Hiring a solicitor to support you with your fundraise is a key strategic decision and getting the right solicitor on board can pay huge dividends in the future (quite literally).
Here, we share the six key things you need to consider when you instruct a solicitor for your investment round.
This may sound obvious, but having relevant experience is essential.
Not all solicitors are experts in the same field. Investment rounds, particularly those at an early-stage, are nuanced transactions that require a specific set of professional skills. Experienced corporate solicitors will be able to spot red flags in a term sheet in a matter of seconds, and be able to negotiate on your behalf swiftly. In short, they know what they are looking for and how to get you the best possible deal for all parties in the long-run.
Lack of early-stage investment exposure can mean that your solicitor misses critical clauses or terms posed by investors as they don’t have a base of knowledge to work from. This means they don’t know what is normal and what is expected for these kinds of transactions.
It’s no use asking your family solicitor to support you with investment documents no matter how much you may like working with them!
References and recommendations are worth their weight in gold when engaging a professional service, and solicitors are no different.
It’s always worth asking peers who they have worked with, their experience and if they can recommend someone. Particularly if they have worked with someone a number of times. Asking an investment professional or accountant to make a recommendation is worthwhile too as they will often be working with solicitors on a daily basis as they complete deals.
Once you’ve got a shortlist of solicitors together, ask for testimonials from previous clients who had a similar scope of work.
Ultimately, you want to build a long-term professional relationship with your solicitor so choose someone you like and trust to fight your corner and deliver the best possible work.
Good solicitors will often ask good questions, starting with finding out what legal documents you have in place. If this is your first round of investment, you’ll likely have model articles of association and you won’t have a shareholder agreement so this will be their starting point.
What you need a solicitor to do for you will depend on your requirements for your specific circumstances. Common elements for a fundraising scope work work include: creation of a term sheet, shareholder agreement and articles of association updates, creation of an EMI scheme (often a pre-requisite for investors who want to see a fully-diluted CAP table i.e. the equity available after you ring-fence a percentage of the company for employees).
Depending on whether you’re pitching to an angel syndicate, crowdfunding platform or group of individual angels, you may also need a solicitor to conduct AML (anti-money laundering) and KYC (know-your-customer) checks as well as provide FSMA forms for your investors to self-certify as high-net-worth or sophisticated investors.
The earlier you start speaking to solicitors on your fundraising journey the better.
Don’t worry – the days of charging you for an initial phone-call are long gone and most solicitors are happy to have an informal chat in the first instance about what you’ll likely need to have in place to ensure the legal side of your fundraise runs as smoothly as possible.
Depending on their scope of work, you may be billed for a small proportion of their work before your investment round completes but most will be charged once the money from your investors is in the bank.
As we noted in this article, solicitor fees are a sliding scale dependent on scope of work, experience, and frankly, whether they are based in fancy offices in the City of London!
Ultimately, you often get what you pay for in terms of experience and getting your legals right is certainly not an area to cut corners.
We’ve witnessed solicitors save companies millions of pounds by helping founders to navigate the choppy waters of early-stage investments.
You can read more about budgeting for fundraising fees here.
We’ll keep this point short and sweet – don’t use them.
We know it’s tempting and very budget friendly, but unless you’re a qualified corporate solicitor you don’t know what you’re looking for and you don’t know the pitfalls that could come your way if you get these documents wrong.
Templates are base documents with no nuance nor consideration for your business, circumstances and what you, as a founder, might want. Don’t do it. 🙂
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