Start-up founders have to juggle many things, from marketing to fundraising and investor relations, but planning for potential legal issues that may arise is something many fail to account for.
During the growth period, entrepreneurs will often allocate funding for other costs, but fail to set aside a portion of their budget for fines or other legal fees that may arise, Abdulrahman Hammad, head of private equity and venture capital at Dubai-based law firm Hammad & Al-Mehdar, told Arabian Business.
“When a company grows, it grows its financing, marketing, sales, and technology capabilities and so on, and it needs to continue to grow its legal capabilities as well,” Hammad said.
He recommends setting aside 1 percent of the budget, whether it’s derived from turnover or from fundraising, for eventual legal fees.
Hammad said that no matter how much revenue a company generates, growth needs to scale accordingly. For small outfits, that may mean strengthening in-house teams, while larger teams may begin to look to outsource certain functions.
Beyond financially planning for legal fees, start-up founders need to have a firm understanding of the laws in the field.
“Different jurisdictions have different requirements, so it’s important to keep requirements in mind,” he said. “If you’re a regulated entity, keep in mind what licences you need.”
More importantly, they need to stay abreast of rapidly changing legislation.
“In this part of the world, we’ve got comfortable that the laws will change once every five years. Now they’re changing every two years, and you get interim updates,” he said. “Being aware of what’s happening in the legal sphere is going to be important.”
In Saudi Arabia, the kingdom is preparing to launch open banking in 2022, and in neighbouring UAE, the Financial Services Regulatory Authority of the Abu Dhabi Global Market in April introduced a new framework to supervise fintech companies that provide third-party services to customers.
Fintech is already one of the fastest growing entrepreneurial sectors, but Hammad said with the advent of open banking, the space will propel even further.
“It’s really going to be a game changer for how the financial industry is going to function, and from there you get to see the accelerated pace of regulation, because now there’s a lot more fintechs available in the market that have access to a broader set of data [enabled by open banking],” he said.
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