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The Inlaw Conflict

TheFunded.com Advice

Posted by RichieBlueEyes on 2009-03-28

Tags: Operations Lawyers

PUBLIC:

This is a repost from a blog that is going live on Monday morning on Bootstrapper.com, I figured I would post it here first...

So today's post is about a topic near and to everyone in our community, The "inlaws". By that I mean the inherent conflict of interest that tends to occur within the legal community in relation to the venture community. I've gotten to know a number of lawyers in the community quite well over the last few years and have a lot of respect for them and are friends with a number of lawyers, however it is a small community and an interesting thing that occurs is that the same law firm can and often does represent both sides in a transaction (either directly or indirectly). What do I mean? Well, a law firm can represent a fund in one deal and the entrepreneur in another and both be going on simultaneously. It creates a confusing situation.

Outside of the venture sphere, the situation could be seen as a conflict of interest but given our world, it is standard practice. Often times the lawyer may be the one that introduced the company to the investor which is great for both parties but further complicates the question of representation.

The founding member of The Funded always likes to say that the lawyers work for the fund not for you and that the second $ is closed, it is no longer your counsel.

Given that the fund represents (generally) infinitely more business than a single entrepreneur, there is a point in there. On a technical level corporate counsel represent the controlling shareholder or bloc of shareholders but on a practical level it's something to think about.

Overall, it's usually good to have a venture law firm for your company because they do tend to know how to raise money and the process, however it may make sense to have a personal counsel review everything for how it looks from your perspective as the entrepreneur because you want someone looking at your docs that is representing you personally, not your company.

To conclude: Cover Your Ass no matter what you do - I've been screwed out of vesting and know many entrepreneurs who have as well. Protect yourself and make sure you have protections in place.

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