Founders, Manage Your Lawyers
Early in my career, a lawyer cost me millions of dollars.
Not in legal fees.
Not by doing a bad job.
But by doing their job too well.
Here’s a cautionary tale about why it’s essential to manage your lawyers — closely.
Shortly after selling my startup, I luckily had the capital and opportunity to invest in a company led by an old-school founder who had built a lucrative business over decades. He liked me and asked only for a simple process.
My ambitious and customer-focused lawyer wrote up a detailed term sheet and sent it over. The top line offer was fair, but my lawyer had put in a host of aggressive provisions and haggled over every minor request from the company’s owner. The owner dismissed it summarily.
Nothing my lawyer put in the docs was illegal or even immoral, but it was considered insulting. It made me look like I didn’t trust him. Understandably, the business owner chose another investor who made a fortune on the deal.
I want to be exceedingly clear; my lawyer worked entirely above board and went above and beyond on my behalf. The issue was that he drew up documents as if this company I wanted to invest in was a defeated rival suing for peace and not a potential partner.
Business partners ultimately deal in dollars and cents, but words and sentiments count for a lot. We write contracts in legal language, but we eventually translate esoteric deal terms into human emotions.
My lawyer advocated for my advantage at every turn, always at this potential partner’s expense. Truthfully, I didn’t care about or even understand the value of all the asks. The recipient was rightfully offended.
In my only defense, I was in my twenties and had little experience as an investor. I was a founder/operator with little understanding of properly framing investment documents. As a result, I let my lawyer drive the process, to my detriment and embarrassment.
This doomed deal was a formative experience and shaped how I have tried to manage relationships from then onwards. I learned that it was folly to follow my lawyers’ lead blindly. They wrote the docs, but I had to drive the message.
In the current day, as the balance of power shifts from funders to founders, I would offer a word of advice — keep a close eye on your lawyers.
New lawyers will also try to make a name for themselves and will push for every possible benefit for their clients.
On the margin, this is good! But remember that you ultimately own the relationship. Aggressive legal tactics will ultimately reflect on you, not your lawyer.
Lawyers should ideally be educating first-time founders on this point — you’re a single team.
I’m not suggesting that founders should defer to their investors’ wishes or mindlessly do things “the way they’ve always been done.”
Advocate hard for yourself, your team, and your company.
Fight hard for what you want, but first, make sure you know what you want.
Here are a few tips I’d offer for founders managing a lawyer and high-stakes startup negotiations for the first time.
📄 Educate yourself
If there’s a deal point in your documents that you don’t understand, ask your lawyer to explain it. It’s worth whatever the hourly rate is. Then, try to understand the impact it will have on your counter-party.
🧘 Empathize & Meditate
Close your eyes and imagine yourself in the shoes of the other party. If you feel strongly about a legal point that you think might cause some upset, take the time to talk through the issue *before* the VC’s lawyers pick it up in review.
⏳ Give time
Partners working in good faith can overcome most fair-minded disputes if time is managed correctly. However, a totally innocuous ask takes on a different character when it’s slipped in at the very end of a process or in a ticking clock scenario.
🚩 Look for red flags
If you feel like you need an iron-clad legal document with every eventuality spelled out and layers upon layers of protective provisions, perhaps that is a sign you might not want to work with that particular investor?
I don’t say any of this to discount the importance of lawyers. They play a critical role and help level the informational playing field between founders and investors. Find the best lawyers you can, and don’t be afraid to pay top rates if you can. It’s worth it.
That said, remember that they are your agents. You ultimately own the output and the relationship. Blaming your lawyer if a transaction blows up in negotiation can have a negative reputation impact and easily cost you a great deal. I certainly learnt that the hard way.