VC Lawyers
A quick disclaimer on this week's email: The following is not legal advice! Just an opinion I share with some other startup experts that felt relevant this week. Always seek professional lawyers for legal advice!
When you're hiring a lawyer for your high-growth startup - the kind of startup that will be VC-backed,
It seems pretty obvious that you should hire a lawyer who specializes in working with VCs.
In fact, many VCs will encourage you to do this, and will regale you with horror stories of founders who don't:
They pick "normal" lawyers who aren't connected to the startup world
Those lawyers will waste VC time with terrible terms
Will not protect you against the common pitfalls
They could lose you deals and put you in a terrible position.
To some degree, this is true;
This DOES happen.
But there's another very important counterpoint to consider:
In the book Founder Vs. Investor, authors Liz Zalman and Jerry Neumann discuss this lawyer topic from the founder's and investor's perspective.
Jerry (an investor) raises all the points above. In sum, it's so much easier to work with lawyers who know how it works.
But Liz (a founder) makes a point that resonates with my own experience as a startup CFO:
VC Lawyers you hire might technically work for your startup, but do they really?
Here's why:
Lawyers who specialize in VC deals might work with you 1 - 5 times.
But the VCs you're up against?
If the firm has a foothold in VC, chances are they'll do work with the VC much more often.
They'll be recommended by that VC much more often
And they'll have much more longterm impact on their firm from what that VC thinks of them than from what you do.
Liz puts it more bluntly: they do hundreds of deals a year for investors and maybe one for you every other year. With whom do you think their loyalty lies?
So even if they're sitting on the other side of the table from the VC, there's a relationship importance imbalance.
Sure, you're their client.
But where does the value really lie for them?
If they piss you off, that's one bad deal.
If they piss off your VC, that's an entire line of future revenue potentially gone.
In my experience, this bias can unfortunately extend beyond dealings with VCs to counsel on other aspects of the business.
Using VC lawyers, you of course get the benefit from their perspective on what VCs would want you to do
(Which is valuable!)
But also, as a founder, you may not want what's best for most VCs to take precedence in every single negotiating room.
Remember: Your interests will not always be exactly the same.
Unfortunately, in my experience there isn't one clean good answer on this
Because hiring a firm with no VC experience has a long list of real problems
And most firms who do VC-backed startup work well also represent VCs.
I think the best we can do is:
1) Recognize this bias exists, and anticipate it in your negotiations.
2) Realize you don't need to use a VC-specialized lawyer for every aspect of your business. Get different folks for different domains (employment, commercial, IP, etc.)
3) Know the company lawyer is not YOUR lawyer. They work for the company. When it comes to co-founder agreements, employment agreements, severance conversations, or other more personal matters, it can be wise to get separate representation.
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