The $2M–$10M Growth Trap for Tech Companies: 5 Quiet Legal Risks That Can Derail Momentum

In tech, momentum is everything.

When your company passes the $2M revenue mark, you’ve proven your concept, earned a solid customer base, and probably attracted some investor attention. By $10M, you’re scaling, hiring quickly, and planning the next funding round or exit.

But in this “messy middle” — between startup and enterprise — I see a recurring pattern:
Legal systems fall behind the growth curve.

And when that happens, the problems don’t show up right away. They build quietly in the background, only to surface later — during due diligence, a funding round, a key employee dispute, or a client conflict.

Here are five of the most common (and preventable) legal risks I see in fast-scaling tech companies.

1️⃣ Intellectual Property Gaps

In tech, your most valuable assets aren’t physical — they’re intellectual. But too often, companies assume they automatically own the IP their team creates.

Reality check:
If you’re using contractors or freelancers and there’s no “work for hire” or assignment clause in their agreement, you may not actually own your own code or content.

That can kill a funding round or acquisition deal faster than anything else.

Fix:
Audit your IP ownership now. Make sure every developer, designer, and contractor has a signed agreement assigning all rights to the company.

2️⃣ Contract Inconsistency

When you’re growing quickly, it’s easy to let each new client contract “just get done.” But over time, that leads to inconsistent terms — different indemnities, liability caps, renewal clauses, and governing laws.

Then, when something goes wrong, you find out each client deal is a little different — and some expose you far more than others.

Fix:
Standardize your client and vendor agreements. Create one master services agreement (MSA) and a few tailored templates for special situations. That alone can dramatically cut risk (and legal costs).

3️⃣ Contractor vs. Employee Confusion

Tech companies love flexibility — especially in the early growth stage. But misclassifying workers as independent contractors when they legally function as employees can create tax, wage, and liability nightmares down the road.

Fix:
Review your relationships and apply the IRS and Department of Labor tests. If someone’s working full-time under your control, they’re probably an employee. Structure accordingly — or use a third-party contractor platform that handles compliance for you.

4️⃣ Early Equity and Investor Missteps

Founders are often so eager to secure funding or reward early team members that they hand out equity informally or with vague terms.

Years later, when the company’s value soars, those early documents can cause severe dilution or disputes.

Fix:
Clean up your capitalization table and investor agreements now. Clarify vesting schedules, buyback rights, and any conversion provisions. It’s far easier to fix equity issues early than to renegotiate after a big valuation jump.

5️⃣ Missing Internal Policies

As your team grows — especially remotely — you need internal rules that scale. Data protection, confidentiality, IP assignment, remote work policies, and employment standards all matter more as headcount rises.

Fix:
Build lightweight policies that fit your culture. They don’t have to be corporate or heavy-handed — just clear enough that everyone knows the rules of engagement.

The Bottom Line

You don’t need a full-time general counsel at this stage — but you do need structure.

An Outsourced General Counsel relationship gives growing tech companies the benefits of experienced legal guidance without the overhead of an in-house department. It helps you:

• Anticipate risks before they escalate.

• Standardize key legal systems.

• Build investor and client confidence.

The best time to get your legal foundation right isn’t when you’re raising money or fighting a dispute — it’s before you hit the next growth milestone.

If you’re leading a tech company that’s growing fast and want to assess whether your legal infrastructure is keeping up, I’m happy to share a free guide:
📘 “The 5 Legal Systems Every $2M–$10M Tech Company Should Have in Place.”

Just fill out the contact form below, and I’ll send it your way.

-- Robert Thomson