How to choose a lawyer to assist in attracting the investments in a company: key aspects and tips
Today, we’ll guide you on how to select the right lawyer to support your investment transactions. Choosing the right legal partner is crucial to ensure proper legal support, minimize risks, and protect the interests of the company and its founders. We hope the following tips will help you find a reliable lawyer.
When should you start looking for a lawyer?
In practice, many entrepreneurs begin searching for a lawyer when they reach the stage of negotiating transaction documents, especially when they receive legal documents from the other party that seem unclear or complex. However, it’s important to recognize that a lawyer may be needed much earlier in the process. Below are the typical stages of a transaction, with brief comments on when and why a lawyer is essential at each stage.
1. Preparatory stage. At this stage, the company undergoes a thorough analysis. You evaluate your business from an investor's perspective, asking key questions: What type of investor are we targeting? How much capital do we aim to raise? What deal terms are we willing to accept?
Comment: At this stage, involving a lawyer is not strictly necessary. However, it’s wise to address the essential "hygienic minimum" that every investor will inevitably scrutinize. Ensure that the rights to your company’s shares and the intellectual property rights for your product are properly registered and documented. By resolving these two fundamental issues upfront, you’ll create a more favorable impression and make investors more inclined to engage in discussions with you.
Of course, it’s worth clarifying that certain investors may be open to funding at the idea stage, prior to the official incorporation of the company or the registration of intellectual property rights.
2. Search and Initial Contact with Investors. During this stage, potential investors are identified, and suitable candidates are selected, including venture funds, business angels, and strategic partners.
Comment: At this point, involving a lawyer is not essential. However, as the parties move toward auditing the company, they typically discuss and outline the fundamental terms of the deal in a legally non-binding document, such as a memorandum of cooperation (term sheet). A lawyer can play a valuable role here by reviewing the document to ensure your interests are protected and the terms are fair.
3. Company Due Diligence. During this stage, investors carry out a thorough examination of the company, including legal, financial, and commercial due diligence.
Comment: At this stage, the involvement of a lawyer becomes indispensable. This is particularly crucial for legal due diligence, as the investor will meticulously evaluate all aspects of the company’s operations to identify potential risks or issues. A lawyer's expertise will ensure that your company is well-prepared and compliant with all necessary requirements.
4. Negotiations. At this stage, the key aspects of the deal are discussed, including the investment amount, company valuation, investor share, strategic goals, management structure, financial terms (such as payments and profit distribution), intellectual property rights, exit strategies, and other legal and commercial conditions.
Comment: The golden rule here is straightforward: if the investor has a lawyer, you must involve one too, to ensure your interests are equally protected. Additionally, your lawyer can address "uncomfortable" topics during the negotiations on your behalf, taking on the role of the "bad cop" when necessary to preserve a professional and balanced dialogue.
5. Conclusion of the Transaction. At this stage, all terms agreed upon in previous discussions are finalized and formalized into binding legal documents. It is crucial to ensure that all legal aspects are explicitly defined, including the rights and obligations of the parties, financial terms, mechanisms for protecting interests, and procedures for resolving disputes.
Comment: The involvement of a lawyer at this stage is absolutely essential.
6. Closing the Deal. Once all key terms of the transaction are agreed upon, the parties move on to fulfilling the pre-closing and post-closing conditions. This includes the transfer of funds, allocation of shares or stakes, and completing all required legal formalities. This stage marks the final execution of the transaction.
Comment: A lawyer plays a critical role in ensuring the process is completed correctly. Their involvement is vital to safeguard the transaction’s long-term success and to maintain a strong, collaborative partnership between the investors and the company.
7. Post-Investment Stage. Maintaining a transparent and trusting relationship with investors is essential at this stage. This involves providing regular updates on the company’s progress, including operational performance, financial results, key performance indicators, and significant events.
Comment: It’s crucial to ensure ongoing compliance with agreements made during the transaction. This includes consulting investors on matters that require their approval—often referred to as "reserved matters"—in accordance with the updated company charter. A lawyer is instrumental in helping you navigate these nuances, ensuring adherence to agreed terms and fostering a productive relationship with investors.
What to consider when choosing a lawyer?
1. Identify Your Needs
Once you understand the stages at which and the extent to which a lawyer can be useful, it's important to define the nature of the transaction and the level of legal support required before beginning. This will help you navigate the process and make informed decisions. For large transactions such as mergers and acquisitions, investment rounds, or strategic partnerships, a high level of legal analysis and support is needed. In such cases, it’s advisable to involve lawyers from the very beginning.
2. Look for Recommendations, Reviews, and Ratings
Seek recommendations from friends, colleagues, or acquaintances who have handled similar legal matters—personal referrals are often the most trustworthy. Word of mouth is a powerful tool before you start your search for a legal partner.
Additionally, pay attention to lawyers listed in international directories like Legal500, IFLR1000, and Chambers and Partners. These directories rank law firms based on various criteria, such as geographical location, industry focus, and specialization, helping you assess their experience in the areas you need.
3. Check Qualifications and Experience
Ensure that the lawyer has the appropriate qualifications and adequate experience in transaction support. When making an inquiry, ask for a list of key transactions the lawyer has worked on. This will allow you to better evaluate their expertise.
4. Conduct an Interview and Evaluate Communication
It’s crucial to meet with multiple lawyers to discuss your situation and ask about their experience and approach to resolving cases. A good lawyer should be able to explain complex legal terms in simple, understandable language. Choose someone you feel comfortable working with, who is accessible and responds clearly to your questions. For effective communication, ensure there is one primary contact person within the firm who will manage all inquiries and coordinate with colleagues, ensuring attention to all aspects of your transaction and reducing the risk of information loss.
5. Discuss the Cost of Services
Clarify the cost of legal services and any potential additional expenses that may arise during the process. Pay attention to the billing structure (hourly rate, flat fee, etc.) and make sure it aligns with your expectations.
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