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Great advice from The Lawyer Whisperer

October 29, 2016
Question

Everything You Need To Know About Start-Ups and Their First Lawyers.

answer
Julie Q. Brush

In the U.S., the perception of the in house lawyer has taken a dramatic turn over the last 20 years. Not only is this lawyer viewed and valued differently, today’s in house lawyer is different: in skill set, capabilities, acumen, outlook, wiring and overall contribution. As a result, more private company executives are adding their first legal leaders earlier in the company’s life.

Before the “dot-com boom” (pre 1997), the in house legal department was the not force it is today. Nor were its lawyers. Why? Because corporate executives viewed lawyers (fairly or unfairly) as a necessary evil: paper pushers, rigid, a bottleneck, a cost center and a “path to no”- with minimal value-add. Consequently, the bulk of execs preferred to keep these legal eagles assigned to the role of outside counsel. The biggest naysayers were the CFOs who saw the function as pure overhead, with a high…and unnecessary cost.

In 1997, the number of new start-up companies exploded – and the dot-com boom was born. Legacy sentiment about lawyers remained in force, but massive legal work and increasing legal costs compelled company execs to reconsider their stance on the necessity of an in house lawyer. A hiring surge ensued and a barrage of young, newly minted in house counsels found themselves in a strange and foreign land with little guidance on running the legal function. The party ended in 2001 and the emerging company market went into deep hibernation. 2005 marked the beginning of a start-up rebound. It also marked the beginning of a crackdown on corporate governance with a skyrocketing number of investigations. So this time around, start-up executives had a new perspective of the legal function: Legal was essential. And lawyers could add much more value. They could be business partners, help drive revenue, save the company money…and keep us safe.

Today, the start-up market is active and legal hiring continues at a swift pace. Executives are adding in house counsel at earlier stages, but the timing varies and is governed by the following factors: volume of legal work, need for a legal infrastructure, company funding, readying for an IPO, rapid growth, revenue, potential acquisition.

The profile and experience of these lawyers varies as well. For a mid-stage company, the legal role is typically slotted at a director level with a Director of Legal Affairs, Head of Legal or even most recently, a General Counsel title. These lawyers possess between 8-15 years of experience and are almost always commercial lawyers. They serve in a blocking and tackling role and are tasked with establishing a more formal legal infrastructure. As the company matures and readies itself for its IPO, company execs will often hire a seasoned GC over the existing lawyer. This GC will have securities and IPO experience as well as management and strong board experience. There are instances where some mid-stagers go the prototypical General Counsel or Chief Legal Officer route. In this scenario, the seniority range is 15-20+ years and a more generalist background with solid board experience is typically required.

In contrast, late stage start-up execs consistently hire for the General Counsel role. They are readying the company for a liquidity event “in 12 – 18 months” and need a seasoned lawyer to manage the process. This lawyer will often possess 15-25+ years experience, and prior board, General Counsel and IPO experience. These GCs also have broad based substantive knowledge in areas including securities, governance, IP, commercial, privacy, compliance and litigation management.

In today’s U.S. start up world, the want…and need for in house counsel continues to rise. And appreciation for the legal function and a lawyer’s value is stronger than ever. As a result, executives are adding in house counsel earlier in the company’s life and allowing this legal executive a broad range of responsibilities. Paper pusher no more -These lawyers have earned their proverbial seat at the table. And they’re here to stay.

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