Whether you invest in a small law firm, an in-house lawyer or freelance legal assistance, their goal will be to prevent the company from unexpected hiccoughs or blockers along the scale-up journey.
To support your legal discovery, we’ve picked the brains of some experts to come up with five ways of ensuring you get your money’s worth from a startup lawyer.
If there are no objections, we’ll begin.
At every stage of the scale-up journey, fundraising is on the agenda. The temptation to save money by delaying investment in a good lawyer is a false economy according to Ed Bardos, COO of Venture Founders – one of the UK's leading investors in fintech and SaaS scale-ups. “Get a lawyer sooner rather than later,” he told the audience at a Capdesk event.
When you find yourself on the path to successful fundraising, lawyers will help you properly understand and negotiate terms at the very least. However, they can go as far as to prevent deals from falling through.
Mike Yang, Partner in Orrick’s Compensations and Benefits Group, once saw an entire acquisition fail due to cap table issues.
“The buyer lost faith in the company because there was no record of who held which shares and for how long. Nor was there any detailed information about what the tax consequences would be as a result of the acquisition,” he told us.
There’s a strong argument for investing in a lawyer in the early days. However, if cost is the main barrier to entry, it’s worth exploring whether your lawyer will take equity instead. The arrangement isn’t uncommon between law firms and early-stage businesses.
The burden of an offline cap table and growing data set only increases as a business scales. It’s an administrative headache to keep several spreadsheets and documents up to date as well as make sure your lawyer stays in the loop.
Bill Cogan, Founding Partner at Seven Legal remarked that small errors are the main culprit for swallowing valuable time.
“I often end up making corrections across several different spreadsheets rather than providing strategic advice to help a business complete its latest funding round,” he lamented.
Eliminating the risk of errors creeping into record-keeping altogether is just one of the five reasons why law firms want you to use equity management software like Capdesk to guarantee accurate data and an easily auditable transaction trail.
Lawyers aren’t always involved in day-to-day cap table management or startup operations, so providing them with a seamless route to accessing information means they can get stuck in right away – and start delivering results.
Think strategically about what your lawyer works on. Lawyers aren’t assistants or administrators, they’re highly skilled consultants and you can maximise their value by being selective about what tasks they’re asked to handle. You’re paying them for their legal expertise after all, not their Excel talents.
Ensure administrative tasks are handled in-house by company employees or via automated processes. Rather than having your lawyer chase investors or employees for grant signatures, DocuSign allows for a more efficient process – and reduces your lawyer’s time spent reconciling the paperwork.
“Capdesk’s integration with DocuSign gives me full visibility over contracts and signatures. The process is smooth and saves a lot of time,” noted Bill Cogan.
Whether you’re looking to file your EMI annual return to HMRC, issue share certificates paperlessly or update the shareholder register, Capdesk can do all the heavy lifting. Your lawyer, meanwhile, can focus on high-level strategic advice.
Nothing but the truth
To get your money’s worth from your startup lawyer, you need to understand how they bill you. This allows you to make more informed decisions about what you ask them to do and when their contribution represents good value for money.
Clear communication and total transparency is the best policy. Ask any questions you may have early on in the relationship. It’s better to know whether your lawyer bills for “quick questions” or how much they charge for on-the-spot requests at an early stage, rather than finding out when a surprisingly large invoice lands in your inbox.
For instance, when working with your lawyer on equity issues or cap table management, easy-to-access, reliable data is a great foundation. Having a single source of truth – information that both client and advisor agree is accurate and trustworthy – allows the lawyer to better plan their time and offer your organisation sensible quotes and timescales.
Reach the right verdict
As with any new hire for a scaling business, you’ll want your legal assistance to be the perfect addition to the team. You may have a network that includes law firm connections or receive trustworthy recommendations from peers. However, if you’re starting from scratch, here are some questions to consider:
You might also want to consider what kind of legal assistance you’re likely to need.
If setting up an employee share scheme is your priority, opt for a legal expert that specialises in share plans in your jurisdiction.
It’s also worth factoring in that the right choice for you also needs to be the right choice for your lawyer.
“Capdesk can help you manage your cap table independently, making you a much more appealing prospective client to lawyers,” advised Bill Cogan.