VC Minute – quick advice to help startup founders fundraise better
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The next thing that I would advise you to keep in mind as you go into a priced round, whether you’re leading or you’re the founder doing the negotiating, is to manage legal depth. What I mean by that is to be clear about how far down the rabbit hole you want your lawyers to go on each issue. If you want them to hunt it down, they will go deep on the matter. And if you don’t, be clear about that.
For example, I shared a concern about a potential IP issue and asked our counsel to dig in on this. It was a critical issue for us, and so our counsel pulled in their IP specialist, who dug in deep on the matter. He sent back a comprehensive three-page report with his full analysis along with actions we should take to mitigate this risk. It was great work; I’m glad I asked for it. I felt better about having that clarity, and understanding what needed to be done from there.
However, I only needed this depth of work for that issue. I didn’t need this for every matter that we were going into. I was very clear about what I wanted from each issue that came up. Sometimes asking for a surface-level review and a simple opinion with a few options will suffice.
An example from the opposite end of the spectrum is that as we got down to the final rounds of documents, one revision from our counsel changed the word “shortly” to “promptly” in two places. I passed these revisions onto counterparty counsel, but really I should have stopped it because it prompted a response from them. We were down to the last few hours on this and I just should not have pushed through such a minor change at the very end. But I did. And it prompted a number of follow-up calls that probably could have been avoided. What I should’ve done is just pushed back on that and said, “I understand the urgency here. I don’t think this is material. I’m not going to pass this revision through.” If you can avoid those nitpicky last-minute tweaks that don’t move the needle, keep them off the plate.
In summary, clearly defining the depth of legal scrutiny required on each issue streamlined the process.
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