This note is provided for information purposes only and does not constitute legal advice. Specific advice should be sought according to your circumstances.
The corporate in-house legal team’s role is to protect against both reputational and financial risk and to make sure commercial agreements represent the best interests of the company. However, working with startups demands a more pragmatic approach than usual; standard vendor contracts might not be appropriate for the proposed transaction. Standard legal processes may be lengthy and result in delays that pose a threat to the innovation process.
Working closely with your legal team will help you move through this stage of collaboration as efficiently as possible.
Make sure that your legal department understands the project’s priority level and is aware of the importance of speed in the transaction.
Discuss the possibility of expediting contracts with startups by putting in place a Heads of Terms or Memorandum of Understanding (MoU) agreement. These are shorter form documents that outline the key terms agreed between the parties and can reduce the length of legal negotiations, because the core of the agreement effectively already exists.
Large corporations commonly use in-house ‘standard-form’ contracts when entering into commercial relationships, because these agreements are designed to describe a legal relationship between two corporate entities. But their level of detail and complexity may be inappropriate for contracting with a startup.
Many of the terms in a standard-form contract may need to be simplified or removed altogether. Bear in mind that amending these types of contracts can be expensive for startups in terms of management time and legal fees, especially in the early stages of their lifecycle. Pragmatism, flexibility and a timely approach to the deal will help ensure that the deal doesn’t fall over before it has even been signed. Set the tone for open communication to establish a good commercial relationship.
The startup will want to be sure that the contract is appropriately tailored to the deal and that the provisions fairly reflect its position. It may choose to propose a first draft of the agreement itself or share its own bespoke terms and conditions, which may be a more relevant starting point.
Ideally, both the commercial team and the legal team within the corporate will work side-by-side to ensure that the corporate puts forward one aligned position. This will negate the need to unravel any terms which the startup may have felt had already been commercially agreed.
Consider working with your legal team to create a brief legal contract specifically for working with startups, designed for faster completion. If you do, it should aim to appropriately apportion risk without being prohibitively burdensome for startups. The terms will of course depend on your sector and the types of startups you contract with.
Irrespective of the subject matter of any commercial arrangement, a few areas will be of underlying importance when negotiating legal contracts:
● Payment terms
● Intellectual Property
Also consider data protection, commercial arrangements and specific regulations within regulated sectors
A successful negotiation process relies on clear communication between relevant stakeholders, the timely involvement of the legal team and alignment on key contractual terms. This will ensure that any agreement reached adequately reflects the commercial terms and has the approval of your external or in-house legal team. It will also help to prevent unnecessary delays.
Although sometimes it’s more efficient to go straight to negotiating the detailed contract itself, you can speed the process by making sure that fundamental commercial terms are agreed before legal documents are put into play. They then form the basis of the contract, leading to a smoother legal process. Start to work with your legal team early on to document any agreed terms in a summary email or, if a more formal approach is required, a Heads of Terms or Memorandum of Understanding document.
Discuss with your legal team whether the legal aspects of startup engagements can be streamlined and processes optimised. This would reduce additional work and delays.
Whilst there will always be a need for individual contract elements in open innovation, some areas differ to regular contracts and could be standardised to create a fit-for-purpose open innovation contract. Standardised contracts should be optimised to protect against an appropriate level of risk for the transaction type and therefore speed up the legal process and the whole transaction.