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Tahir's Tips: Fashion-Tech Start-Ups

Tahir Basheer
14 February 2014

2013 was the year of the fashion-tech start-up, with hundreds of millions of dollars being invested into businesses like Farfetch, Nastygal and Rent the Runway. The sheer number of these start-ups and the level of investment they received led some commentators to suggest that there is a ‘FashTech’ bubble that could burst in 2014. Only time will tell in that regard, but it appears that the boom in fashion start-ups will continue and that 2014 will bring further new fashion businesses whether it be via technology or otherwise.

Setting up your own business can undoubtedly be one of the most rewarding and exciting paths in the industry. If you are lucky it can also be one of the most lucrative! Working with these innovative fashion start-ups is exciting for me too, however it can be eye opening how many start-ups (and even established businesses) don’t consider the internal aspects of the business and the external aspects, as both are important. A start-up can have the best ideas but if it is not organised as a business, this can lead to problems in terms of executing the vision and ultimately the creation of a sustainable business.

It can be daunting for start-ups to juggle all these organisational aspects, so hopefully this checklist of legal matters to consider will be useful:

 

1. Secure the brand via registered trademarks, domain names, social media tags.

2. A fashion business’s success is closely connected to its Intellectual Property, so the business should be able to control and preferably own all trademarks, copyrights, design rights and if applicable patents. It is important that the business has contractual arrangements in place ensuring it controls the Intellectual Property Rights created by its employees, contractors and partners (remember also that Intellectual Property will be an asset that adds value to the business when seeking investment and then later selling the business on).

3. Set up a limited liability vehicle through which the business will contract and thereafter register with the relevant tax revenue organisations.

4. Get the limited liability vehicle investment ready. The start-up should have documentation that not only clarifies the founder shareholders equity position but also forms the basis of making the business as investor friendly as possible though a clear shareholders agreement that has been optimised for any tax benefits passed onto the investors. Think about SEIS and EIS compliant structures.

5. You should consider tax efficient employee incentive schemes that are designed to incentivise employees of your business while at the same time reducing the costs of salaries and bonuses.

6. If you have a website you should have terms of use agreement and a privacy policy if you are collecting any customer data.

7. If you are contracting with third parties (buying stock, hiring freelancers etc.) then you should have in-house agreements you can use. If you use third party agreements they won’t be drafted favourably towards you. Bear that in mind before signing anything too!

8. Think about contracts for any endorsement deals, PR and marketing that you may do. Make sure the price, territory, term and any approvals are all covered together with any specific provisions.

9. Start keeping records of all designs, brands and products created and any further iterations of those. Also keep clear records of transactions and deals that you make. Good filing can help not only when it comes to later due diligence that an investor or buyer of the business might want to undertake but it is also useful if a dispute should arise later in it's life.

 

This may seem like quite a long list, however it is important to at least have these things on your radar. It is sensible (if possible) to budget for legal fees at the outset and remember that firms such as ours are start-up friendly and should offer “start-up friendly” rates and terms to help be part of the founding team as the business grows.

 

For more information on Industry member, Tahir visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email [email protected] or telephone 020 7079 0103. 

Image credit: Catherine Wales by Christine Kreiselmaier.

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