The Right Lawyer for a Smart Startup
"When the time comes to negotiate with VCs, expect them to suggest an attorney. Thank them politely -- and then go out and get your own expert...
You've received a list of terms from a VC group committing the $4 million in first-round funding you were seeking for your technology company. There are a few items you don't fully understand, and several others you'd like to change...In my view, the entrepreneur's instincts are right on target in this not-uncommon situation. Entrepreneurs who convince VCs to invest in their companies don't gain access to the cash until they have negotiated the actual terms of the investment -- and that negotiation process is far from trivial. It involves important items covering the terms of investment, along with the VC's ongoing involvement in the your business...
You will want a trusted adviser to recognize and advocate your interests. Here are some of the most common challenges:
• The power position of the VC firm...
• Antidilution protection...
• Stock incentive provisions...
• Management team employment agreements...
• Ongoing management decisions...
• Exit strategies and acquisitions...
These kinds of decisions make the choice of a lawyer far more important than many entrepreneurs realize... I highly recommend choosing legal counsel who represent startups and technology companies on a regular basis. Using someone who represents VCs is also a good idea -- as long as those VCs aren't investors in your outfit. After all, the greatest value that a lawyer can contribute to an emerging company is his familiarity with the ever-changing VC landscape..."
Read more in article by By Gabor Garai.
