Make Sure Your Attorney Understands Venture

As the venture industry has expanded, more service providers have entered it.  I loved Jason Calcanis tweetstorm of a few months ago.  In it he said no seed stage company needs a publicist.  It’s up to the entrepreneur to do the guerilla marketing to get noticed. That goes for attorneys too.  Every single entrepreneur needs to be smarter than their attorney.  Hey, where did I read that before?  That’s right, Brad Feld and Jason Mendelson did the venture world a solid and wrote a book on it.

Just because you went to law school and got a degree doesn’t mean you understand venture. Like anyone, I know tons of attorneys.  Virtually all of them specialize.  Some do family law, and some do tax.  Some are litigators.  If you are going to use a venture attorney make sure that they have been through the wringer before.

This is especially true in ecosystems that are developing.

I have been a part of some deals that got totally screwed up by attorneys.  In one deal, the attorney wrote the term sheet up so that if the investor missed a payment, they didn’t lose their equity but their missed payment became a liability on the balance sheet.  The attorney on the other side of the table didn’t understand VC financing, and was okay with it!!  

In other deals, attorneys will ask for the moon and stars.  They just don’t understand how the business works.

My friend Mark Tebbe likes to tell entrepreneurs “always Delaware C Corp”.  I strongly suggest you use an attorney that has had deep experience in venture.  In new ecosystems, there will not be very many.  Even in a place like Chicago, there just aren’t that many attorneys that truly understand the ins and outs of venture deals.

I don’t think entrepreneurs are thoughtful enough when they think about attorneys.  They see money going out the door, and try to minimize the cost. I feel their pain. But, getting a lower quality attorney will cost you big time in the long run and might put your entire company at risk.  You don’t have to hire a “Neiman-Marcus” attorney, but you shouldn’t go to Walmart either.

Interview your attorney just like you do your investors.  Ask to see the docs they use.  Ask what terms they will use. Ask to talk to other entrepreneurs and investors that have used them.  It’s that important.