There are a few times when your attorney more than pays for himself, and negotiating your venture capital deal is one of them. The value in having an experienced attorney goes beyond his knowing the law and includes his having enough recent experience to know what the generally expected negotiation norms are and, even better, to know how the parties have behaved in negotiations in past deals.
Although you’ll be doing much of the negotiating with the venture capitalist directly while you pitch your company, having your attorney conduct the detailed negotiations for you is best. That’s why they are paid the big bucks!
You’ll be in a long-term relationship with the venture capitalist after you close your deal. You don’t want the inevitable challenges that occur during negotiation to spoil that relationship. It’s better to let your attorney be the bad guy.
Selecting an attorney is critical. Depending on where you live, you may find only a handful of seasoned securities attorneys who have the knowledge and experience to do your deal. Follow these suggestions:
Ask a lot of questions about what kinds of deals your attorney has negotiated and how recently your attorney has been working in securities. Securities law is highly specialized work, and you need someone who does nothing other than this kind of deal.
Choose someone who has worked with venture capital companies. Don’t go with someone who specializes in initial public offerings (IPOs) — you can use an IPO attorney in a few years, when your company reaches that stage. Nor should you use your brother’s college roommate who does a lot of divorce law, or your general business lawyer, even though you’ve been happy with his performance thus far. You must choose an experienced securities attorney; too much is riding on this deal to do otherwise.
Try to find an attorney who has represented entrepreneurs working with the specific investors you are talking to. The attorney will have some idea about what kind of terms to expect and what working with that investor will be like, both through the negotiation process and later when the venture capitalist is a director on your company’s board.