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How can I form my own wearable tech startup in New York?

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Mary Madeline Roberts - Business/Corporate - Super Lawyers

Answered by: Mary Madeline Roberts

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Prior to launching a wearable tech startup, due diligence must be conducted to avoid future litigation and legal disputes. The first component of due diligence is to evaluate the startup’s short- and long-term cash flow needs. Next, you will need to decide what your startup’s organizational structure will be. Once you select a structure, you should consider the relative risks and liability exposure associated with the startup’s structure and composition. Hiring a lawyer can ensure that all financial aspects are evaluated before you move forward.

Consider Cash Flow Needs

You should have a clear understanding of what the relative short- and long-term cash flow needs will be of your wearable tech company. You should consider the short-term cash flow needs, including how much money will go toward manufacturing costs, legal fees and supplies. For the long term, you should think about the potential legal exposure of your wearable tech product. For example, if another company accuses you of infringing on their intellectual property, could you afford the legal fees? It is important to be able to answer “yes” before proceeding.

Unfortunately, some budding entrepreneurs make the mistake of relying solely on business partners or outside investors from the onset. They take out loans or even create partnership ventures. However, these approaches can stagnate if not eliminate your ability to gradually raise capital over a sustained period of time. A partnership venture forces cash flow responsibility on both parties, even if only one partner is funding the operation.

When the success of your startup is contingent upon your ability to receive outside funding, you and your partner may be locked in from a cash flow perspective. Addressing your cash needs upfront can prevent investors from running out with founders’ shares. While you may be eager to introduce your wearable tech startup to the world, make sure you know where your cash flow needs lie in the immediate and far future.

Select An Organizational Structure

Before selecting an organizational structure, you should determine the organizational composition of the startup. However, you must first analyze the startup’s short- and long-term foreseeable cash needs. Cash flow will determine the startup’s composition, including the employees and investors who will be involved. The less you rely on outside funding and investors to grow your company, the more flexibility and opportunity for development you will have. Ultimately, your company’s organizational structure will be dictated by the organizational composition and cash flow needs, which is why it is important to discuss these issues from day one.

Evaluate The Risks And Liability Exposure

The final thing to consider when forming your own wearable tech company is the relative risks and liability exposure. The relative risks of your company will be based on the cash flow exposure needs. If you only have cash flow in the short term and you want to create a wearable tech business community, your immediate cash flow will go entirely into patenting the idea and any startup legal costs. The best way to avoid this is to have a clear financial plan.

Liability exposure, on the other hand, is determining how risky the wearable tech is that you are sending to the public. Wearable tech has the potential to be a dangerous product. The riskier the product is, the more due diligence and legal startup costs will be required to launch. This is something to consider before making any significant decisions in regard to cash flow, structure or composition.

Hire A Lawyer To Avoid Legal Issues

Wearable technology is a unique product that poses one-of-a-kind liability exposures. As such, it is important to select an attorney whose experience goes beyond contract law. They should also have the wherewithal to form operating agreements as they relate to your unique product. Due to the legal, financial and structural issues in play, it is critical to receive legal advice. An attorney can analyze financial aspects such as cash revenue, including venture rounds and cash flow. Having a lawyer on your side is the best way to prevent your startup company from becoming involved in future litigation that could hinder its success.

Disclaimer: The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.

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