Essential First Steps: Legal Hygiene for Biotech Startups
Takeaway: Good legal hygiene isn't about avoiding lawsuits; it's a proactive discipline of organization and documentation that builds corporate value, instills investor confidence, and prevents simple mistakes from becoming catastrophic problems.
You’ve incorporated your company, settled on the equity split, and have your core agreements in place. The foundation is set. Now, the real work of building begins, and with it comes a relentless flood of data, documents, and decisions. In the chaotic early days of a startup, it's easy to let organizational discipline slide. An experiment’s results are jotted down in a notebook, a key contract is saved to someone’s personal desktop, and crucial conversations happen in hallways without being documented.
This is where the practice of "legal hygiene" becomes critical. It's the set of habits and processes that ensure your company is organized, compliant, and always ready for scrutiny. Good hygiene doesn't just prevent problems; it actively builds the value of your company. When an investor or potential acquirer begins due diligence, they are not just evaluating your science; they are evaluating your professionalism and the integrity of your operations. A well-organized company with clean records is a de-risked and far more attractive asset.
Here are the essential first steps for establishing strong legal hygiene from day one.
1. Establish a Secure, Centralized Data Room
From the moment your company is formed, you should create a single, secure, cloud-based data room (e.g., using services like Dropbox, Google Drive, or specialized platforms) to serve as your official company record. This is not just a file dump; it should be an organized library with a clear folder structure.
Your data room should include folders for:
Corporate Formation: Certificate of Incorporation, bylaws, board consents.
Capitalization: Stock purchase agreements, 409A valuations, cap table.
Intellectual Property: Patent filings, invention disclosures, trademark documents.
Contracts: All signed agreements (NDAs, MSAs, leases, employment offers).
Financials: Bank statements, budgets, financial models.
Personnel: Offer letters, CIIAAs (but keep sensitive HR files separate and restricted).
2. Implement an Electronic Lab Notebook (ELN) System
For a synbio company, the paper notebook is obsolete and dangerous. Your scientific data is a core asset and the foundation of your patents. It must be captured in a secure, verifiable, and permanent way.
Why it's essential: An ELN provides time-stamped, searchable records of experiments. This is invaluable for tracking inventorship, demonstrating diligence for patent applications, and providing the raw data needed for regulatory submissions. It creates a single source of truth for your R&D.
What to do: Choose and implement an ELN system immediately. Train every scientist on its proper use and make it a non-negotiable part of your R&D workflow.
3. Formalize Decision-Making
While startups thrive on speed and informality, major decisions must be properly documented. This is a legal requirement of corporate governance.
Board Consents: For significant actions—such as issuing stock, taking on debt, or approving a budget—the board of directors must formally approve the action. This should be documented in a written "unanimous written consent." Your law firm can provide templates for this.
Meeting Minutes: For board meetings, keep minutes that record who was present, what was discussed, and what decisions were made.
4. Manage Your Contracts Systematically
Every contract you sign creates a set of obligations. You need a system to track them.
Central Repository: All signed contracts must be saved in your data room.
Track Key Dates: Create a simple spreadsheet to track key dates and obligations, such as renewal deadlines for a software license or a milestone payment due under a research agreement.
Establishing these habits early on may feel like a slowdown when you are racing to hit scientific milestones. But this discipline is an investment that pays for itself many times over. It reduces future legal fees, dramatically shortens the time it takes to prepare for due diligence, and builds a professional, scalable company that investors can confidently back.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.