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Six legal obligations to consider before joining Startupbootcamp Cape Town

Startupbootcamp Cape Town’s acceleration programme kicks off this Monday (4 September). There is big money involved, with participants getting up to €450 000 in benefits from the programme in exchange for an eight percent equity stake. So what are the kind of legal nitty-gritties behind joining a global accelerator’s programme.

Startupbootcamp Cape Town co-managing director Zachariah George together with Juliette Thirsk and Shelley Mackay-Davidson of Brevity Law explain the agreement to Ventureburn (the same agreement that all 10 participating startups last month signed with the accelerator).

Read more: Startupbootcamp receives 518 applications for first Cape accelerator

Here are six legal issues a participant on Startupbootcamp should consider before joining the programme.

1. Sign a shareholder’s agreement

First off startups are required to sign an agreement regarding their attendance in the programme and must enter into a basic but comprehensive shareholder’s agreement which defines boundaries and articulates expectations. It also lays out a framework within which a business can grow, explains Juliette Thirsk of Brevity Law (pictured left), Startupbootcamp Cape Town’s legal partner.

The agreement mainly covers five areas, namely: shareholding, intellectual property, good governance principals, unforeseen events and dispute resolution. It is a record of the shareholding agreement between the startups and the accelerator and it preserves Startupbootcamp’s shareholding up to a certain defined point.

Startupbootcamp may ask a startup taking part in its programme to undergo an audit

The agreement ensures that intellectual property (IP) belongs to the startups, puts in place basic good governance principles like monthly reporting and provides alternative resolution of disputes via mediation first and then arbitration. It also deals with any unforeseen events like investment partners acquiring a stake in the startup or even the exit of one or more shareholders.

2. No selling shares without consent

Founders cannot sell their shares or take on further investors without Startupbootcamp’s input and consent, says Mackay-Davidson. “Customary drag-along and tag along clauses in the shareholder’s agreement mean that a majority of shareholders cannot exit the startup without including the minority shareholders in the transaction,” she says .

“Furthermore certain material decisions like a material change in the startup’s business or the issuing of new securities require Startupbootcamp’s consent. It is important that founders not start or be involved in competing businesses,” adds Mackay-Davidson.

3. You may have to undergo an audit

The accelerator may request that startups undergo an annual audit.

4. Restraint of trade

Founders are bound by a reasonable restraint of trade and are prevented from exploiting the startup’s intellectual information or intellectual property.

5. Don’t be unprofessional

Startupbootcamp co-managing director Zachariah George says that although programme participants were carefully selected, startups that exhibit unprofessional, racist and sexist conduct or otherwise act in a way which brings the Startupbootcamp programme can be asked to leave the programme.

6. Meet quality standards

In addition, if an entrepreneur fails to meet the quality level and standard expected of them at the beginning of the programme, Startupbootcamp Cape Town may disallow a startup from presenting to prospective shareholders at Demo Day.

George says Startupbootcamp carefully selects its programme participants, and provides ongoing mentorship throughout the programme, which is intended to mitigate against the possibility of any such unfortunate scenarios occurring.

“While these are within the rights of Startupbootcamp Cape Town, the likelihood is exceedingly minute as a team with those qualities would not make it through the scouting and selection process. Once a team is in the programme, Startupbootcamp Cape Town goes to great lengths to ensure that they succeed, regardless of how much work may be required,” says George.

Featured image: Juliette Thirsk (left) and Shelley Mackay-Davidson (right) from Brevity Law (Supplied)