Raising outside capital is one of a startup's biggest milestones, but there's more than just a company's immediate financial future at stake. 

Investors don't just give away money. Every financing round creates long-term consequences for the company. The decisions made during fundraising can affect everything from ownership rights to board composition and future growth opportunities.

Legal counsel for investors will be working hard to represent their client's interests, which can be in direct conflict to those of founders. Startups need someone to represent their interests. Showing up to a fundraising round without legal representation is a little like showing up to a tennis match without a racket. 

Whether it's your first time raising funds or you're an experienced entrepreneur, startups benefit from working with a venture capital lawyer to protect their interests, and help them understand the legal and business implications of a deal before they sign.  

Why Startups Need a Venture Capital Lawyer During Fundraising

It's not uncommon for founders to assume that because there is already legal counsel for investors, they don't need someone to represent them.

“They'll handle all the paperwork.”

“The contract terms are standardized.”

“There's no room to negotiate.”

These assumptions all make a fundamental mistake: that legal counsel for investors will negotiate a deal that suits both parties. However, investor counsel is responsible for protecting the interests of the investors they represent. Founders can't assume that anyone will protect their own interests. 

Hiring a venture capital lawyer ensures you have someone on your side to represent your interests during negotiations. 

A venture capital lawyer helps founders strike a balance between getting the funding they need and striking a deal that can significantly reduce their ultimate returns from building their company. Excessive dilution during Seed and early-stage fundraising can make future financing rounds more challenging. It also runs the risk of stripping away founder control over key decisions. 

Lawyers with venture capital legal expertise understand this and will look beyond the current round to see how the deal impacts future fundraising efforts and the founders' ultimate returns. 

Key Services Venture Lawyers Provide During Funding Rounds

Experienced venture capital lawyers often have significant experience guiding startups through financing rounds. Venture lawyers are there to help prepare the company for due diligence, negotiate financing terms, manage closing documents, and advise the founders on the long-term implications of the deal. 

Preparing for Due Diligence

Before investors commit to a deal, they will conduct thorough due diligence into the startup company to uncover potential risks.  

A VC lawyer helps their clients prepare for this level of scrutiny by identifying and fixing issues before due diligence begins. 

They help startups identify things like cap table inconsistencies, missing founder agreements, improper stock issuances, and unclear intellectual property ownership.

Cleaning up these issues before investors can discover them helps the company put its best foot forward. It lets investors know that the founders are capable, and thereby facilitates an efficient transaction. 

VC Deal Structuring and Negotiation

One of the main roles of a venture capital lawyer is to assist their client through the process of VC deal structuring and negotiation. 

Investors expect something in exchange for their investment. They will present a term sheet to the venture that includes their conditions for funding. Common provisions include voting rights, board representation, liquidation preferences, anti-dilution protections, and of course, equity ownership. 

Venture capital lawyers also help founders understand how proposed financing terms may affect ownership percentages and capitalization over time. Their job isn't just to evaluate the deal based on the current round, but also how its terms may affect future fundraising efforts, acquisitions, and exit returns.

Founders often assume that these terms are not negotiable, but VC deal structuring is more negotiable than many think. That's important because even the most minor term in a VC term sheet can have ramifications on future fundraising, acquisitions, and exits. 

Experienced venture capital lawyers ensure their clients understand every aspect of the deal before signing, and help them negotiate where possible. 

Managing Closing and Beyond

Venture lawyer services will see the deal through to completion. They help their clients finalize agreements, ensure that the board approves of the transaction, and that all documents are signed by the required parties. Crucially, they help ensure regulatory compliance and coordinate share issuances. 

Even after closing, they continue providing legal services for startups including assistance with governance compliance and investor reporting obligations. 

The Benefits of Working with an Experienced Venture Capital Lawyer 

Choosing to work with an experienced corporate lawyer for startups is all about creating a level playing field during negotiations. 

Without someone to represent your interests, legal counsel for investors has the potential to steer negotiations in a one-sided direction. 

Business legal counsel is especially valuable for inexperienced or first time entrepreneurs because they don't know when terms are overly investor friendly. An Attorney can explain the practical effect of the difference between what is offered versus the alternatives.

Understanding market terms is one area where founders can greatly benefit from venture capital legal expertise. Experienced VC lawyers know which provisions are commonly accepted in startup financings and which terms may be negotiable. That's a valuable perspective that founders often lack. It helps them evaluate a term sheet against common venture capital practices, rather than viewing every term as non-negotiable.

Representation from professional business legal counsel is also a signal to investors that your organization is professional and prepared. Experienced venture capital lawyers help reduce transaction friction, resolve issues more efficiently, and keep negotiations moving forward. 

Perhaps most importantly, by establishing a relationship with a venture capital lawyer you gain an ally who can support your business's legal needs beyond your first fundraising event. They can help you with everything from corporate governance to regulatory compliance, and keep you prepared for future fundraising rounds. 

Choosing the Right Venture Capital Lawyer

Every venture capital lawyer is a corporate lawyer, but not all corporate lawyers have significant startup financing experience. 

That's because startups operate in a highly specialized legal and financial world with its own market norms, investor expectations, and deal structures. 

A typical corporate lawyer understands business formation, vendor agreements, and compliance matters. They may be responsive, and able to explain complex legal topics to their clients. That expertise is sufficient for a restaurant, service business, or consulting company, but startup founders need more.

Founders need someone with the venture capital legal expertise to understand market terms and explain them in plain English: what investors are looking for, what founders can negotiate, and which terms are standard and which can create future problems.

Lawyers providing legal services for startups must understand the fundraising goals of Seed, Series A, and Series B transactions. They need to understand the different motivations of startup founders, venture capital firms, and angel investors. They should understand when SAFEs (Simple Agreement for Future Equity), convertible notes, or priced equity rounds are appropriate financing structures versus priced rounds.

They must also be able to evaluate a deal not just for the impact in the immediate moment, but how the terms can affect future fundraising efforts, acquisitions, and exit opportunities.

SVTech: Venture Capital Lawyer Services for Startups

Fundraising rounds have a significant impact on a startup's growth trajectory and founder returns. Decisions made during a fundraising round can have consequences that affect not only day-to-day operations, but the company's ability to attract future investors.

Experienced venture capital lawyers do more than just handle paperwork. They help their clients prepare for due diligence, negotiate and structure deals effectively, explain how the different terms can affect ultimate outcomes, and become an ongoing strategic partner in the company's future financial growth. 

Silicon Valley Technology Law Advisors (SVTech) has been deeply embedded in California technology law for over 20 years. We provide legal services for startups, with extensive experience supporting venture-backed companies from Series Seed funding all the way through to IPO. 

We provide our clients with strategic guidance throughout the negotiation process, prepare companies for due diligence, negotiate fair terms with investors, and assist with governance and future growth planning. 

Before you enter into any fundraising negotiations, you need reliable business legal counsel that understands the startup and venture capital lifecycle. 

Contact SVTech to set up an initial consultation. We can discuss your company's fundraising needs and create a strategy that puts you in position for productive negotiations.