The legal gaps that kill startup deals, according to a lawyer, and how to avoid them

Let me tell you a little story about Jane* …

Jane was the founder of a clever new tech startup. She had a slick product, a loyal fanbase and media coverage that made her look like an overnight success. TikTok was practically frothing over her.

Naturally, to fuel her next stage of growth, Jane set out to raise capital. She rolled out the red carpet for potential investors: data rooms, pitch decks, all the bells and whistles. She had nothing to hide.

And yet… one by one, those once-keen investors quietly faded into the abyss. Ghosted her. Left her on read.

It wasn’t until one kind (read: brutally honest) investor finally gave it to her straight that she realised the issue.

“Your business is a shambles.”

Her trademark was registered in her personal name.

There was no contract in place with the app developer building her core product.

Her “team” were actually independent contractors, but being treated like employees.

In short: Jane had nothing to offer investors. She had a clever product and her pitch was flawless. But legally, she was one big liability waiting to happen.

Sound familiar?

*Not her real name, obvs. But the story? Happens all the time.

Why legal clarity is key to growth

When you’re running a startup, it’s easy to prioritise growth, revenue and building the next viral feature. The legal stuff? That often gets pushed to the “we’ll deal with it later” pile, right next to a dusty business plan and that one time you tried to use Notion.

But it’s these very foundations that are essential to the successful growth of your business, whether that’s raising capital, taking on more staff, expanding nationally or even going global.

In my experience working with hundreds of startups, the ones who scale quickly (and cleanly) have one thing in common: they got their legal ducks in a row early.

Here are the three most common legal gaps I see and how to fix them today (or yesterday):

1. Structure like you mean it

Your corporate structure isn’t just about ticking off a box on your accountant’s checklist. It should be designed with your business’s future in mind. Consider tax efficiency, asset protection and preparing for investment.

If you have a complex business model, or if your intellectual property is central to your brand, then you may need more than one entity to have separation between your key assets.

Additionally, it’s crucial to make sure your structure allows for external investment (if that’s your goal). Too often, I see structures such as sole traders or family trusts that simply don’t leave room for investors.

2. Protect your IP

Every single startup has intellectual property (IP), even if it’s not obvious. It might be your brand name, your content, your logo or the secret sauce. But if you haven’t protected that IP properly then it may not even belong to you and that leaves the door wide open to copycats.

The first step is to identify the IP. For example, is it a trade mark (protects the name or logo), copyright (protects the expression of an idea and the content you’ve created) or a patent (protects a novel invention)?

The next step is to protect the IP, which is usually through registration. Hot tip: make sure your IP is registered to the right entity!

3. Document everything

Handshake deals and “understandings” might work at the pub, but they don’t hold up legally.

Every key arrangement you have needs to be documented. The crucial relationships are often with staff, freelancers, suppliers and customers and that means creating employment contracts, contractor agreements, supply terms, customer T&Cs, NDAs… the whole lot.

Because when things go wrong (and they will), the last thing you want is a he-said-she-said situation over who owns the code, who gets paid what or what happens when someone walks.

If your app developer disappears mid-build and you don’t own the code? You’re not launching. If a key contractor claims they were an employee at law and wants backpay and super? Well, that may just break you.

The bottom line

Startups aren’t supposed to have it all figured out. But when it comes to legal, there’s a bare minimum that investors, partners and buyers will expect. Ignoring the nitty gritty could be the reason your deal dies prematurely.

The good news? These gaps are fixable. With a bit of forward thinking (and the right legal advice) you can build a business that’s investable, scalable and built to last.

So don’t wait for a term sheet to get your house in order. Make your business legally unghostable from day dot. Your future self (and investors) will thank you.

• Marianne Marchesi is the Managing Principal of Legalite, a commercial law firm known for its startup-savvy approach