Part of any good investment is knowing that there are qualified people to see it through. When you’re on the lookout for venture capitalists, don’t be surprised if they require you to have a lawyer on-call. Here are some tips about when and why to hire a lawyer when searching for venture capital financing.
Understanding the Risk in Venture Capital Financing
Venture capital financing is one of the most highly sought-after sources of financing for many new startups. However, those who invest in new ventures are very careful in doing so. There is a lot of risk on the line investing in a new business that hasn’t shown any potential. In fact, venture capitalists are investing their money based on their perception that the start-up will grow dramatically in the future. Therefore, you should realize that the person lending you the money is going to want to do everything possible to ensure the transaction runs smoothly, including hiring a lawyer.
The Hiring Process
A venture capitalistic may hire their own lawyer to do the contract for the investment. Or, you may be able to pick a joint securities law attorney to craft the investment paperwork. It’s best to hash this out ahead of time with the venture capitalistic so you know what to expect. If you’re jointly picking an attorney to hire, you’ll want to do your research and ensure the attorney specializes in venture capital financing law. It’s never a good idea to hire a general practice lawyer for this type of transaction.
Expect a Rigorous Inquiry Process
Most venture capitalists will have their own securities lawyer to assess the overall investment of your startup. Expect the lawyer to do a large amount of due diligence to assess your startup plan for any potential liabilities. Being as open as possible during the inquiry process will ensure that there are no perceived hidden liabilities by the lawyer or the venture capitalist themselves. You’ll be asked to produce a large number of records and will need to supply the lawyer with any checks or other documents they need. It’s best to get them rounded up as soon as possible to ensure a quick inquiry process.
Hiring a lawyer is a necessary part of any venture capital financing. These lawyers help to ensure the best interests of both the investors and the startup business owners. Hopefully, you now have a better idea of when you’ll need to hire a lawyer and what to expect from the process.