Fintech

Being a successful Fintech start-up can be difficult. In between developing an innovative business model, creating a superior technical platform, building relationships to potential customers and partners and obtaining the necessary funding, Fintech start-ups need to tackle and navigate the jungle of financial regulation.

THE LEGAL CHALLENGE OF FINTECH START-UPS

For a Fintech-start-up there are many legal questions that need to be answered: For example, is an authorisation needed and, if so, what impact will the regulatory requirements have on the business? Also, it will frustrate many Fintech start-ups that the regulation and legislation in some situations will appear archaic and difficult to apply to new technologies. At the same time, Fintech start-ups have to deal with the same legal issues as any other technology start-up:  negotiating funding agreements, entering into licensing and partnership arrangements, structuring its corporate documentation and possibly going through due diligence and sales processes.

Kromann Reumert's Fintech team is committed to making these processes as smooth as possible and helping Fintech start-ups to navigate the regulatory landscape and other legal challenges, avoid typical pitfalls and receive value-adding advice.  We want to help you keep focus on what you do best: developing and growing your business.

WHY CHOOSE US?

From the first meeting with a Fintech start-up, we make an effort to understand the products and services to be offered and the contemplated business model. Some of our key value propositions are:

Specialist Advisors

We have a team of specialists dedicated to the Fintech space, which allows us to offer you the team of advisors best equipped at providing you with the specialist advice you need swiftly, at a high quality, based on professional knowledge, industry insight, and at an affordable price. We take pride in designing custom made solutions and delivering services that are comprehensible and not more complicated than necessary.

Good relationship with the Danish FSA

If your business needs to apply for an authorisation from the Danish FSA or to get the Danish FSA's confirmation that no authorisation is needed, you may benefit from our strong working relationship with them - a relationship that has been built up over many years and that repeatedly has shown to be extremely valuable to our clients.  

Match-making role

As one of the leading law firms in Denmark, we have a broad network of contacts, both domestically and internationally, which we happily make available to our clients. We consider ourselves a success if we can help our clients meet and develop business opportunities. 

Fees

Generally, the solutions to and awareness of legal issues are an investment, but it can be very expensive if legal issues are not dealt with, especially for a Fintech business.  We appreciate that the financial resources of start-ups typically are restrained and committed to the realisation of the business plan. Our experience allows us to help you prioritise by scoping our job as narrowly as reasonably possible and focusing on material legal risks that could affect your business adversely unless such risks are dealt with already from the outset. Most importantly, we are willing to invest in start-ups, so reach out to us and set up a meeting to get a fixed fee estimate from us.

OUR TEAM

In order to assist and help Fintech start-ups in the best possible way, we have established a Fintech team dedicated and devoted to that industry. 

Our Fintech team consists of specialists covering all areas of law that are notoriously most relevant to Fintech start-ups, including corporate law, financial regulation, banking and finance, IT- and IP-law, data protection, etc.

  • Jacob Høeg Madsen, Partner (corporate law, financial regulation and Fintech)
  • Torben Waage, Partner (tech-law and tech M&A)
  • Jan Ussing Andersen, Partner (tech-law and data protection)
  • Tina Brøgger Sørensen, Partner (corporate compliance and data protection)
  • Christian U. Weiss Bruhn, Associate (banking and finance, financial regulation and Fintech)
  • Christopher Erik Oldenburg, Associate (tax)
  • Christian Juul Kristensen, Junior Associate (corporate law, financial regulation and Fintech)

10 LEGAL PITFALLS TO BE AVOIDED BY FINTECH START-UPS

1. The right financing?

Be aware that your financing provides you with the necessary flexibility and rights to operate your business as intended and to obtain future additional financing at attractive terms. Cheap financing at the outset may prove expensive later on. 

2. Does your business require a licence?

Clarify whether your business requires an authorisation from the Danish FSA. This will have practical implications for capital requirement, valuation of the business, your business model, budgets, staffing etc. 

3. Lack of intellectual property rights

If you have asked a consultant or external programmer to develop the software on which your product is based without reserving the intellectual property rights (IPR) to the software, you don't own the IPR. This may be detrimental to the value of your business.

4. Using open-source software?

The commercial exploitation of your product may be impeded by your use of open-source software subject to inexpedient licences. 

5. Adequate contractual protection?

Do your partnership agreements, supplier agreements and customer agreements provide you with adequate protection and clear contractual rights (e.g. exclusivity, non-compete clauses, IPR, termination, exit regulation, etc.)? Taking the time to conduct, and incurring the cost of, a legal review of your material agreements will be worthwhile in the long term. 

6. Avoid or mitigate the risk of subsequent disputes amongst the founders

While many founders start out as friends, there is always a risk that disagreements regarding the future strategy of a start-up, exits, etc. may subsequently create the basis for disputes. Try to avoid or mitigate the risk of such disputes by drafting a proper shareholders' agreement addressing the issues likely to occur and designing solutions to these.

7. Losing the first mover effect

If you publicly announce your business idea before having protected the rights on which it is to be based, you run the risk of losing your first mover advantage by allowing others to introduce a competing product before or at the same time as you. Remember to use a non-disclosure agreement.

8. Incentive schemes for employees

Offering employees an incentive scheme may in certain circumstances be an attractive alternative to regular salary payments, but make sure you retain control over any minority shareholders by making the allotment of any equity rights to such employees contingent upon the conclusion of a shareholders' agreement containing, amongst other things, proper tag-along and drag-along clauses and an obligation for the founders to sell if a minority shareholder ceases to be an employee (good/bad leaver).

9. Compliance with data protection requirements

The proper protection of data is more crucial than ever to ensure compliance with data protection regulation, avoid significant fines and provide partners and customers with comfort. Take the time to liaise with a specialist on how to ensure proper protection, for instance if you are using cloud-based solutions. 

10. Prepare for a future sale - handling of documents

Any future potential buyer of or investor in your business will request a due diligence review of your business, and the quality of the virtual data room will have an impact on the sale price.  Collecting and uploading such information into a virtual data room will be onerous and time consuming, but it will be much easier if you have prepared for the future by filing documents in a proper document handling system (preferably not Dropbox).

REFERENCES

This is what one of our Fintech clients says about us:

"Preferably, a lawyer should work like a translator - i.e. someone who is able to give you a better understanding of legal issues. Working with Kromann Reumert, we have not only gained a better understanding of our legal issues, we have also gained a better understanding of ourselves as a company."
- Maria Flyvbjerg Bo - CXO and Co-Founder, Hufsy