‘Commercial awareness’ is one of the most prized qualities that law firms look for in prospective lawyers. A particular theme that continued to crop up in interviews and assessments for me were the issues that a new business faces at its inception. I had experienced these first-hand, in helping my friend set up a new app.
‘How do I protect the idea for my app?’ ‘how do I raise finance for it?’ ‘What legal issues do I face?’ These were some of a barrage of questions my friend asked me when he decided he was setting up a new business. The business was based on a new app that would facilitate the buying and selling of second hand event tickets. Aware that I studied law, he had sought out my help.
I had no idea just how useful this experience would become when applying for training contracts.
What issues did we face?
My friend had done his market research – there was a consumer need for this app – people were still having to buy and sell their tickets in person. Assuming the app could make money, and had the potential for growth to generate future profits, the first issue we faced was physically creating the app.
As we both lacked any coding skills whatsoever, one option was to approach professional developers and negotiate a price with them. I suggested engaging a computer science student with experience in building apps (which I thought would be cheaper). As it turned out, we were quoted £24,000 to make the app.
This led us onto the next issue – how would we get funding? (A year later I was asked this exact question in an interview.)
We knew banks would be reluctant to lend to students (although we thought we had a convincing business plan) and we couldn’t offer any collateral for a loan. We did apply for some government and private grant schemes, but the most promising source of funding came from venture capitalists. My friend pitched the idea to investors, and they agreed to invest (for a 20 per cent equity stake) if we could prove that people would use the app.
But presuming we could get this funding, we had to ensure that these app developers wouldn’t just go off and build the app for themselves. This is where intellectual property came in – copyright law only protects the expression of an idea, not the idea itself, so we had to create our app ASAP. To make it even more complicated, we had to deal with copyright up front with the developers, or risk them owning the intellectual property of the app. We also applied for a registered trade mark for the app’s name. This was reassuring when we later found out that someone else at the university was trying to develop an almost identical app.
One thing I could do was draft a basic non-disclosure agreement for the developers we had shared our idea with. It was the first time I had applied my understanding of contract law in real life. Truth be told, I had no idea if my agreement would ever be enforceable in court, but the developers didn’t know that.
How would the business be structured? This was an issue my law degree had not touched on. There would be important liability and tax consequences from this choice. Fortunately, my friend was aware of the benefits of establishing a limited company over a sole proprietorship (legally separating the liability of the business from personal assets).
I spoke to students who had set up their own apps, and it turned out that we also needed an EULA (end user licence agreement) which I had never heard of. But it isn’t technical legal knowledge that you need to show in an interview– you don’t need to know every licence in the world, you just need to be aware that these issues exist.
Not knowing all the answers
There were clearly a lot of issues to deal with, and this was before we had even made the app. Successful start-ups may go on to conduct an initial public offering or be taken over by a larger company, which is where commercial lawyers really get their teeth stuck in.
Getting stuck in to this brand-new start-up was a great talking point at interview for me and really helped to build my commercial acumen, far more than reading the business press. I would encourage any prospective commercial lawyers to get involved in their university entrepreneurs society or help to start a business.
Of course, I only knew the answers to a handful of the questions my friend asked and had no experience in setting up a business. A large commercial business such as a hotel would need to consider a whole host of more complex issues such as tax, cash flow, licensing, employee contracts, and insurance. You would require extensive expertise and collaboration from various legal departments and external experts. You wouldn’t know all of the answers. But I think that’s one of the things that makes commercial law so exciting.
Fraser Collingham is a Law with Australian Law graduate from the University of Nottingham. He is due to start a training contract in September 2019.