Guiding Malaysia's Entrepreneurs To Go Beyond
Head’s Up speaks to Izwan Zakaria, Managing Partner of Izwan & Partners on his journey as a Startup lawyer and how he has been helping aspiring entrepreneurs get to where they are. He also shares what it means to help the underdogs go beyond and why founders should look into getting the right legal advisor.
As a young kid growing up in a small rural village in Kedah, Izwan Zakaria has always been passionate about technology and anything revolving around the matter. So when he ended up becoming a corporate lawyer over a decade ago and having enjoyed acting for large corporations in a major law firm, he soon realised that he loved working with early stage companies and technology companies much more.
Two years ago, he founded Izwan & Partners.
“In my work as a startup lawyer, I get to speak to around three to five aspiring early stage entrepreneurs every week. When you pick up the phone, you could get a 21 year old guy who wants to leave his clear managerial path programme in a large corporation to set up a new SaaS startup. In another call, you will be chatting with a 45 year old investment banker that wants to leave his current banking job and start a new fintech company. You get to learn new things all the time,” he says.
Izwan & Partners is a dedicated corporate law firm for the underdogs or as Izwan puts it in his own words, “a law firm that will be around to help every entrepreneur out there”.
The firm focuses on advising startups and founders on all matters affecting corporate law. This includes setting up a company, conducting funding rounds and even in the matters of motivating the management team to help founders sell their company to an exit.
“If your legal needs are more complex like filing a patent, we work with other service providers like intellectual property agents, corporate finance firms to help manage your legal requirements,” Izwan says.
Additionally, apart from serving entrepreneurs running tech companies, social enterprises and startups, the firm also serves investment funds like structuring and setting up venture capital funds to prepare the fundraising documents.
“On a side note, we’ve also recently started a legal blog, Startup Law Blog sharing our thoughts and free guides to startups in navigating their startup journey like dealing with co-founders, raising your first seed round to navigating contracts,” Izwan highlights.
As a boutique corporate law firm and like many technology companies, Izwan & Partners leverage on digital tools a lot too. The firm is a fully cloud and digital law firm, enabling potential and existing clients to reach out to them anytime and from anywhere.
“I think there are a lot of similarities between drafting a contract and drafting code for a software. If you’ve ever read through a contract, you know that the first or so is devoted to definitions. So like many programming languages (lie Python or Ruby) use libraries to define specific actions (‘statements’) – these actions are often represented by a single word which have been agreed upon in advance by the programming language developers. Same goes to syntax in creating definitions for contracts for lawyers (we use capital letters to signify a defined term),” Izwan says.
Why is it important for startups to have a legal advisor?
“When you are just starting out, especially as a first time entrepreneur, you may not have the necessary guidance and support in terms of navigating your business journey.
“In an entrepreneur’s journey, legal and compliance issues are the common challenges that you need to manage from time to time when it comes to running a company. What separates a seasoned entrepreneur and a first time entrepreneur is that a seasoned entrepreneur has a team of mentors and advisers on board from legal counsel, accountants to auditors that he can turn to. So you need to build one too now,” he says.
As an employer, founders need to fulfill certain obligations and this includes the usual monthly statutory deductions and payments on behalf of their employee. Additionally, they would need to ensure that the employment contact is water tight to cover confidentiality and IP assignment to their company as well.
While one might be able to find tons of employment agreement templates out there, many may not be suited to early stage startups. For instance, a good employment contract for startups can and will help manage downside risks by incorporating the necessary clauses such as reducing the termination notice period and extending probation period to allow employers to terminate early so they can replace the underperforming talent with a new one.
Another usual issue, Izwan says, that pops up again and again is when founders are giving out equity to their co-founders or even to the early management team.
“For some reasons, unlike Silicon Valley founders, Malaysian founders like to give out their precious equity too early and sometimes too much to the management team,” Izwan shares with Head’s Up.
“To illustrate, the Silicon Valley’s usual market convention can range between 7.5% to 15% of the total share capital, but in Malaysia I have seen startups going all the way to 30% to give away to their management team - which may seem on a high side. Again, it is your company after all and it is a commercial call. What we do as legal counsel is to make sure you know and understand the effect of what’s going to happen in the future funding rounds.”
Izwan further says that once startups start to show traction, it is common to have angel investors and venture funds coming their way to discuss the investment possibilities. While it can be a good problem to have, how do you manage the investment process so that you do not contravene any securities law in Malaysia? What are the clauses to look at when it comes to reviewing the term sheet?
“These are the things we do to help founders avoid major pitfalls in their fundraising process.”
Raising awareness
“In my experience, startup founders wait too long to get help until it can be too late. There is this perception that legal fees are expensive. I know hiring a startup lawyer can be confusing for many first time founders,” he shares.
He also highlights that many corporate law firms in Malaysia now do offer ‘legal startup packages’ for startups and founders, allowing them to save legal fees by signing up on such packages to get the usual legal work done.
“If you are a startup founder, be careful when choosing an investor. I’m sure you’ve come across the differences between ‘dumb money’ and ‘smart money’. For instance, a rich uncle who made a lot of money in his construction company may want to have a slice of your growing startup.
“But he may be unlikely to contribute much since he may not have the network in the technology space. In contrast, smart money can come from a seasoned entrepreneur or a VC that has the experience to give mentorship, open doors to new customers. So ‘smart money’ refers to contributions to the business rather than just the actual cash,” he says.
“Here's free legal advice. Take time and do your work. And lawyer up so that you can get the deal you deserve.”
Izwan also hopes for more lawyers in Malaysia to look into niche practice areas that include charities and social enterprises.