If you’ve been given the opportunity to join a startup as its first in-house legal hire, approach the opportunity the same way an investor would, two veteran general counsel say in a BarkerGilmore webinar.
The company might have an exciting future, but if its CEO and other leaders can’t demonstrate they know how to handle money, your decision to take a chance on its growth opportunities could leave you in a tight spot.
“Ask about the company’s cash burn and runway, investor syndicate and growth plan,” said Jamey Seely, general counsel at Crusoe Energy, and Jason Lynch, general counsel at private equity firm Foundry, said in the webinar. “The plans need to be realistic.”
Also get a sense of the role the leadership team expects you to play. Most likely, it wants to bring on board someone not to act as a strategic advisor – that would come at a more mature stage of its growth cycle – but to apply commercial contract or other domain expertise to a set of needs they’re paying outside counsel for.
“Don’t assume the team made the correct decision to hire against this set of needs,” said Seely and Lynch, who also summarized their webinar comments in an article posted at BarkerGilmore. “Test and explore their thinking. Management teams of young and growing companies often have no experience in working effectively with lawyers.”
You also want to ask upfront what the legal budget will be. If the leadership team sees your hire as a way to reduce their outside counsel spend to zero, take that as a red flag they haven’t thought through what they expect you to do.
“Zero spend on outside counsel is unrealistic because there will always be areas the in-house counsel does not have the expertise to cover without the advice of experts,” they said.
You also want to make clear that, although the leadership team has necessarily been working with outside counsel before your arrival, once you come on board, the relationship between the company and outside counsel should be turned over to you. That includes making hiring and firing decisions. “Try to establish that understanding before taking the job,” they said.
It’s also important to assert yourself about your place in the chain of command. In the early stages of a company, it’s not uncommon for the in-house counsel to report to the CFO or COO. That’s because the hire is typically intended to close a functional gap, like making sure contracts are protecting the company, not to play a strategic role. If that’s the case, it wouldn’t make sense for the in-house counsel to report directly to the CEO. But you still want to have the discussion about the reporting relationship because it will say something about how the company views the legal role and how it sees it evolving over time.
“Eventually, a company will need a lawyer who thinks like a businessperson and is a strategic partner,” they said. “The general counsel hire comes later, when the company is more mature and experiences legal needs beyond technical execution.”
Once the company matures, they said, it’s important for the in-house counsel to report to the CEO. “For a growing company, and certainly for a pre-IPO company, the legal function should be more than just a set of functions to be managed,” they said. “It should be a strategic voice involved in the discussion of business strategy and in advising the board.”
Starting a company is like riding a bike, they said, except “the bike is on fire. You’re on fire. And everything around you is on fire.”
Put another way, if you seize the opportunity to join a startup, make sure you’re comfortable being in the hot seat.