Sometime in 2014 as he was getting ready for the funding round, Sameer Grover, the founder of consumer cashback app Crown-it faced an unexpected hurdle. He was completely unaware that a key feature in the app was unlawful and could lead to litigation until a visiting lawyer friend told him about it.
"I had just couple of lakhs (of Rupees) left with me after developing the product," said Grover at a recent start-up conference organized by Legal League Consulting. "Then I got a quote on how much it will cost me to get a legal opinion, and it took me by surprise. I could have never ever quoted that much money. Because I had just Rs 2-3 lakh; how could I have paid that much for getting legal opinion for fixing a product," said Grover, an alumnus of Delhi College of Engineering. Eventually, he sorted out the issue.
But the challenge Grover faced in the early phase of his entrepreneurial journey is something which is becoming very common in the Indian start-up space now as increasing number of youngsters are taking plunge into the world of entrepreneurship. To address such challenges, the Bengaluru chapter of TiE (The Indus Entrepreneurs), a network of global entrepreneurs, has just launched an initiative called 'Legal Clinic' which offers pro bono legal advice to start-up founders.
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The idea to launch such an initiative came from Roopa Doraswamy, a veteran lawyer and promoter of Doraswamy Law Chambers, who is also a member of TiE. While presently 'Legal Clinic' has got the support of Doraswamy Law Chambers, in future TiE is looking at involving other law firms such as J Sagar Associates, Lexygen, Game Changers and Nishith Desai Associates who are helping the start-up body in some other initiatives.
"There has always been a challenge of getting expert legal help at low cost or free for early stage start-up founders," said Kunal Kashyap, Executive Director-TiE Bangalore. "While we provide few educational programmes like focused workshops etc. on legal basics, there was definitely a need for a one-on-one mentoring 'legal clinic'.
Roopa Doraswamy initiated this idea and was the first to provide pro bono legal advice at TiE Bangalore on one half-day each month."
Currently, Legal Clinic is on a pilot mode, and TiE Bangalore is looking to impact more entrepreneurs apart from bringing in more legal experts for aid the initiative, Kashyap added.
With the start-up revolution that is underway in the country, new age entrepreneurs are often seen starting their journey getting swayed away by ideas which are far ahead of time, addressing segments which were never done in the past. Their journey into this uncharted territory often lands them in legal tangles in the lack of enough clarity about these new ways of doing business. Sorting out the unforeseen legal challenges for the start-ups quite early in their life is also a big challenge because of the huge cost associated with it.
"I would say that any start-up which is starting may be in a new sector or with a drastically new idea, should work on the legal aspects as early as possible," said Manish Kumar, Founder & CEO of Mandii, an online marketplace for financiers and borrowers to raise working capital finance for micro, small and medium enterprises (MSMEs).
"The government is now starting to crackdown some of the online taxi aggregators. Tomorrow, they may come and regulate some other aspects of some other sectors. So, it's good to work early and get to know where you stand as per the law before the regulators come and knock your door."
For the start-ups, the real challenges happen when founders give shape to their dream by incorporating a company. The questions veries from what type of legal entity to choose, what should be co-founder's agreement, employee stock options (ESOPs), convertible notes, vendor agreements and employment agreements among others.
The second big challenge they face when they realizing that if the business they are starting complies with the law of the land. It becomes more challenging as many of them find that the law is not clear enough when you are offering the same services or products using an online platform.
"We have start-ups today who are into B2B (Business to Business) and B2C (Business to Consumer) space, both. B2B is still little more organized systematically because their jurisdiction is identifiable. But when it comes to the B2C, it will spread to the whole country and at time, overseas," said Manoj Kumar, Managing Partner at Hammurabi & Solomon. "So, we see growing up companies who are still in a nascent stage facing legal challenges across the country."
Kumar says that when the industry or segment is in a nascent stage with no clear set up rules to define their functioning, it is always better to start with a robust 'self regulation mechanism' which is ethical. "The best example is media industry which successfully kept the government at the bay by creating credible self-regulation process," he added.