Control Dilution Part 5

Control Dilution by Getting a Great Lawyer

An experienced start up lawyer that’s in your corner can mean the difference between getting played by investors and making sure you’re at least in the market for terms and valuations.

This is also one I find almost all new founders being a bit blindsided by. And you’re probably thinking “how does a good lawyer help me reduce dilution???” Lawyers to non-founders typically = expensive and pedantic/rule oriented. I even know a lot of founders who still think the best lawyer is essentially the cheapest one but I’m convinced that’s because they never worked with a great lawyer. I’ve worked with dozens of them with my jobs (CC Craig Schmitz Paul Navarro Matthew Peterson ). And can say with conviction that the difference between a world class lawyer and otherwise has a MASSIVE impact on your business. Don’t cheap out. It’s worth it.

The best startup lawyers are worth their weight in gold and more. They live and breathe the terms of funding deals and are aware of current trends more than almost anyone who will be on the company’s side of a deal. A great lawyer will help you navigate the negotiation including what to expect in valuation terms, how to position your asks in the context of the investor and deal and can even script the wording of how to negotiate bids from various investors. They’ll typically have experience with the VC firm, the partner, and the specific lawyers that represent them to know tendencies of what are trigger issues for them and how to get around/avoid those. They’ll help you strategize expectation setting in one round to the next (aka they can see the problems that will arise in future rounds of funding if you make certain decisions in your current round of funding).

You NEED someone like this on your side. Period.

Tradeoffs: Not really any. You have to have a lawyer and you might think getting a basic/cheaper lawyer is better (see side tip 2) but they’re not. An experienced start up lawyer that you work well with and can trust is likely your single best advocate and guide in funding rounds to avoid dilution.

• Side tip 1: DO NOT USE YOUR FRIEND/FAMILY LAWYER CAUSE SOMEONE YOU TRUST REFERS YOU TO THEM UNLESS THEY HAVE DEEP START UP EXPERIENCE. Too often I’ve seen people use lawyers cause they have been referred to them and think they are all the same in terms of value add. They’re not, I promise.
• Side tip 2: DO NOT TRY TO GET A CHEAPER LAWYER FOR YOUR COMPANY FORMATION AND FUNDRAISING. While other kinds of legal work are commodities, company formation and fundraising is not one of them. Do not cut corners on this and the very best lawyers will be smart about how they charge you and won’t nickel and dime you at the start of your company as they’ll make their real money when your company gets bigger and uses lawyers more regularly for lots of issues (plus they know every dollar saved counts more at the start than later).
• Side tip 3: Be at least cautious of lawyers that are referred to you by investors you work with. While this unlikely, sometimes that lawyer may be thinking about what’s in the investor’s best interest instead of your own even though their fiduciary duty is to you and the company. I ended up using a lawyer who was introduced to us by our seed investor and he was amazing and completely loyal to the company so it’s common to have this work out just fine. Just be cautious. Make sure you interview a few lawyers before choosing the one you ultimately go with.

Part 1

Part 2

Part 3

Part 4