Three keys for startup success: mentorship, legal homework, team management

17.03.2019 Three keys for startup success: mentorship, legal homework, team management

The ever-growing ecosystem of Lithuanian startups is ready to meet its unicorn – a business with a value of EUR 1 billion, says Roberta Rodokienė, the Head of Startup Lithuania

The ever-growing ecosystem of Lithuanian startups is ready to meet its unicorn – a business with a value of EUR 1 billion, says Roberta Rodokienė, the Head of Startup Lithuania. However, only a few out of several hundred startups manage to attract investments of over EUR 50 million. Businessmen and investors discussed key success factors for startup business development at Rise Vilnius on March 14th. The discussion was held during the introduction of a new free-of-charge TGS Baltic UP HUB platform providing young entrepreneurs with access to documents and legal advice, which are prepared by lawyers and approved by investors.

According to Vidmantas Drizga, a Partner at the TGS Baltic law firm and the author of the project TGS Baltic UP HUB, startups in Lithuania have all the opportunities to attract major investments – if not from Lithuanian funds, then from foreign ones, which have already accumulated hundreds of millions of euros for the support of promising ideas. However, while market conditions are favorable for business growth, startups are not ready for it. The absolute majority of them lack business planning, financial management expertise, as well as a valid legal base acceptable for investors.

“Preparation is a major factor for the success of a young business. However, startups usually begin investment planning when it is already too late. Based on our experience, businesses with proper legal homework conduct investor negotiations three times faster. But only on rare occasions startup businesses use various accelerators, platforms or mentors, who help to accumulate not only knowledge but also a number of useful contacts. We have all the legal tools that a business needs in order to get ready for investments. Therefore, we have decided to share them with promising businesses free of charge thus contributing to the rise of Lithuanian unicorns. With this in mind, we have created the TGS Baltic UP HUB platform, where startups can find documents approved by investors, register for consultations with professionals, make contacts with their future investors,” said Vidmantas Drizga during the introduction of the website.

Mentorship and legal readiness double the chances of attracting investments

According to Andrius Urniežius, Jun. Associate at TGS Baltic, statistically, a startup with a proper legal base attracts 2-3 times more investments. Furthermore, when a startup is advised by mentors on business development, it tends to attract investments 68% more frequently than acting on its own (Shikhar Ghosh, Harvard Business Review, 2017).

“Statistics shows that mentorship and the company’s legal readiness for investment attraction fundamentally changes investors’ approach to the business. Legal preparation includes not only incorporation papers, shareholder or investment agreements, but also relationships with business partners, i.e. having standard B2C and B2B contracts. Having all these documents well-prepared, startups demonstrate its potential investors that they really have a clear business plan, structure, and responsibility, as well as know business operation principles,” says Andrius Urniežius, co-author of the startup-oriented project TGS Baltic UP HUB.

The same idea is shared by Rokas Pečiulaitis, the Chairman of the Board at a venture capital fund Contrarian Ventures. Rokas says that the major problem of businesses, which apply for investments, is their lack of structure and inability to be in line with market needs. “We invest into 1 percent of startups that apply to us. Usually, startups are not ready, they have no clear business plan, cannot demonstrate how they are going to monetize their idea or what business development stages they are going to have. But now, it is very simple to solve these issues, all one needs is to use the offered tools,” shared Mr. Pečiulaitis.

Proper employment contracts can motivate a qualified team to stay

Investors also evaluate the startup’s plan for retaining the core of its qualified team and developing their competencies. “In terms of employee turnover, millennials tend to be less loyal to employers. They are eager to test themselves in different companies and different areas. Retaining a creative and qualified representative of the millennium generation in a startup is quite a challenge, especially considering that young businesses have limited financial means for that,” says Andrius Urniežius. He suggests a legal tool for solving this problem – share option agreements. “Options, which provide employees with a right for the company’s shares, increase their motivation to deliver the best performance thus supporting the growth of the company’s profitability and contributing to the development of entrepreneurship competencies.”

Rokas Pečiulaitis continues by saying that an incompetent team or challenges in retaining qualified staff account for 23% of failed startups: “Failure to be in line with market needs accounts for bankruptcy of over 40% of young businesses, inadequate financial management – for 30%, while poor team management is the third biggest problem, which leads to a startup’s failure”.

Lithuania is ready to meet its unicorn. All that startups need is to focus on managerial, financial and legal preparation of their businesses for attracting investments. With this in mind, TGS Baltic has launched a free-of-charge platform for startups – TGS Baltic UP HUB, which will help entrepreneurs to turn their business ideas into companies that are ready for financial success.