Startup founders and CEO’s often believe that the most important things to focus on are having a great idea, creating a viable product, and developing an epic go-to-market strategy. While these are all important aspects that will help lead your startup to success, many great ideas and viable products with extremely well thought-out plans fail every day.
What often makes the biggest difference is the support system, the winning team built around the startup that ensures it’s on the right track to stability and long-term success. Who makes up a winning team? One of the most important, yet least discussed, members of a winning startup team is the legal advisor that guides the startup through every step of the journey.
We decided to outline the importance of finding the right lawyer for your startup by bringing you A-class tips from Hanan Haviv, Head of High-Tech at Herzog Fox & Neeman, one of the leading law firms in Israel (and our very own choice of legal representation).
Finding the Right Legal Partner
Remember the amount of thought and consideration you placed on finding the perfect partner or co-founder? Well, when building a winning team, it’s just as important to put time and thought into picking other partners like your vendors, as they will be alongside you on your journey to success. One such partner that is needed on every team and should be chosen wisely is a legal partner.
When choosing a legal partner, the most important thing to do is make sure you find one that understands your industry as well as the startup and investment scene because if plans go your way, you will need their advice and guidance.
“When choosing a lawyer, it is important that they have the right professional skills, but it is equally important to pick someone that will be your partner – someone that can understand the business context of the legal issues and also fit your startup’s culture,” says Haviv.
As for when to bring a lawyer on board? While it may be tempting to wait until you find that one perfect legal partner, the time to choose one is always sooner rather than later. Whether for just a consultation, guidance with incorporating, intellectual property protection, or valuation, your lawyer can make a huge difference in your company’s path to success.
Navigating the Investment World
While legal guidance during the early stages of your startup’s formation is important, it is even more crucial to have a legal partner by your side helping you navigate the investment world further down the line when raising funds. Simply put, your lawyer serves as a form of a sanity check, offering unbiased views and advice on the next steps, potential deals, good and bad valuations, and more.
Whether you’re looking to raise money from an angel investor or if you already have several successful investment rounds under your belt, your legal representation has a powerful impact in the way potential investors perceive you, affecting your valuation. Understanding the different startup funding rounds is not a simple matter. The way you manage your rounds could often be the difference between failure and success and can even set the tone for future investments.
One critical issue that may come to haunt founders in the future is giving away too much equity at the start, as this will give you little wiggle room for big investment rounds in the future. Similarly, being too aggressive with your valuation could mean that you will not get the investment you want and your idea may never take off. It could also mean that you will not meet the milestones for the next financing round, leading to down rounds and disgruntled investors. This is exactly where a lawyer can help.
Tips From a Lawyer
As promised, we sat down with Hanan Haviv, Head of Hi-Tech at HFN, to get his expert tips for startup founders and CEOs on selecting and working with lawyers.
Q: When is the best time to bring a lawyer on board?
A: “Generally speaking, the best time is sooner rather than later – when your startup has a mature enough idea and is nearing incorporation. You would like to have a lawyer on your side when you are ready to formalize the relationship with your co-founders and when you want to strategize about funding alternatives. Really it’s about finding the balance between selecting a lawyer too soon and not soon enough and that balance is after you have a clear direction and vision but before you talk to too many people and make too many commitments.”
Q: What is the most important thing to consider when selecting a lawyer?
A: “The most important thing is finding the lawyer that can serve as a partner and trusted advisor for the long haul. Having a trusted advisor has a lot to do with professional skills but also a personal connection. You should look for a lawyer that is a master on the legal issues, but that is also able to understand the business context and implement your vision and values. This is someone that can serve as a bouncing wall for your ideas and serve as your ‘gatekeeper’ at the right times, but also someone that can bring their experience and be proactive in coming up with solutions to problems. Look for someone for whom your business is important – someone that will accept your call on Friday at 6:00 pm if there is an urgent issue to deal with before the weekend, but also someone that will call you at 10:00 pm before an important meeting and give you one last important piece of advice. Lastly, your lawyer is not a magician, so you are not picking a lawyer who can understand and solve all the issues you will be facing but rather a team. In this case, you will want to understand who will be on that team and how they work together.”
Q: How does a lawyer’s role differ among the various stages of an investment round?
A: “Financing rounds, whether in the early stages or later stages of a company, involve dealing both with the fundraising and putting in place the corporate governance of the company – the decision making process. So, it is important to deal with both the dilution and with putting together a decision-making process that will allow the company to meet its full potential. This means giving adequate protection to legitimate interests of different stakeholders but not giving too much power that may be exploited in the future and prevent the company from making the right decisions.
In the early stages of a startup, foundations are built. A lot of times, the founders are less experienced than the investors in these matters, so the role of the lawyer here is to hold the founder’s hand and explain and provide perspective on the potential future effects of various decisions.
The more advanced the financing rounds get, the more constituent’s a company usually has. The role of the company counsel is to assist management and the board of directors in navigating the various interests and finding the right balance, allowing the company to transition from a startup to an established company with ease.”
Q: What is the best thing a lawyer can do for a startup while in the midst of an investment round?
A: ” The best thing that we (lawyers) can bring to the table is to properly manage the process of the investment round. Investment rounds typically involve many parties, each bringing their own issues to address and a lot of documents to draft and negotiate. As a founder, you don’t want surprises and at the end of the day you are dealing with your future partners, so you want a lawyer that will guide you through the process and build a cooperative and pleasant environment.
I see our role as quarterbacking the process to make sure nothing falls behind, avoiding last-minute surprises, identifying problems well in advance, offering solutions, and putting things into perspective. Being part of a true one-stop law firm allows me to leverage the expertise of many lawyers in a wide range of areas in order to tackle the most pressing issues at any given time and ensure the process is on the right path. Because of the sheer number of transactions we have been exposed to, it is easier for us to recognize potential issues before they come up and neutralize them immediately.”
Q: One final tip for startups of all sizes and stages?
A: “Focus on building the winning team for your startup and remember that the winning team goes beyond the founders. At the end of the day, it is all about finding the right people that will move mountains to make your startup a great success – of course, a great law firm can always help!”