The lawyer you shouldn’t choose
“A business is your personal utopia, where everything is how it should be”
Kristian Holte, attorney | [email protected]
Charlie Munger taught me that sometimes it helps to approach a problem from an angle of inversion.
This means that you focus on what not to do. This is helpful when you don’t know what to do, because you narrow your options by eliminating undesirable ones.
I can say a lot about how to choose the right lawyer. Instead, let me tell you something about which lawyer not to choose.
How to let strangers take over your business:
Start-up founders looking to raise money from investors tend to focus on economics at the expense of control.
Examples include excessive efforts to:
- Maximize the valuation of the company
- Eliminate “crucial” terms such as liquidation preferences and anti-dilution
- Negotiate the hell out of an option pool
These are important terms, indeed. Because they are important, control is overlooked.
I hold control extremely dear. I’m obsessed not to loose it. I might choose to give some away, but I insist on knowing when I do it.
Examples, where start-up founders tend not to give control enough thought:
- Investor gets broad veto-rights to block decisions
- Investor gets the right to force certain decisions through
- Investor gets a right be appoint board members indefinitely
- Investor’s lawyer is chosen as the company’s lawyer
Let’s talk about the last point.
It seems so innocent and straight-forward. Investor knows this lawyer, vouches for him and the lawyer reduces the fee for the initial work.
Let’s go, right?
Not if you like to run your own business.
Why not choose investor’s lawyer?
There are a number of ways of using a lawyer to manipulate. Read about some of them here. I chose the word “manipulate” carefully. It means that the one getting manipulated doesn’t realize it
You set yourself up for manipulation by choosing investor’s lawyer. Or the lawyer of anybody else whose interests might conflict with yours.
Any skilled and well-regarded lawyer possesses an armor of authority. It’s hard to penetrate.
“I suggest this”.
“Let’s do it like this”.
“I recommend that we wait with this”.
“It’s urgent that we do this”.
It will be impossible for you to argue against this. If you see it coming at all.
Investor’s lawyer will never acknowledge this, but when pushes comes to shove, he owes his allegiance to investor. I have experienced how serious the consequences can be.
Remember, your business is your personal utopia. For once, you’re the king. Don’t rob yourself of this rare opportunity.