Just read a great post by Chris Dixon called “So you want to raise seed capital…..” . Here it is. Link. Enjoy.
Daily Archives: June 13, 2011
Control Your Lawyer
Full disclosure – I used to practice corporate/startup law. In fact, I did it for about 14 years prior to joining Cayuga Venture Fund. I still slip in some for a portfolio company once in a while (easy stuff that won’t cause a conflict). I liked practicing corporate law. And I still like to do it occasionally. I told a group of students once that writing a contract was like writing a book – all the sections were like chapters that had to make sense when read sequentially and the whole contract should tell the story of the business relationship. Most of the students’ eyes glazed over…..
Some clients love to hate their lawyers. Some clients love to blame their lawyers. Some lawyers ask the client to use them as an excuse for the client taking a particular position. Lawyers are expensive and hard for startups to afford.
Yet, critically, having a good lawyer for your business is a huge MUST. Things happen all the time that need legal input and documentation. Examples: (i) hiring, (ii) firing, (iii) workplace harassment, (iv) raising investment capital, (v) borrowing money from a bank, (vi) entering into an agreement with another company, and (vii) creating a stock option plan. The list goes on and on.
CVF uses the firm where I got most of my legal training (Ropes & Gray in Boston). And they are very expensive. We love $1000/hour phone calls; really some have cost that much because there were 2 lawyers on the phone. Incredible.
But, this post is not about complaining about the cost of lawyers. I don’t mind paying them assuming the work product is good. Rather this post is going to touch on the need to control your lawyer and not let a deal go south because of bad lawyering. Importantly, I am only writing about corporate lawyers – not litigators. My advice for companies in need of a litigator is to find a lawyer that will cause the most discomfort to the party on the other side of the lawsuit. Corporate lawyers, by contrast, are supposed to help parties get business relationships done. I think of corporate lawyers as facilitators.
In my view, it is critical to find a corporate lawyer that knows a bit about business and understands the risks that businesses present. Your lawyer should understand that it is not worth trying to legally “cover” all the risks as the only predictable result of that will be to so utterly piss off the other side that the deal might evaporate. The lawyer needs to understand the business goals of his/her client and the goals of the other party to the transaction. I have been in situations where the “large company” in house lawyer is so clueless about the goals of its own client (the executives from the same company) that the lawyer has put forward positions that would kill a deal. All this does is waste energy and often money as the other party to the transaction has its own lawyer now wasting time bantering with the clueless inside counsel.
So, what to do? The business people must make the business decisions. Sure, the business people must take into account what the lawyer presents as risks. But the business people should have the courage and authority to tell the lawyer to back down and draft up the agreed upon business transaction. The business person needs to control the transaction and the lawyer should be raising issues for discussion. Sometimes issues will arise that rightfully kill a deal. More frequently issues arise for which a solution exists. A lawyer that helps present good solutions is an amazing resource.
So get a lawyer that can see the forest through the trees. If you want any recommendations just email me.