Should you use your lead investor’s lawyer?
When setting up your own business, finding the right resources and contacts are important. Initially, you might be figuring out how to let the idea take off, while fighting to find investors to support your business. From the idea to its physical manifestation, a lawyer plays an important role in address your needs.
Finding the right lawyer includes many aspects. The Legal professional you hire must be experienced in the field that you are entering into, such as aspects of regulatory aspects of your business, intellectual Property, securities and finance laws, etc. If you are considerably new to the field and have no particular access to lawyers, you might inevitably turn to your investor’s legal advisors. While seeking recommendations are good, hiring your lead investor’s lawyer might not work well in certain situations.
As with any investor, they exists a vested interest in matters related to the business and its success. Regardless of how much equity or stock they hold, this is always the case. When your lead investor comes into the picture, there is more often than not a tendency to resort to means that will ensure maximum profit. Hence the ability to remain objective is usually absent. Hiring your lead investor’s lawyer will double this inconvenience. The ability to remain objective and pledge allegiance to the business first, might only come second to the lawyer, in situations where the lead investor and the business are at crossroads. Further, hiring a lawyer must take place before engaging with potential investors as the lawyer can help prepare you to pitch better to the
investors and offer the terms in a more professionally aligned manner.
There is an ethical angle to this as well, there is no surety that the lawyer hired through your investor’s reference may remain loyal and unbiased between both the clients he represents. The rules of Attorney-Client privilege in such a scenario become blurred and leading to a grey area. There are even chances of malpractice, insider trading, and much greater damage that may arise from hiring your lead investor’s lawyer. The ability of the lawyer to remain impartial and not tip the odds in the favor of your investor is of prime importance in hiring a legal professional.
If a situation were to arise wherein the interests of the business are different from that of the investors, it is important to have a lawyer who considers what’s best for the business and acts impartially. As founders who are starting afresh into the business world, it is best to employ people who you trust. Hiring your lead investor’s lawyer is equivalent to giving your investor an undue advantage over every other investor in the business.
The lawyer you engage manages many aspects of your business, the person who takes up this position must undoubtedly be someone who has no strings attached to anyone else or has a vested interest in the business. The lawyer must solely be the start-up’s lawyer and not one shared by the start-up and its investors. As far as new business are concerened, obstacles are plenty and a competent lawyer helps in navigating through these obstacles deftly and easily.
As a start-up, it is essential to have the right investors and the right management. Investors might not always be reasonable and easy to deal with, in difficult scenarios. Thus an impartial and objective lawyer acts as authoritative support before investors. If you hire your lead investor’s lawyer, when the time comes, you might not be as fairly represented as you would expect.
Hence, for better transparency, better service, and an objective perspective to legal issues and related courses of actions, hiring a competent lawyer, with no deep connections to your investor is integral. This assures more protection for you and ensures the business is represented fairly.