• September 12, 2015

How Your Legal Counsel Can Make or Break Your Funding Round

How Your Legal Counsel Can Make or Break Your Funding Round

Every entrepreneur, startup founder and/or CEO knows that a funding round is not final until the money is in the bank. Your bank, to be specific. Some entrepreneurs and startup founders are more familiar with this rule, and maybe even learned the hard way.

During the lifecycle of a deal and in all aspects of fundraising, your job as a founder is to create the least amount of friction as possible with potential investors. It can be difficult if you don’t have relevant experience or the right counsel – and if you have three, five, or 10 investors, multiply that difficulty accordingly.

When closing a deal, there are typically several key points that should truly matter to a CEO and many relatively insignificant points that will have little to no impact on the business. There are many ways a deal could go sour and as CEO, you do not want any of the insignificant points in the deal to makes the process of closing more difficult.

Legal counsel is typically the first solution provider a CEO needs when beginning the process of closing a round of funding. If you are an inexperienced founder, you might not have access to advice and counsel that will make the process go smoothly. Alternatively (and unfortunately) you might receive poor counsel, or decide on your own to go with a firm that isn’t setup to deal with a typical VC transaction. In fact, you’d be surprised to learn that there are a list of legal services firms that VCs prefer to work with on a regular basis.

It’s necessary for founders to have an understanding of who those experienced firms are, and do research upfront on what it requires from a budget perspective to work with experienced tier firms in the venture space. Like most startups, you are probably trying to minimize costs, but most experienced firms have programs to help startups keep costs low. Additionally, while you don’t want to overspend on your legal fees, the costs of losing a deal are far greater.

Here are five ways experienced legal firms in the venture space can make your deal happen more smoothly:  

  • Experienced firms typically work off of the same documents that VCs prefer. The lawyers that VCs tend to work with do a significant amount of deals together which has lead them to use relatively standardized documents. Since the docs they start with have been used in previous deals, they’re able to save significant time in getting right to editing the key points.
  • Experienced firms can actually save you money. Firms with experience in venture financings are often the top tier corporate firms which charge higher hourly fees than other firms. But in the long run, poor council can have hidden costs. A lawyer that is less experienced in venture financings can drag a deal out too long. If you have to go back and forth with the investor because legal counsel is not up to speed on what terms are “market,” or further, if the negotiation is handled wrong, you could lose a deal altogether. Finally, almost all experienced firms have discounted programs for early stage companies to keep costs low.
  • Experienced firms save you time. In addition to more efficient legal fees, premium legal providers will save you man-hours too. If you go with a less familiar firm, they will waste time getting up to speed on the ways that VCs work, ultimately looping you in on the process and risking frustrating the VC with extra review and revision cycles.
  • Experienced legal firms know how to work it. There is an art to running a fundraising process. The experienced law firms that work with VCs on a daily basis know what makes them tick, and when and how to push them in directions feasible and realistic to the deal.
  • Experienced legal firms tend not to throw you a curveball. When you choose a veteran legal firm that lives and breathes VC term sheets, there are rarely any surprises. They will anticipate challenges based on your business and the specific VC, and warn you ahead of time so you can be prepared and even thwart delays in the process. You can’t place enough value on making the deal as smooth as possible.  

If you are in the stages of closing a deal – whether it is a seed round, A round, B round, etc. – understand the partners and processes that can make your life easier, and increase your odds of closing the deal from the start.

Interested in finding out which legal firms are preferred by the top VCs? Apply today and submit a request.

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