{"id":57532,"date":"2026-06-30T10:41:59","date_gmt":"2026-06-30T10:41:59","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=57532"},"modified":"2026-06-30T10:41:59","modified_gmt":"2026-06-30T10:41:59","slug":"dear-founder-tie-your-shoes-before-you-start-the-race","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/dear-founder-tie-your-shoes-before-you-start-the-race\/","title":{"rendered":"Dear Founder: Tie your shoes before you start the race"},"content":{"rendered":"
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Authors:<\/span>Michael Reid<\/a>Becky Rock<\/a><\/div>\n
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The Silicon Valley rallying cry \u201cmove fast and break things\u201d has become a kind of creed for several generations of founders. It appears on office walls, punctuates pitch decks, and often serves as justification for rushed decisions. There is truth in it: startups that stall in analysis paralysis rarely succeed. Speed matters. But there is a critical distinction between moving quickly with intention and moving with reckless abandon.<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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We all know the adage about not running before you can walk. In practice, the issue is even more basic: many founders need to tie their shoes first. Early decisions, such as how the company is structured, who owns what, and what agreements are in place, are not administrative details to be brushed aside in the rush to build a product or close a pre-seed round. They are the foundation on which everything else is built. Ignore them or get them wrong, and you may spend years and significant capital trying to undo the damage.<\/p>\n

This is a case for deliberation \u2013 not slowness or bureaucracy, but disciplined thinking, especially where the cost of fixing mistakes far exceeds the cost of getting it right the first time.<\/p>\n

Measure twice, cut once: Founder equity and cap table structure<\/strong><\/p>\n

Perhaps the most consequential early decision a startup makes is how equity is divided among its founders. It is also, regrettably, one of the decisions most frequently made over a handshake and a pint. Founders who split equity equally on day one, without any vesting mechanism, without discussing contribution expectations, and without thinking about what happens if one founder departs or fails to perform, are planting landmines for their future selves.<\/p>\n

All too often, the starry-eyed optimism and trust from the early days are abruptly replaced with a hefty dose of reality when things (inevitably) change. Consider the founder who leaves six months in, retaining a third of the company outright because no vesting schedule was ever implemented. The remaining founders now face a dead weight on their cap table that will complicate every future fundraise, every option grant, and every potential exit. Rectifying this after the fact \u2013 if it can be rectified at all \u2013 requires the departed founder\u2018s consent, legal fees, and frequently a buyout at a price that bears no relation to the value that the former founder actually contributed. A properly drafted founders\u2019 agreement with sensible vesting provisions, discussed and agreed upon before a single line of code is written, costs a fraction of the price and avoids the problem entirely. It sets a baseline which can always be renegotiated later if desired, but which also works out of the gate.<\/p>\n

The same principle applies to early cap table decisions more broadly. Giving away excessive equity to advisers, early service providers, or friends-and-family investors without understanding dilution mechanics can leave founders with a structure that is deeply unattractive to institutional investors \u2013 and restructuring a cap table under the time pressure of a financing round is an expensive and deeply unpleasant exercise.<\/p>\n

Starting with a back-of-the-napkin plan is fine as long as you then get proper advice and formalize your agreement. The key isn\u2019t getting everything exactly right on the first go, but rather thinking of the \u201cwhat if\u201d scenarios and making sure you have some pressure release valves in place.<\/p>\n

Don\u2019t get too far out over your skis: Intellectual property assignment<\/strong><\/p>\n

Another scenario that sadly arises with regularity: a startup has been operating for two years, has built a meaningful product, and is now seeking Series A funding. During due diligence, it emerges that the company\u2019s intellectual property was never formally assigned to it. For example, the founders built the initial product before incorporation, key early developers were engaged as contractors without proper IP assignment clauses, or employees were hired without ensuring their employment contracts contained adequate IP provisions.<\/p>\n

The legal position is stark; without a valid assignment, the company may not own the very thing it is selling. Fixing this retroactively requires tracking down every individual who contributed to the product\u2019s IP, persuading them to sign assignment documents (often for a payout, since past consideration is not valid and the individuals know there is money on the table), and hoping none of them have become hostile, disappeared, or died. If everyone is still with the company, and if everyone is on good terms, and if everyone is willing to sign on the dotted line right away, this can be fixed quickly. However, those are a lot of \u201cifs\u201d when a financing is on the line.<\/p>\n

