The Hidden Strategic Partner
Anne Blum

“Move fast and break things”. Nearly a decade ago when I walked the halls of 1 Hacker Way, the headquarters of Facebook, now Meta, this Zuckerberg mantra seemed to be ever present. It was hard not to go a day without hearing it in a meeting or seeing it posted on the walls. It was a rallying cry for innovation, emphasizing speed and disruption as the keys to success — all else was secondary. However, moving too fast and “breaking things” in the wrong realms, whether at a massive company like Meta or an early stage startup, can lead to unintended consequences and important areas being overlooked.

One facet which we’ve often found to be overlooked by early stage startup founders is the legal function. Granted, the legal realm is not the most exciting area, but it is vitally important. A solid legal foundation from the get-go can avoid massive complications down the road (such as this recent case).

Thus, we recently invited Chris O’Connell, the former VP Legal at AppDynamics, DataRobot, and Snyk, to run a legal workshop for our portfolio companies. While we often run these types of talks publicly as part of our Angular Insights podcast series, we ran this workshop as an exclusive, private session solely for our Angular founders. However, the learnings from this workshop were so numerous, that we’re sharing them today so that founders within our extended community can also reap the benefits as they establish their legal foundations.

Why legal matters even for an early stage startup:

Cost control and revenue acceleration. The modern legal function should be a strategic business partner, not just a reactive resource. Legal teams can provide value by helping reduce costs and accelerate revenue. For example, they can lessen outside counsel spend, avoid fines and litigation, and help close deals faster through well-drafted contracts, expediting revenue generation.

Laying a strong legal foundation. Legal priorities for early stage startups include setting up proper corporate structure, and IP ownership to avoid issues if founders or employees leave. Having clear employment agreements in place also prevents litigation. Customer and vendor contracts need to be established early to allow sales. Regulatory compliance is key for regulated industries like FinTech. Creating scalable legal processes upfront prevents “legal debt” down the road.

Avoiding common pitfalls. Startup legal issues often stem from unclear IP ownership, poor employment terms leading to litigation, and lack of customer agreement standards slowing deals. Ensure these areas are properly addressed early.

Pragmatic recommendations for startup founders:

Legal talent matters. Hiring experienced lawyers is key. This is not an area where junior talent should be brought on to save capital. Use your network to obtain recommendations for experienced startup lawyers. This is usually the best way to source legal talent.

Law by design. Founders should bring in legal experts early on to provide input on new products, features, and business processes to avoid legal and compliance issues down the road. Examples include reviewing marketing claims and privacy implications of new features.

Leverage best-in-class customer templates. Well-drafted customer agreements expedite deals. Balance risks fairly, align with customer expectations, use clear language (don’t write in legalese!), and break documents into digestible sections. There’s no need to reinvent the wheel, leverage templates which are readily accessible: NDA template, DPA template, and SaaS customer agreement.

Risk assessment. Assess current legal risks by looking at existing issues and contracts. Get contracts and processes reviewed by legal experts.

US expansion. If you’re considering expanding or incorporating in the US (we recommend it!), carefully handle business formation, immigration, and employment law. Have a lawyer review to ensure the corporate structure and visa strategy are correct. (Jennifer Schear is the best in the business at US visas).

Things to avoid. While some legal debt is normal early-on, be sure to always avoid the following: unlimited liability, IP ownership issues, and lack of caps on breach indemnities in customer and vendor contracts.

Setting up a legal foundation for an early stage startup doesn’t have to be daunting, but it also shouldn’t be done quickly and haphazardly. In short, this foundation is not where you should be moving fast and breaking things. It should be built thoughtfully and strategically with expert guidance from the onset in order to unlock this hidden strategic partner.

Till next time,
Anne

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EUROPE & ISRAEL FUNDING NEWS

Israel / Security. Cato Networks raised $238M to continue scaling its all-in-one networking and cyber security platform.

Denmark / Healthcare. Corti raised $60M to scale its AI ‘co-pilot’ designed to help healthcare clinicians with patient assessments in real time.

Israel / Legal Tech. Darrow raised $35M for its AI-based engine that ingests publicly available documents to search for potential class action lawsuits.

Germany / Climate Tech. Plan A raised $27M for its carbon accounting and ESG reporting platform.

Austria / B2B Marketplaces. Metaloop raised $17M for its online scrap metal marketplace.

France / Cybersecurity. Stoïk raised $10.7M to support the market expansion of its SME-targeted cyber insurance product.

