Young start-ups learn grown-up reality

Kevin Livingston

If there is one constant with technology start-ups, it is failure.

New guide helps entrepreneurs navigate the legal landscape   

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If there is one constant with technology start-ups, it is failure.

The concept of “serial entrepreneurs” and the mantra of “fail fast, fail often” are embedded in the startup culture of Silicon Valley and slowly taking hold here. It was even a theme at the June 9 SmartStart awards, a nine-month innovator program for budding tech entrepreneurs.

Speaking at the event, even National Bank of Cambodia Director-General Chea Serey emphasised risk-taking in reference to some of the biggest US tech companies that were founded by people who dropped out of college. “If you have a dream, follow it,” she told the SmartStart group. “I encourage you to take more risk. You are going to fail but you are going to learn.”

While most behind the push for more tech start-ups in Cambodia agree that it is sound advice, what often goes missing legal experts say, is the idea of being legally prepared to crash so you can get back up. Start-ups, they say, also need to know how to attract investors and that requires having their legal house in order.

“Start-ups need to take the law seriously,” says David Haskel, director at Abacus IP, a Cambodian trademark, patent and intellectual property (IP) agency. He is also the director of Cambodia StartUp Advisers (CSA). “They can get away with doing things informally, until they can’t.”

For that reason, Haskel says, CSA recently released the Cambodia Start-up Handbook, a guide to helping start-up founders navigate the legal landscape and such issues as incorporation, labour law, start-up finance, tax basics and incentives, and a full range of topics on intellectual property.

CSA is an alliance of legal, tax and intellectual property advisory firms. The book deals with systematic approaches for all stakeholders to develop the Cambodian digital economy. “Too many founders in Cambodia waste too much time figuring out basic things like setting up their companies or paying taxes,” Haskel says.

It is Cambodia’s first publication that addresses legal, tax and intellectual property issues for startups and also features an analysis of relevant laws and current practices.

“The growth model of start-up differs from that of other businesses in their need to raise successive rounds of capital,” Haskel says. “While a traditional business might be able to raise what it needs from friends, family or investors who don’t ask too many questions, a start-up will likely need to go to institutional investors, such as venture capital funds, seed funds, accelerators, and angels, who will be asking questions during due diligence.”

Starting from ground zero

If start-ups in Cambodia are just now learning what they need to know about navigating the legal framework, advisors say it is better to learn it now while the industry is so small.

No Cambodia start-up has registered a patent yet. Infringement fights are still not on the radar.

“We are almost starting from ground zero in terms of legal obligations,” says Clint O’Connell, a partner at DFDL, an international law firm with offices in nine Southeast Asian countries.

For now, raising capital is the priority. O’Connell says there is no shortage of funding but no one is going to give it to you “unless you have a strong business plan”.

Problems and priorities

Cambodia is a signatory of many international intellectual property treaties, and bilateral deals that involve IP.

“The laws are largely in place and up to international norms, the problem is one of enforcement and the legal system more broadly,” Haskel says.

Trademark law is by far the most developed, with infringement cases being handled through mediation with the Ministry of Commerce, and the courts.

The patent system is really just getting going, with the first patents being granted in the past few years, almost all going to foreign applicants.

“It will be some time before we see patent infringement cases regularly handled in courts; to my knowledge, there have yet to be any,” Haskel says.

For now, that is not a major issue simply because, despite the government pushing for more ICT education and development, the startup industry is still very small.

“From what I have seen, very few startups in Cambodia have patentable technology,” Haskel says. “To obtain a patent, the invention must be new compared with what is known throughout the world. Most startups here are localising or tailoring a service to the local market, rather than researching and developing a new technology.”

He says that should not be taken as a critique. “There is a real benefit from such localisation to society, and can be a great business model,” he says.

For Cambodian start-ups the first priority will be trademarks, selecting and protecting a brand that will help their business succeed. As Cambodia is a first-to-file system, unless they have a registered trademark, they are largely out of luck should someone infringe their brand. Anecdotally, many founders understanding of trademarks could be better – with some choosing a name that can never be registered, and too many never bothering to register at all.

It is these types of issues that folks like Haskel are trying to change.

“The goal needs to be to build not just a great product or service, but an investible company. That requires the legal side to be in order,” Haskel says.

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