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You're about to negotiate a contract with a startup. What should you know beforehand?

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Negotiating a contract with a startup can be exciting and challenging, but also risky and uncertain. You need to be prepared for the different scenarios and expectations that may arise, and protect your interests and rights as a freelancer or consultant. Here are some tips to help you navigate the negotiation process and secure a fair and satisfying deal.

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1 Know the startup

Before you enter the negotiation, you should do some research on the startup you are dealing with. Find out their vision, mission, goals, values, culture, funding, market, competitors, and traction. This will help you understand their needs, priorities, and constraints, and tailor your proposal accordingly. It will also help you assess their credibility, stability, and potential, and avoid working with startups that have unrealistic expectations, shady practices, or high failure rates.

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Komal Singh

Global Growth: Helping Entrepreneurs Expand Worldwide & Minimize Taxes Legally | Manager at Enterslice
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Before diving into contract negotiations with a startup, it's crucial to gather key information. Firstly, understand the startup's goals, values, and overall mission to align your expectations. Familiarize yourself with their financial health and potential risks, ensuring you're aware of any challenges they might be facing. Research market trends and the startup's competitors to gauge industry standards. Be clear on the scope of work, timelines, and deliverables, and clarify any uncertainties to avoid future misunderstandings. Lastly, assess the legal aspects, seeking professional advice if needed, and establish a solid communication channel for ongoing collaboration.

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Norma de Orta

General Counsel | Legal Head | Legal Director | Inhouse Sr. Counsel | Regional Counsel. Positions in commercial e industrial entities??I'm a passionate for analyzing legal challenges and risk reduction strategies??
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Para entablar negociaciones con un startup, necesitas considerar los siguientes puntos; - Análisis de las Necesidades, Capacidades, requisitos y expectativas (fortalezas y debilidades). - Conocimiento de las regulaciones correspondientes. - Preparación de un trabajo de investigación, determinación de objetivos claros y la formulación de conclusiones preliminares. - Aplicación de una Comunicación Efectiva (comunicarse de manera clara, concisa y persuasiva). y determinando la forma en la que se plasmarán las propuestas (conociendo a la otra parte). - Aplicación de la Creatividad, explorar soluciones innovadoras y enfoques no convencionales.

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Alfredo Córdoba de álzaga ??????

Responsable comercial en Conylec
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Entiendo que lo fundamental es conocer las bases jurídicas y económicas que la sustentan, la experiencia de sus miembros y la proyección respecto del producto o servicio que se ofrece. Es importante la red de contactos que pueda existir, la penetración futura que pueda tener en el mercado, etc.

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2 Define the scope

One of the most important aspects of the contract is the scope of work, which defines what you will deliver, how, when, and for how much. You should be clear and specific about the scope, and avoid vague or ambiguous terms that may lead to misunderstandings or disputes later. You should also include any assumptions, limitations, dependencies, or exclusions that may affect the scope. For example, you may specify the number of revisions, feedback cycles, or change requests that are included in the price, and how additional work will be charged.

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3 Negotiate the terms

Besides the scope, you should also negotiate the other terms of the contract, such as the payment schedule, milestones, deliverables, quality standards, ownership, confidentiality, liability, termination, and dispute resolution. You should aim for terms that are fair, reasonable, and aligned with your interests and goals. You should also be flexible and willing to compromise on some points, but not on others that are essential or non-negotiable for you. For example, you may accept a lower rate in exchange for a longer contract or a higher equity stake, but not for a delayed payment or a restrictive non-compete clause.

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4 Consider the risks

Working with a startup involves more risks than working with an established company, as startups are more likely to change direction, pivot, run out of money, or fail. You should be aware of these risks and take measures to mitigate them. For example, you may ask for a deposit, a retainer, or a partial payment upfront, or use an escrow service to ensure that you get paid. You may also include a kill fee, a cancellation fee, or a termination clause in case the project is cancelled or terminated prematurely. You may also limit your liability and protect your intellectual property rights in case of disputes or lawsuits.

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Justin McNaughton

Partner @ CAS | ??? Lawyer for fast-growing Tech Companies / Photographer / Mountain Biker / Dad
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Great contracts won't solve your startup vendor problems. ?? Squeezing high liability limits or aggressive indemnification means little if the company fails. ?? Often, a startup's only safety net is its insurance. Adjust your expectations accordingly. ?? Be mindful that warranties don't matter if the company vanishes. ? Engaging a startup allows you to influence the product roadmap, secure favorable pricing, and valuable access to their team.

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Ankit Malhotra

Contract Associate Manager at Accenture
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Common scenarios that come to mind while negotiating a contract with a startup include setting a high liability cap and establishing an extensive set of warranties to safeguard our interests. However, these provisions hold little to no significance in the event of the startup's failure or bankruptcy. Therefore, the most crucial provision in such contracts is insurance. It is essential to draft the insurance clause in a manner that ensures our interests are protected in any adverse scenarios. Review the Due Diligence report before commencing negotiations to gain a better understanding of potential risks and try to mitigate them in contract. Additionally, with startups, we often hold leverage and can secure favorable pricing for ourselves.

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5 Seek legal advice

Negotiating a contract with a startup can be complex and tricky, and you may not be familiar with all the legal implications and ramifications of the contract. Therefore, it is advisable to seek legal advice from a lawyer who specializes in contracts and startups. A lawyer can help you review the contract, identify any red flags or loopholes, suggest any changes or additions, and advise you on your rights and obligations. A lawyer can also help you enforce the contract or resolve any disputes that may arise.

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6 Communicate effectively

Finally, you should communicate effectively with the startup throughout the negotiation process. You should be respectful, courteous, and professional, but also assertive, confident, and persuasive. You should listen to their needs and concerns, but also express your own. You should ask questions, clarify doubts, and confirm agreements. You should also document everything in writing, and avoid relying on verbal promises or handshake deals. By communicating effectively, you can build trust, rapport, and mutual understanding with the startup, and increase the chances of reaching a successful and satisfying contract.

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Justin McNaughton

Partner @ CAS | ??? Lawyer for fast-growing Tech Companies / Photographer / Mountain Biker / Dad
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Contracts with startups are not normal contracts. They're more like early stage investments. ?? Startups might agree to anything so it's crucial to determine their actual capabilities. ?? A contract cannot compensate for a startup's inability to deliver. ?? Your contract is intertwined with the startup's success; if they fail, you lose as well. ?? Figure out the startup's real strengths and limitations so you can adapt. ? Understanding and leveraging the founders' unique capabilities and encouraging their success improves your outcome.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Contract Negotiation

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You're about to negotiate a contract with a startup. What should you know beforehand?

1

2

3

4

5

6

7

1 Know the startup

2 Define the scope

3 Negotiate the terms

4 Consider the risks

5 Seek legal advice

6 Communicate effectively

7 Here’s what else to consider

Contract Negotiation

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You're about to negotiate a contract with a startup. What should you know beforehand?

1

2

3

4

5

6

7

1 Know the startup

2 Define the scope

3 Negotiate the terms

4 Consider the risks

5 Seek legal advice

6 Communicate effectively

7 Here’s what else to consider

Contract Negotiation

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