Midwife, surgeon, gravedigger – it’s a cliché to say that no matter what happens the lawyer always makes a buck. But how can you utilize an attorney’s services and of what kind of cloth should he or she be cut to generate the maximum benefit in the delicate interplay between start-up company and investors? Which attributes do attorneys possess, and how do they use them to influence the various situations a start-up faces?
Characteristics of attorneys, and the types it would be better to avoid:
IT affinity
There are lawyers that would rather hear themselves shout than use headsets for long conferences because that’s something a secretary uses (and is therefore beneath them!). Worse yet, there are still some who refuse to create any documents at all. They’d rather dictate them, so while a number of people wait for a new draft of an agreement, for example, the administrative assistant plows ahead, blithely making mistakes in the transfer, or hasn’t even begun typing it up, because it’s already time to call it a day.
Expert understanding of economics
Indispensable, because difficult legal issues must always be viewed in context: what is the upside, what is the downside?
VC experience
Term sheet negotiation, first VC round – the clever attorney experienced in VC dealings will explain to the client that the particular structure of a term sheet in the VC environment is normal and that one can only tweak a very few parameters such as valuation or liquidation preference, AND that none of that plays a very important role because a start-up will not become successful based on terms. A run-of-the-mill attorney, on the other hand, will explain to you that those are American customs whose “wild West” nature goes against all manner of social justice.
Specialization
The lawyer specializing in labor law, for example, typically is far too far removed from the start-up context. To make the interaction as efficient as possible in this area, it’s best to have your main contact in the law office, who also understands your context, speak to the specialist.
Office size
It is advantageous if the law office is not just a two-person operation. With a bigger office, specialties are at hand, shortfalls can be compensated for, and an international network is in place. The disadvantages are subtler. Attorneys that are not partners or who are not just on their way to becoming partners may have checked out mentally, and a situation like that naturally will have a huge impact on their commitment. In larger offices, an increase in overhead and a much more complicated workflow can be observed. A senior partner delegates to a less senior partner who completes the work, which means that two people are always involved in the calls, and the contact function is always delegated to the less senior partner, who either doesn’t have decision-making capability, or who has to correct whatever has been said later. Double billing in such cases should always be rejected!
Billing granularity
Some offices charge in 15-minute increments and even factor in the assistance of paralegals. Don’t accept that. If possible, work out a flat rate for a clearly defined volume of work.
Internationality
In negotiations, the Chinese are a completely different breed. How is a lawyer going to handle that if he or she has only ever had experience with European counterparts?
Intellectualism
Very important, especially in the start-up’s early phase: keeping a certain amount of chaos regarding the unestablished in mind, yet not neglecting novel products and complex IPR configurations and the future exit positioning associated with them – many lawyers have pursued an advanced degree for just such a situation.
Emotional intelligence
Highly conducive to monitoring negotiations and depolarization, unfortunately, this attribute is often in opposition to high intellectualism.
Integrity
One lawyer receives a mandate to build up a strong counter-argument during a shareholder negotiation, but crumbles and merely responds with “Yes, sir,” and, “No, sir” at the first sign of resistance. The same lawyer is asked only to provide legal explanations during negotiations between the VC and the founder, and at the first opportunity verbally strikes out at the founder. Assessment: no integrity!
Pragmatism
Solutions that are too broad, that try to consider even the most improbable risk, are nothing but costly. The more detailed the regulations, the more potential gaps in the details.
Personal responsibility
Attorneys tend to be only “subcontractors”; a tight rein should be kept on them!
Composure
If mistakes occur for which the lawyers are responsible, calm attorneys will respond pragmatically by looking forward, while the volatile ones begin to panic, start to make excuses for themselves, waste your time, and in extreme cases, flatly refuse to find a solution.
Conclusion
Before you decide in favor of legal backing for your start-up, ask to have example cases explained, check references and use the above checklist to determine what you can really expect from an attorney.
