The Legal Reality for Startups in Bulgaria - An Interview with Bilyana Dimitrova from DSP

Post by 
Viktor Dessov
December 4, 2020

We had a talk with the BattlePass legal weapon - Bilyana Dimitrova from DSP. Always smiling, always ready to share her precious knowledge and always stylish, she is the 'go-to' advisor when it comes to venture law in Bulgaria.

1. Can you please introduce yourself and what you do?

My name is Bilyana Dimitrova, I am a lawyer and a partner at the DSP (Dimitrova, Staykova & Partners) Law firm - but we are most well-known as ‘the startup lawyers’! We’ve been working with startups for the past 6-7 years, but otherwise, we are full range corporate lawyers, and we work with companies in different industries.

Our VC and startup department is primarily focused on collaborating with IT companies, innovative companies, and startups, as well as lots of VC funds, independent investors & groups. For years now we’ve been working with the most recognizable names on the Bulgaran VC scene such as Launchub, Eleven and NEVEQ.

We also have a long-lasting partnership with Founders Institute, which is an accelerator, and we participated in establishment of the  CEO Angels Club - an investor club composed of private investors. Therefore, we’ve had the pleasure of getting acquainted with almost every aspect of the startup environment and of seeing how things look on all sides.

2. What are the main services that your law firm provides to startups?

We cover everything that is connected to corporate law, labor law, IP rights and we try to offer legal assistance in almost every aspect of a startup lifecycle depending on its stage of development. This includes the corporate structure of the company, the legal service for the investments that they acquire throughout their lifecycle, we settle all issues related to intellectual properties, including software, trademarks, know-how, etc.

We assist them when they raise capital through rounds of external funding, such as direct investments, convertible notes, SAFEs. A very important issue we help with is the settlement of relations with employees and the key figures who are not shareholders in the company.

We prepare stock option pools, vesting agreements, any kind of option arrangements that are required by the company, the everyday employment contracts, the general terms and conditions that the companies use when providing their products and services, contracts with their partners and suppliers, anything connected to GDPR, the AML/KYC policies, and so on and so-forth.

3. At what point in time should a startup get a legal advisor? Is it from Day 1?

It is actually from Day 0! The moment they have an idea - that’s when they should call us!
It’s a joke, of course, but we have a lot of examples in which companies invest a lot of time, effort, and money, and then at some point, they figure out that they shouldn’t have done so, that they should have checked а few things prior to the beginning of their work.

For example - someone starts working on a product and they buy the domain names, all the extensions (.com, .eu, .org, etc.) and they are sure that they have the name of the brand. And one day they reach out to a lawyer because they’ve grown, they’ve decided to register their trademark, and here comes a surprise! There is a trademark registered by someone else already who’s also started using that brand. This means complete rebranding, everything that has been invested so far in graphics, designs, advertising, etc. goes to waste. This is just a small example of how things can turn ugly.

Another common scenario is when the shareholders sign an agreement with somebody that is not involved in the project as much as they are. This is typically the case when they let in the ‘family’ of the company somebody as a shareholder (or as an investor) with extremely favorable conditions. Then, at a later point in time, it is almost impossible for us to fix something that has already been signed. We’ve had such cases and we’ve had startups dissolve just because they cannot overcome a problem in-between the founders due to the agreements that have been signed and the obligations that have been undertaken at a very early stage.

When the first investor comes in, then it is absolutely obligatory to contact a lawyer like us. You see, most investors are professional ones, but at the early stages usually the FFF (friends, fools, and family) are the first ones to invest. In most cases, these investors come up with a legal solution for an investment that is not aligned with the practices in the startup environment. They create a corporate structure that is absolutely impossible to adapt afterwards. For example, they give additional monetary installments instead of the regular investment as we call it, which is performed by a capital increase and they acquire an investor who is actually a loan lender. From here on things go downhill because these things are difficult to fix.

4. The issues that you just mentioned - are they the most common ones that startup founders in Bulgaria face?

Most of the issues they face are related to the fact that the Bulgarian corporate structure is not as flexible as in other countries, where startups flourish - like for example the United States. We all know how flexible the Delaware C and S corporations are and how all of them sign all kinds of SAFEs, vesting agreements, and documents that are very difficult to adapt to the Bulgarian reality. Most of the time startups reach either in-between the key startup-related figures, agreements which are taken from another legal system but are not completely the same in Bulgaria. 

This is something we, at DSP, are currently working on now together with BESCO (the Bulgarian Startup Association), on a completely new model, a flexible type of company, which will actually allow us to apply all of these legal instruments in Bulgaria as much as in other countries. 

So far, before having this new company type, we are doing miracles to adapt the typical startup instruments to our legal reality and to reach results which are a piece of cake in the US or in the UK. In Bulgaria it takes a lot of effort to provide founders with these specific relations which nobody else outside the startup environment would think of but are still vital for the development of a startup with all of its specifics.

5. Until we have introduced the new legal framework in Bulgaria, are there any advantages to starting one's business here, rather than in the US?

Actually, most of the advantages are in favor of Bulgaria. From my experience, unless there is a perfectly good reason to go to the US market, one should avoid it because the competition there is fierce. The expenses are huge. And there is one critical argument - you never know all the little legal specifics of the national legislation, and this may cost you thousands and thousands and ultimately your entire business. So, if you want to step on the US market because the startup has grown enough to have a US company or you have a US investor or a partner - then you should do it. But not simply for the sake of it, not because you have heard that others go to the US and flourish there.

There is also a possibility that you get an investor from another country. So you’ll have to close the US company eventually because you will not need it if you haven’t created it for a solid reason and then you’ll have to open another company in another country - and this is a huge expense for you at an early stage. Therefore, until you have a valid reason to go to the US, use the Bulgarian taxes, use the Bulgarian expenses. 

Furthermore, there is always a possibility to create a US-Bulgarian structure afterwards. Start with what you know, develop the company and the products to a point where you are able to sustain a US structure and then there are legal mechanisms we can utilize to swap the Bulgarian structure with a US one to create, let’s say, a Bulgarian subsidiary where you can keep the R&D. This is when things go right.

6. How and why did you decide to become a part of the BattlePass team?

DSP was invited by Peter Lozanov with whom we have worked before on one of his startups and we managed to solve a tricky situation involving a multinational company structure. We had a very positive experience working together. That is why when he offered us the chance to join BattlePass and be involved in startups from Day 1 of their existence, this was not an opportunity for us to miss.

Our strive here is to create a perfect company - a perfect company for me is one with a very solid basis for growth, that is pushed forward by people who are experts in their own fields, whether that’s accounting, legal, marketing, etc. This way the startup founders can concentrate on the things that they do best and not be distracted by the things that they are not supposed to know. This is how we have perfectly healthy companies and the startup teams are able to reach their full potential. 

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