By Andrew Humphrey
(ARA) - As you consider the legal issues that face growing companies, you should start with two basic questions: how do lawyers add value for emerging companies? And how do you find a lawyer who's the right "fit" for your needs?
When you cut through the paperwork, here's what a lawyer for your emerging company should be able to do:
Put your company on a solid foundation.
The early decisions you make with regard to your corporate structure -- developing a financing model, allocating and valuing shares, securing intellectual property protection, establishing third-party licenses, etc. -- will have a substantial impact on your business down the road. When you're looking at later rounds of financing, or a strategic exit, your potential investors will be flyspecking your infrastructure for legal landmines.
Help you manage risk.
Most legal issues don't come with an easy "yes" or "no" answer. Unless your strategy is flat-out illegal (like consulting with your competitor on prices), you'll need to assess your tolerance for risk on most major business decisions. You should expect your lawyer not just to drop the decision in your lap -- or to reject your strategy out-of-hand -- but rather to provide strategic counsel to help align your decision with your business objectives.
Provide a reality check.
Whether you are in med-tech, biotech, IT or another sector, a lawyer with experience in your industry and in the venture community can provide a valuable market check. If your business plan, financing model, or assessment of the market is overly rosy, your lawyer can usually tell you that quickly and help you avoid damaging your credibility.
Serve as a bridge to other contacts.
Selling your company's business model is like anything else -- who you know is critical. The venture communities in most cities aren't large, and most of the key players know one another. If a respected professional believes in you and your vision, that person can introduce you to others who will provide market and management expertise and often will be instrumental in helping your company grow.
The next question is, how do you find the right lawyer for your company?
Even before you start checking bios and making phone calls, you should know where your business is going. If you're starting small and planning to remain small, then you don't need (and don't want to pay for) the services of a sophisticated corporate law firm. There are plenty of solo practitioners and small firms to help you navigate the ins and outs of small business law.
If you're looking to grow, then you may want to set your sights on a larger firm with more resources. Business ventures that need multiple rounds of financing, or that are aimed at an eventual public offering or "M&A" exit strategy, will almost certainly demand lawyers who are well respected in the venture community. But remember -- most law firms, like investors, are choosy about their clients. Make sure you've got a thoughtful business plan, and that you've had a seasoned expert review your plan, before you wade into a tough market.
I talked to several successful leaders in the emerging companies community about the characteristics that make a good lawyer. Here's what they had to say.
Sounds obvious, but this isn't easy in today's complex legal and regulatory environment. General "business law" experience isn't enough, says Archie Black, CEO of SPS Commerce, which provides supply chain integration services. "If the horse isn't there to begin with, there's nothing to ride," he adds. Make sure you work with a lawyer who really understands the emerging companies market.
You also don't necessarily want one "do it all" lawyer to handle everything. With many aspects of business law -- such as intellectual property -- becoming increasingly specialized, you will likely want to find lawyers with substantial experience in the specific area you need.
That's what Andrew Hunkins, founder and CEO of Unimax, which helps customers administer telecom systems, says he wants from a lawyer. Negotiating the best deal on financing, contracts, and licenses means staying in touch with current trends in the market. You want someone who knows your "space."
Wally Danielson, CEO of Impres Medical, a medical technology manufacturer, knows what he doesn't like in a lawyer -- someone who doesn't return phone calls. "Entrepreneurs put their heart and soul in a business," Wally says. "I want a lawyer who gives me the same care and concern."
Finding a lawyer who charges half the billable rate -- but takes three times as many hours to give you an answer -- is no bargain. "Give me value," says Jim Leslie, CEO of MidWave, which builds and implements IT solutions.
To get the most out of your lawyer, you need a relationship built on trust. You want more than a technician or a vendor -- you want a partner who's not only a superb lawyer and team player, but who can be a counselor, risk manager, mentor, and sounding board.