You’ve got your investors lined up — both sides are excited at working together and enthusiastic to start the process. Things don’t happen without you formalising them, so you call the lawyers.
You can see the finish line.
What you can’t see is that there is a very deep valley to cross to get there.
I’m coming up to my 35 deal mark — here are the tricks I’ve learned the hard way.
First, some often ignored context…
Lawyers don’t give business advice.
Most lawyers haven’t ever run a company, and only have an advisory understanding of the tasks and pressures involved. So often where entrepreneurs see an agreement as an opportunity, lawyers see it as a collection of liabilities.
This is a really important perspective to have at the table, (especially for an over-optimistic entrepreneur) but it shouldn’t drown out other considerations.
Lawyers are trained to see the risks in the detail, but they don’t think for you.
If you ask a VC for advice on your business’s future, they’ll talk about scaling to a $1bn company. If you ask an insolvency lawyer, they’ll give you an action plan on how to put it into administration. It’s all about perspectives.
Your interests aren’t aligned.
Let’s say you’re fundraising and timing is tight.
If this deal doesn’t happen, your company is… how you say… mechuleh.
But your lawyers? Well, they get paid either way, init.
That means you’re misaligned.
Which is fine (lawyers working on contingency feels wrong), but something you need to be conscious of.
And it’s not just cost, lawyers don’t need to deal with the consequences like you do… Early in my career I put together a deal with no good/bad leaver clauses. Chuffed that the team and I executed an entrepreneur friendly deal against the big bad investors, we toasted completion to a good deal. But when the CTO left a month later, the company was paralysed. Not only could the lawyers not get us out of the mess easily, but they wanted to charge for telling us that.
But, of course they did, because they’re lawyers, and that’s their job.
Beware of the language barrier
I think this is the most important point I could make.
Lawyers have spent years playing about with legal language — to them everything is nuanced and purposeful. To them, an agreement is a formula, like code — it’s fit for purpose or it’s not. And just like developers, they’ll have their own style when it comes to coding.
So the first reaction to the other side sending over an investment agreement is rarely “these are great documents, you’re good to sign”, but almost always “we can’t accept these clauses”, “someone’s having a joke with this section” or the dreaded “I’m not sure where to start”.
Suddenly disaster scenarios appear from minor clauses, and the legals are driving the deal, rather than the other way round.
Yes, there are risks in every deal, and yes you need to cover yourself, but how likely are those risks to arise, and what is their consequence? Some lawyers get this, but with 2 sets on each deal, there’s bound to be some oneupmanship between them, or maybe an associate trying to impress a partner, or maybe both of them proving they’re “on the client’s side”.
All this is very nice, but how do you use it to your advantage?
How to deal with lawyers in an investment deal
1: Ask for a quote on your termsheet — even if they’re your regular lawyers and you don’t want to use anyone else. Do the same with a different set of lawyers. Negotiate and agree.
2: Set deadline expectations. Do this with your investors too, but make sure all parties are aligned to close in the same timeframe.
3: Agree all major terms upfront with your investor. The best deal experience I’ve had is when we received a really detailed TS, spent 2 hours on it with our team, 2 hours with our lawyers, and then went to negotiate directly with the investors before moving to long-form documents. Not only does it save time and impress investors but it puts commercials first, and gets everyone on the same page from day one.
4: Traffic light your issues. Red for deal-breaker. Orange for “we’d really like this, but it’s not a show-stopper”. Green for technical or non-contentious bits. Do this with your lawyers, so you understand the issues — but you call the shots when it comes to priorities.
5: Don’t let lawyers negotiate with lawyers. Deal fatigue is real, and it happens when the company & investor feel inertia in the process. Giving lawyers license to negotiate with lawyers can easily create this. The only solution is…
6: Always be calling. You have to stay on top of the ping-pong. Set up a regular call with your lawyer every 48 hours to talk through progress, and talk to them in between too. You don’t know what else a lawyer has on, so make sure you’re in their face and it’s you deciding what’s important. But that’s not all…
7: Never end an email without a follow-up. Something like “please let me know when this is done”, “let me know what they say” or “when can I expect this to be finished?”
8: Don’t pay the bill before you get your ‘investment bible’. Too many deals end with money in the bank but without a full pack of collated signatures, share certificates and documents. Lawyers move on, firms merge and no one is ever around when you need them — so make sure you have this in hand straight after the deal completes.