WORTH READING

ENTERPRISE/TECH NEWS

Cisco’s biggest bet. The networking giant announced it would acquire Splunk for $28B, the largest acquisition in its history. Splunk, which has built a robust cybersecurity business on top of its core log-analysis technology, is an interesting addition to Cisco’s capabilities, overnight repositioning Cisco as a leader in cybersecurity and data analysis. Unsurprisingly, it also has implications for Cisco’s strategy in AI. “Cisco CEO Chuck Robbins emphasized the way the deal could help boost use of generative artificial intelligence, a field that has exploded with the advent of highly capable chatbots such as OpenAI LP’s ChatGPT, in cybersecurity and observability. “On top of the data and security challenges, Generative AI is rapidly transforming industries and creating new opportunities,” Robbins said in a blog post. “Together, Cisco and Splunk see a broad range of data across applications, security and the network. With the scale we bring and a deep foundation of trust, we believe we’re very well-positioned to provide customers visibility to their data and enable them to take advantage of the many opportunities with AI.”

Where are the AI apps? David Cahn of Sequoia argued that the development of novel AI-powered applications (especially consumer applications) has lagged behind aggressive investment in AI infrastructure, including foundational models that are now readily available. “As a community, we need to shift our thinking away from infrastructure and towards end-customer value. Happy customers are a fundamental requirement of every great business. For AI to have an impact, we need to figure out how to leverage this new technology to make people’s lives better. How can we translate these amazing innovations into products that customers use every day, love and are willing to pay for? The AI infrastructure build out is happening. Infrastructure is not the problem anymore.”

Amazon joins the AI fray. Amazon finally threw its hat into the AI ring with the investment of “up to $4B” into Anthropic. “The e-commerce group said it will initially invest $1.25 billion for a minority stake in Anthropic, which like Google’s Bard and Microsoft-backed OpenAI also operates an AI-powered, text analyzing chatbot.“

Oracle integrates vector databases. Oracle’s announcement that it would be integrating vector-based semantic search into its core database offers further evidence that vector databases are at risk of becoming a feature of everything rather than a distinct category. “Oracle today announced its plans to add semantic search capabilities using AI vectors to Oracle Database 23c. The collection of features, called AI Vector Search, includes a new vector data type, vector indexes, and vector search SQL operators that enable the Oracle Database to store the semantic content of documents, images, and other unstructured data as vectors, and use these to run fast similarity queries. These new capabilities also support Retrieval Augmented Generation (RAG), a breakthrough generative AI technique that combines large language models (LLMs) and private business data to deliver responses to natural language questions. RAG provides higher accuracy and avoids having to expose private data by including it in the LLM training data.”

HOW TO STARTUP

The choice is yours: the reality of enterprise sales. Benn Stancil put out a really wise post on how “enterprise” startups tend to evolve in real life. The bottom line — and we are always trying to make this case — is that you have to choose what your plan is (SMBs or enterprise) pretty early. As we always say, “there is no phase two.” Phase one has to work and has to get you to $100M ARR. “If there’s a strategic flaw in most early stage startup’s business plans, it’s this. They assume — either explicitly, in their “master plan,” or implicitly, in which competitors they’re planning on replacing — that, once they reach $100 million in revenue, they’ll be making significant revenue from small companies, large companies, and other startups. Instead, companies should ask themselves if they can get to $100 million with eighty percent of their revenue coming from one of the three.” If you are selling into the enterprise (whatever that means), this is a must-read.

A primer on product-led sales. Openview put out a detailed primer on product-led sales strategy, which many believe is the true end-state of most companies that begin in PLG. “Slack, Atlassian and Figma are all prototypical examples of product-led sales despite the common misconception that these are purely self-serve product-led growth (PLG) companies. They may have started out as PLG companies, but matured into product-led sales businesses — they capitalize on PLG to attract prospects, incentivize adoption, compress time-to-value and apply a hyper-focused sales approach to drive efficient predictable growth. Despite challenges related to the initial investment in an instantly usable product and the need for cross-functional orchestration, PLS provides several advantages. By allowing the product to serve as the primary sales driver, companies can lower customer acquisition costs, speed up sales cycles, and achieve a higher lifetime value from each customer. The product itself acts as a continuous touchpoint, collecting valuable user data that can inform iterative marketing and sales strategies.”

Take nothing for granted. Violetta Bonenkamp offers a very critical take on the EU’s “disastrous” innovation grant process. “My overall impression is that you need to choose between building your startup and building a company that gets EU grants. If you choose the latter, grant evaluators will definitely swipe right and EU funding becomes nothing but a numbers game. Every round gets you inches closer to mastering the bureaucratic mambo of grant applications.”

HOW TO VENTURE

The heat is on at YC. It’s unclear why, but it does seem that YC has been rather publicly defensive lately (or perhaps it’s a defensiveness offensive?).

PORTFOLIO NEWS

Aquant was awarded as the Best Overall Vendor at Service Council’s 2023 Smarter Services Executive Symposium

Forwrd.ai, a platform which enables GTM leaders to leverage cross-cloud data to predict outcomes & enable their teams with forward-looking insights. is now SOC2 certified.

Front now goes beyond the unified inbox with a Zendesk-style knowledge base.

JFrog announced the integration of AI and generative AI models with the existing secure software supply chain platform based on Artifactory and Xray.