E136: Navigating Startup and Venture Capital Legal Risks w/Constantine Karides
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Why is it important to choose the right law firm early?
And the right time to ask that is when you have the leverage, when you're choosing the law firm before, because after that, you're kind of stuck with the firm. Definitely want to do that before you get too far along. It's hard to pivot and change law firms. There's a lot of cost that goes along with that, transition and otherwise, and also sunken investment of time and energy. What are the most important questions that startups or venture capital funds should ask their lawyers before they engage with a lawyer?
What should startups consider when selecting legal counsel?
I think it's a little different for each of those two buckets. If I'm a startup, I want to look at my legal relationship as I would a strategic investor. And that is beyond lawyering, what can this law firm or lawyer bring to the table? There are a lot of lawyers who can paper or put together initial formation documents and negotiate with investors and put together a tax structure that works. And so beyond that, what are you bringing to the table? Do you have a network of partners or potential partners for the underlying business? Do you have a network? of investors that might be interested in the next round or the current round. Are you well positioned within your law firm to be able to drive value to me if I need to ask you to make concessions on pricing or to try to do alternative fee structures, which some startups need to do to be able to move forward with an eye towards a broader relationship?
And so I think I would, as a startup, want to make sure that I have hired a lawyer from a firm that can do the work, of course, at a high level of quality, but also that brings to the table off-balance sheet value, not just legal services. That you want to make sure that that partner has the right credibility internally to help the startup double-click that and explain why that's important. Especially if you're dealing with big law, and I'm at a big law firm, decisions are often not made at the lawyer level when it comes to doing things that are not straight down the middle. And so there's a layer of bureaucracy or even just an inability to deliver on value propositions on one hand, and on the other hand, an inability or less of an ability to deliver the right talent or the right people. If your relationship partner is well placed at a firm, either because they have a significant
portfolio of business and are at the higher end of the ownership structure or are considered a star in the space, they will be able to, without having to navigate that bureaucracy or even deal with people saying no to them, both deliver the resources that are necessary for the project and also be able to be flexible on things like pricing or other requests that most partners wouldn't. Essentially, the lawyer has leverage internally, whether they're bringing in a lot of business or they just have high standings within a firm, and they could use that relationship capital. They could bring in the resources that the startup needs. They could bring in the star guy. Maybe there's a guy or girl that's really good in tax or in M&A when the time comes.
What questions should venture capital funds ask potential law firms?
They could bring that resource into the company. On the other side, on the cost side, they could be more flexible because they basically have that reputational capital internally. That's exactly right. And what about venture capital funds? So you're going out, you're talking to these law firms, they all seem pretty much to have a similar pitch. What questions should a venture capital fund ask before choosing counsel? So venture capital fund is looking for lawyers who are going to be reviewing investment documents in connection with their go forward investments in portfolio companies. They're also going to be looking for lawyers who can help those portfolio companies grow. And so some of the same questions and priorities that I just mentioned would apply in that vein.
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Chapters
5 chapters
1
Why is it important to choose the right law firm early?
0:22–0:51
2
What should startups consider when selecting legal counsel?
0:51–3:33
3
What questions should venture capital funds ask potential law firms?
3:33–10:33
4
How do law firms use the leverage model to maximize profits?
10:33–13:58
5
Why is building trust with clients more beneficial than maximizing billable hours?
13:58–22:17
Speakers
1 identifiedMore from How I Invest with David Weisburd
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