Why You Should Hire Someone With M&A Experience to Be Your Startup Lawyer

Are you a startup entrepreneur with a bold vision? You've brought your idea to life, and now you're on a mission to make it a success. But as you navigate the complex landscape of startup growth, there's one decision that could make or break your dreams: hiring a lawyer to protect your interests. So why should you choose a lawyer with M&A experience to be your startup's legal champion? Does it sound like an overkill when you are bootstrapping your startup? Let's explore the reasons why this could be the smartest move you make.

Establishing a strong legal foundation

Startups are delicate entities, especially in their formative years. A solid legal foundation is a crucial aspect that can secure their success by giving you credibility in front of partners and investors.

As a founder, you'll likely encounter numerous opportunities presented to you by players in the startup community - from accelerators and loans to grants and partnerships - that promise quick cash injections. While these may seem like attractive options at first glance, it's important to exercise caution before jumping into any deal. A startup lawyer with M&A experience can be instrumental in helping you navigate this complex landscape, as they have a deep understanding of which programs are reputable and which terms are likely to hinder your company's long-term financial health and exit opportunities. For example, I have observed some unusual deal terms from NewChip Accelerator that led to complications in a client's Cap Table. Therefore, I was not too surprised to learn about NewChip's closure earlier this year. By leveraging their expertise, you can make informed decisions that set your startup up for success.

Additional Leverage in Venture Financing Negotiation

Today's venture financings mostly follow the NVCA forms if you are bringing in institutional investors. While these forms provide a solid framework for investment, most negotiation points revolve around two things: economics and control. When pushing back on the investor on certain points, a company lawyer with M&A experience can make a compelling argument that particular investor markup is actually going to hurt the company, as well as the investor, in an M&A exit because once the financing is done, the investor becomes an owner of the Company. A savvy startup lawyer knows how to leverage this fact to negotiate better terms for their clients in financing deals. They can help their clients understand which areas they should push back on and which ones they should concede to, all while keeping their eyes fixed firmly on the long-term success of their clients' startups. With a startup lawyer with M&A experience by your side during VC financing negotiation, you'll have an expert who can help you navigate complex legal issues and secure more favorable terms for your business.

Remember Investors often assess founders based on the quality of their legal representation. If the legal representatives of the company engage in overly aggressive negotiations regarding matters of relatively minor importance, such as registration rights outlined in the Investors' Rights Agreement, potential investors may form a negative impression of the founders' ability to collaborate effectively with top-tier partners.

Avoiding common mistakes and pitfalls in M&A

By hiring an M&A lawyer early on, startups can avoid costly legal issues down the line. These lawyers have extensive knowledge of the legal landscape surrounding mergers and acquisitions, including the potential pitfalls that startups may encounter during these processes and things that will give Buyers a pause in due diligence. For example, when hiring remote workers through third-party staffing agencies, it is important to ensure proper IP assignment is obtained directly from the individual contractors. Relying solely on the staffing agency's standard contracts and SOWs may not be sufficient and could potentially cause issues during due diligence of a SaaS company in an M&A exit. This might be something obvious to an M&A lawyer but less so to lawyers without having gone through multiple M&A due diligence processes where each aspect of the business is scrutinized by the Buyer and it's counsel. In short, M&A lawyers have seen enough of the things that Buyers don't like to understand what actions to avoid during the initial stages of a startup's life cycle.

Efficient Risk Management

Risk is an inherent part of any business, and in startups, the stakes are often higher. A lawyer with M&A experience can help manage these risks effectively, ensuring your startup's survival and success. They can provide valuable insights into the risks associated with your startup and tell you which risks are worth taking and which ones are best to minimize or eliminate. By working closely with you, they can help you make informed decisions about which risks to take and which ones to avoid, ensuring the long-term success of your business.

Key Question: Can startups afford M&A lawyers?

Traditional big law firms are highly specialized, and often cater to the needs of large corporations, financial institutions, and private equity firms. The hourly rates of experienced M&A lawyers in these firms are typically in the four-digit range, which is often not affordable for most startups. As a result, startups should look for alternative options, such as mid-size firms or boutique law firms, who not only has experience managing fast paced M&A transaction but also has the billing flexibility to provide cost-effective legal solutions to startups and emerging companies.

Conclusion

Hiring a startup lawyer is not just about managing legal affairs; it's about gaining a strategic partner who can help you navigate the rocky roads of startup growth. An M&A experienced lawyer not only brings their legal expertise to the table but also their strategic acumen, risk management capabilities, and negotiation skills. This combination can be the difference between failure and the successful scaling of your startup. So, when choosing your startup lawyer, don't just consider their legal qualifications. Look for that vital M&A experience. It may just be the strategic advantage your startup needs to soar.