanding how each question applies to the specific context of each business.”

Another important aspect to keep in mind is about data management. With many impact startups collecting and managing sensitive information and with all of the privacy regulations in place, startups can risk being exposed to big fines. 

“Data protection is a topic that has been escalating for years and the point is not to be constantly worried about what might happen, but to be preventive. 

The most serious mistake a startup can make here is not building a solid legal foundation from the start, one that can scale without having to redo everything from scratch, with all the financial and operational costs that implies.

The first mistake is not identifying from day one what data is being processed, which suppliers are part of the process and what the internal mechanism for using that information looks like. Without that clear map, it is impossible to know what needs to be protected and how. 

The second mistake is not putting internal data use and processing policies in place. If things are not set up properly on the inside, issues on the outside with clients or suppliers become much more likely. 

And along the same lines, the third mistake is ignoring tech providers. If you use a CRM, a payment platform or any external tool that touches your clients' data, that tool is also part of your responsibility chain. Not having data processing agreements with those providers is a real risk.

Finally, if after sorting out the internal side we are not transparent with our clients about how we use their information, we cannot expect to build the trust any business needs to grow. Transparency with the client is not just a legal obligation, it is a competitive advantage.”

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Last but not least, we asked Belén to share one piece of advice with people starting their impact-driven startup today.

“From my experience as a lawyer, having been on the company side, the law firm side and now as an independent having my own small consultancy, the advice I would give is one and it is very much aligned with everything I have been saying: do not underestimate the value of getting organised.

When you are in the middle of creating and building, there are many ideas and actions happening at the same time. It is precisely there, at the beginning, where you need to lay the clear foundations of the business. Only that way, when the project starts to grow, the risks go down, many questions already have an answer and you can improve and scale what is already built, instead of having to reconstruct from scratch.

Getting organised is not wasting time on things that can wait. It is making sure that when your business grows, you can focus on running it so it keeps growing and simply modify or improve the foundations that are already solid.”

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Thank you, Maria Belén Vazquez!