How to be a disruptive startup without getting sued

Learn how this boutique law firm helps disruptive startups comply with regulation.

Fast-moving startups have taken the position that they’d rather ask for forgiveness than permission when it comes to various industry regulations.

In 2016, we’re seeing this play out disastrously, with several high-level startup legal scandals rocking startups like Zenefits, Theranos, and Lending Club. Eugene Illovsky of Illovsky Law Office believes that all of these could have been avoided with sound compliance advice early on.

Disrupt The Status Quo

Name a highly regulated industry and there’s probably a startup disrupting it.

The insurance, financial, and healthcare industries are all perfect examples. Because these sectors haven’t changed much since pre-Internet days, consumers often have low satisfaction levels and are ready to embrace the disruption that startups bring. Companies like Oscar, Betterment, or Pager are making their industries more efficient, more data-driven, and easier for consumers to navigate.

Can Software Eat Regulation?

Regulation is a powerful tool to protect consumers from fraud, false advertising, and injury, among other things. It does, however, have a way of preserving inefficiencies, so in many regulated sectors, change is overdue. As much as founders want to change an industry, it’s important that they observe laws and work within the system where change is needed.

“Startups see opportunities to provide better and different services,” Illovsky says, “but there are a lot of regulatory obstacles that have to be dealt with.”

The bitcoin and blockchain domain, one of Illovsky’s areas of expertise, is a perfect example. Major financial institutions are either investing in virtual currency startups or researching how to use their tech.

The federal government, however, is wary of virtual currency. Because bitcoin transactions are anonymous, the potential for money laundering or even terrorism financing is too high. Illovsky worked with colleagues to brainstorm how to help virtual currency startups put anti-money laundering procedures in place. That experience brought to light other regulatory issues these companies face as bitcoin and blockchain become more mainstream.

Now, as federal regulators pay special attention to virtual currency, startups in this field have to be extra careful. At first, ignoring regulation might reap profits faster, but Illovsky argues that they have to play by the rules to stay afloat.

The Regulation Maze

Compliance may be easier said than done, however. Unlike enterprises which often have in-house compliance teams of dozens of lawyers, startups operate with limited manpower. It’s difficult for them to navigate the regulatory landscape with just three or four employees who are probably not legally trained.

For instance, fintech companies may have to answer to seven different federal agencies, plus state regulators.

Other regulated sectors face a similar set of circumstances. Overall, federal agencies enact approximately 3,400 final rules every year, with nearly 95,000 rules since 1993. On a single day, the Federal Register will publish as many as a dozen final rules and another dozen proposed rules–sometimes many more. In addition, startups must also observe regulations from any state or municipality they wish to do business in.

Elegant Legal Solutions

Illovsky, a former prosecutor and an attorney at a global law firm, started his own boutique firm to help startups work through thorny regulatory issues. He recalls a time at his former law firm when he worked with a startup that was about to land a deal with a large corporate customer.

Before the customer would sign the contract, the startup had to meet its high standards of compliance. As Illovsky helped the startup through the process, he saw how strong compliance procedures landed business deals for startups.

“Many disruptive startups that are charging headlong into regulated spaces,” Illovsky says, “are looking to incorporate strategic compliance and regulatory advice earlier in their lifecycles for their product development and business plans. They need help from someone acting almost like an outsourced general counsel but very early. These startups are run by very smart people who want and demand $1000 an hour legal advice, but they need it at a fraction of the cost.”

That kind of legal advice can be difficult to come by for cash-strapped startups, but Illovsky can provide affordable legal counsel because he lacks the overhead of larger firms.

“My main focus is on investing in relationships with brilliant people who I think are doing interesting things and have challenging problems,” he says. “I’m not letting rates prevent me from doing that.”

Illovsky, who studied mathematical logic at the University of Pittsburgh, compares his underlying philosophy to solving a mathematical proof.

The best way to establish a mathematical proof is in as few steps as possible, he says. Legal counsel is no different. Illovsky works with each client to find the most concise and elegant solution to difficult legal matters.

From DIY To Professional

When Illovsky launched his law firm in January 2016, he started with a DIY website. He saw quickly, however, that if he was going to attract the right type of clients, he would need a website with a clean and simple design.

He outsourced to Gigster, and in about a month’s time, his website was up and running. It features a blog to post updates about legal issues and a publications page to share his recent articles. Gigster improved the site’s search engine rankings and optimized it for mobile devices.

What’s Next?

Illovsky plans to turn his firm into a small team of elite attorneys that provide fresh, creative legal thinking. In addition to working with disruptive startups, Illovsky also works with larger firms or in-house legal counsel on compliance issues for enterprise-level businesses.

Ready to move past your DIY website? Chat with a Gigster Project Engineer to see how we can help.

Whitney Cole

Whitney is perfecting the balance between writing and coaxing giggles out of her daughter. She loves meeting Gigster's clients and sharing their incredible stories. When she's not writing, you can probably find her attempting to train her German Shepherd to fetch her coffee or reading something by Hilary Mantel.