A Survival Guide for Startup Founders: 11 Costly Mistakes Made Before the First Funding Round

The formula behind technology ventures that reach billion-dollar valuations is not flawless code or a genuinely disruptive idea alone. In practice, success is measured by how solidly the founders built the company's legal foundation before letting investors in.

Across funding rounds in both Silicon Valley and the Turkish ecosystem, from seed to Series A, hundreds of startups with excellent products have hit the legal due diligence wall. The cause is rarely the product. It is the amateur legal shortcuts taken at incorporation, which cost founders their funding or, in the worst cases, their position in the company they built.

At Ertuğ & Partners, we set out the 11 costly mistakes that directly depress a startup's valuation and push investment funds away from the table.

MISTAKE #1: Not Signing a Founders' Agreement

You may have started the company with a close friend. But once the business begins to generate real money, or once a crisis hits, verbal understandings do not survive a courtroom. Founders should put the difficult scenarios on paper from day one:

Equity split, cliff and vesting: If one founder writes the code while the other handles marketing, should the split really be equal? If a founder loses interest and walks away in month six, do they keep their shares? Without vesting, they do, and 30% of the company stays locked with someone who is no longer contributing, which is often enough to sink the venture.

Deadlock: If two partners hold 50/50 and cannot agree on a strategic decision such as selling the company, how is the tie broken? Without a mechanism such as Russian Roulette or an escalation clause, the company simply freezes.

MISTAKE #2: The Sole Proprietorship or Limited Company Trap

Incorporating a technology venture as a sole proprietorship or a limited liability company (Ltd. Şti.) because registration is cheaper, or because an accountant suggested it, creates problems that are expensive to unwind later.

An angel investor cannot take a stake in a sole proprietorship. There is no legal entity and no concept of shares, so there is nothing to structure a shareholding around.

In a limited company, share transfers must be notarised and registered with the Trade Registry, which means no confidentiality. Limited liability is also pierced for public debts: under Turkish public collection law, shareholders are liable for the company's tax debt in proportion to their shareholding. And because a limited company cannot issue share certificates, its shareholders never qualify for the two-year capital gains exemption.

The right structure: The joint stock company (A.Ş.) is the only vehicle every investor understands and can invest in.

MISTAKE #3: Registering Trademarks, Patents and IP in Your Own Name

Investors are not buying the startup; they are buying the intellectual property it owns.

If the algorithm you wrote, the logo you designed or the game engine you built has not been formally assigned to the company, and still sits with you personally or with the freelancer who developed it, the company's valuation is effectively zero.

From day one, every founder and employee must sign an IP Assignment Agreement transferring the rights in their work to the company, unconditionally and without further consideration.

MISTAKE #4: Launching on Top of Someone Else's Trademark

Choosing a name after a quick Google search and concluding "nobody seems to be using it" opens the door to serious litigation. A mark that is not registered before TÜRKPATENT or WIPO is a red flag in an investor's due diligence report. A professional clearance search before launch is the only reliable protection against an infringement claim from the true owner, or a domain name arbitration (WIPO UDRP).

MISTAKE #5: Informal Employment and Copyright Arrangements

You may not have signed a contract with the developer or designer you hired. Even without a written contract, mandatory employment terms apply from the moment social security registration begins. On the intellectual property side, however, the picture differs from what most founders assume:

Employees on payroll: Under Article 18/2 of the Turkish Intellectual and Artistic Works Act (FSEK), unless the parties agree otherwise or the nature of the work requires otherwise, the employer exercises the economic rights in works created by employees in the course of their duties. So the company is not entirely exposed. Authorship, however, remains with the creator. Without a documented assignment, the company cannot show investors a clean chain of title, and the boundaries are re-argued in every dispute.

Freelancers: This presumption does not apply. Where a developer works under a contract for services rather than an employment contract, the economic rights in the code remain with the developer absent a written assignment. This is the scenario in which the threat "the copyright is mine, pay me more or I pull my code" actually has legal force.

Senior hires such as a CTO should join under contracts containing invention assignment, non-compete and confidentiality (NDA) clauses. Know the limits on non-competes: under Articles 444-447 of the Turkish Code of Obligations, the restriction is valid only where the employee has access to the customer base or to production secrets, may not as a rule exceed two years, and must be limited in place, time and scope of work. A clause drafted too broadly is narrowed by the court. "Stricter is safer" produces unenforceability, not protection.

MISTAKE #6: Copying and Pasting Data Protection Policies

User data is the lifeblood of a digital startup. If the privacy notice and privacy policy on your app or website were copied from another company:

On the first data breach, the Personal Data Protection Board will impose an administrative fine on the company for failing to meet its data security obligations. Unlike the GDPR, this fine is not tied to turnover; it is set within a fixed statutory band, updated annually by the revaluation rate. For 2026 the band for data security breaches runs from TRY 256,357 to TRY 17,092,242. The fine falls on the company as data controller, but a penalty of that size on its own will break an early-stage venture's cash plan. The data processing map must be drafted by IT law specialists against the application's actual user flow.

MISTAKE #7: Failing to Anticipate Licences and Permits

You are building a fintech but have not obtained the operating licence required from the Central Bank of Türkiye for payment and electronic money services, or from the BDDK for banking activities. Or you are building a health technology product without ever assessing whether it qualifies as a medical device. In Türkiye, medical devices are regulated by the Turkish Medicines and Medical Devices Agency (TİTCK), and conformity certificates are issued not by the Ministry but by authorised notified bodies.

You may build outstanding technology and still have the regulator shut it down. Whether the product falls into a restricted or regulated market must be assessed in advance.

MISTAKE #8: Not Keeping Corporate Books

When an investor asks to see your share ledger and board resolution book, answering "we never had them notarised, we do everything verbally" ends the process that same day. Under the Turkish Commercial Code, tax and commercial decisions must be recorded in duly certified statutory books.

MISTAKE #9: Weak B2B and B2C Customer Contracts

Selling to consumers (B2C) under an incomplete or unfair distance sales agreement, or to corporate customers (B2B) under standard service agreements with no liability caps, exposes a startup to consumer claims and product liability awards it cannot absorb.

MISTAKE #10: Postponing Accounting and Tax

Skipping tax filings in the first year out of founder enthusiasm, or leaving social security premiums unpaid on the assumption that the state will offer a restructuring later, is a red card the moment an angel investor looks at the company. Tax debt is the one liability that reaches through to a founder's personal bank accounts if the company fails.

MISTAKE #11: Working With a Lawyer Who Is a Friend Rather Than a Specialist

Technology ventures are nothing like ordinary commercial or family litigation. They are combined operations spanning securities, angel investment, option pools (ESOP), intellectual property, IT and international tax law. Working with a non-specialist to save cost is how pathological clauses (provisions that collapse when tested) find their way into your contracts.

This report is a strategic analysis of the critical failure points in the formation of innovative ventures. It does not constitute binding legal advice.

Last updated: 10 August 2026.