We have seen funding rounds collapse over this issue. We have seen acquirers walk away. We have seen individuals hold the company hostage for a massive payout in order to secure a simple confirmatory assignment. Done properly at the outset, the solution is a simple, inclusive, forward-looking assignment agreement coupled with a well-drafted contractor or employment agreement \u2013 documents that cost virtually nothing relative to the value they protect.<\/p>\n

A stitch in time saves nine: Regulatory and compliance foundations<\/strong><\/p>\n

Founders building in regulated sectors \u2013 fintech, healthtech, edtech, anything touching personal data \u2013 frequently adopt the posture that compliance is a problem for later, once there is revenue and scale. This is understandable, and may make sense in the absolute earliest exploratory stages, but is a dangerous mindset if allowed to continue into production. Regulatory frameworks are not designed to be retrofitted. A product built without data protection by design, for example, may need to be substantially re-engineered to achieve compliance. The cost is not merely legal; it is engineering time, delayed launches, damage to reputation, and lost momentum.<\/p>\n

Consider compliance with the EU\u2019s General Data Protection Regulation (GDPR) as a straightforward illustration. A North American-based startup that has been collecting and processing personal data for individuals in the EU for eighteen months without lawful bases, without proper privacy notices, without data processing agreements with its sub-processors, and without records of processing activities faces an enormous remediation exercise, because it had no idea about European compliance regimes. Worse, if a data subject complaint or regulatory inquiry arrives before remediation is complete, the company faces potential enforcement action and reputational damage that no amount of retrospective paperwork can undo.<\/p>\n

The same logic applies to sector-specific licensing. Operating without required authorizations \u2013 whether in payments, insurance, or healthcare \u2013 does not merely create regulatory risk. It can render contracts with customers void or unenforceable, create personal liability for directors, and, in some cases, constitute a criminal offence. These are not problems that can be solved by moving\u00a0faster<\/em>.<\/p>\n

You can\u2019t unscramble an egg: Employment and contractor classification<\/strong><\/p>\n

The gig economy has made it fashionable to engage everyone as a contractor. It is cheaper, simpler, and avoids the obligations that come with employment. It is also very frequently wrong as a matter of law. The distinctions between an employee, a dependent contractor, and an independent contractor are determined by the reality of the relationship, not by the label the parties choose to apply to it, or the title of the agreement used.<\/p>\n

A startup that has engaged fifteen \u201cindependent contractors\u201d who work exclusively for the company, use company equipment, follow company processes, and have no genuine ability to profit from their own enterprise is likely to discover, usually at the worst possible moment, that those individuals are in fact employees or dependent contractors. The consequences are retroactive liability for holiday pay, pension contributions, tax, and national insurance, and potential claims for wrongful dismissal and other employment rights.<\/p>\n

Similar concerns arise when engaging employees (or contractors) outside of the company\u2019s primary jurisdiction, whether in another province or another country. Engaging without proper advice can lead to the same issues above, with the added potential risk of your company suddenly being found to (unintentionally) be a taxpayer in that foreign jurisdiction. Untangling two or three years of misclassification, or disentangling complex cross-border tax issues, is vastly more expensive and disruptive than engaging people correctly from the outset.<\/p>\n

Focus on velocity, not speed<\/strong><\/p>\n

None of this should be read as an argument against moving fast. The best founders we have worked with move quickly, but they move quickly in the right direction, having taken the time to understand the terrain. They invest a small amount of time and resources at the outset to establish a sound legal foundation, and this investment repays itself many times over by avoiding the enormous costs \u2013 in money, time, management attention, and sometimes the very survival of the business \u2013 that come from trying to fix fundamental errors after the fact.<\/p>\n

The next time you feel the urge to \u201cmove fast and break things\u201d, remember that haste is only useful if you know what you’re doing. If you don\u2019t tie your shoes, you\u2019ll trip over your laces; if you tie them without knowing how, you may end up with your feet bound together. Either way, you\u2019re heading for the pavement. Speed, after all, is not the same as velocity. Speed is just a rate of motion; velocity is motion with direction. The founders who build enduring companies are not the ones who move fastest; they are the ones who properly lace up (double-knots optional) and know where they are going before they start to run.<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-57532","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/57532","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=57532"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}