Risky and innovative, startups are a great way for entrepreneurs to achieve accelerated growth and high profits for their original ideas, on low maintenance costs. This kind of business is on the rise, inspired by success cases such as Google, Facebook, Instagram and Twitter. Brazil has followed the world tendency, and this business model is experiencing a boom: startups are now in more than ten thousand established companies. In 2012 they mobilized more than 2 billion reais in resources.

A startup is basically a group of people looking to implement a pioneer business model that can be applied to a large number of consumers, with an exponential growth prospective, in an extreme uncertain scenario. The main goal, in almost all cases, is to sell the established startup for a large amount of money. However, the informality and inexperience that seem to be the striking feature of this kind of enterprise must not reflect in a lack of legal precaution. Quite on the contrary, the proper care in the creation and maintenance of these companies not only diminishes the risks involved, but also ensures the profits are fairly distributed among all those who have joined forces for the business success.

The very first precaution every entrepreneur must take when starting this business is the protection of its intellectual property. After all, it is precisely the innovative idea that is the core of a startup triumph. That means the partners must never share their ideas with third-parties – such as investors – before signing a well thought confidentiality agreement. In addition, of course, every business related to innovation in software, design or services, must have its patent registered at the Brazilian Patent and Trademark Office. Furthermore, if the business involves IT development, the agreement signed with the developers must ensure the company’s property rights over the products, based on law 10.973/2004.

Parallel to that, starting the business also requires a very important decision for all investors involved: the number of shares assigned to its respective shareholders in the upcoming company. It is common to equally assign shares to the individuals involved, a decision that many times proves to be unfair. An effective manner to evaluate the value which each individual brings to the business is to calculate the risk of opportunity – i.e., how much this individual would earn working in a traditional job, considering their experience along with the money directly invested. This is the value each person is willing to “lose” when joining the startup – the goal is for the profit to be proportional to that amount.

After the launching of the company, the maintenance of the quality of the products and service is an issue the company must constantly observe. For this matter, it is of utmost importance to keep the staff motivated. The usual motivation tool – high salaries – might not be possible. Therefore, the usual path startups follow is to offer their staff a chance of joining the company as shareholders. However, that decision must be taken in a careful manner, in order to avoid extreme dilution of the original shareholders, as well as to prevent that professionals have a considerable number of shares, and eventually, leave the company shortly after.

The sooner the strategy for shareholding assignment is designed, the more effective it will be. Instead of simply granting shares for every potential collaborator as they join the project, the establishment of a period of “vesting” is quite a smarter alternative. This strategy defines a period which is necessary for this person to obtain a certain participation in the company. For instance, to obtain the 5% share promised in a startup, a developer would have to remain in the company for the 5 years to come. After having completed the first year, they would be entitled to 1.25% of the shares, and the remaining would be monthly acquired, in the following 4 years.

Clearly, the issues related to such a fast growing and possibly high profitable company are many. They must be carefully oriented, to ensure that all the hard work involved in launching a startup will pay off. Therefore, experienced legal guiding is indispensable through all stages, since the set up, to define the proper shareholding and the motivational tools, until the final acquisition of the company.