Should entrepreneurs worry about the loyalties of their lawyers? That is the question posed in a recent article on TheFunded.com, and to be honest, it is a fair question.
Most venture financings have closing legal expenses in the mid-five figures, and I know of Series B deals where the closing expenses have approached a quarter million dollars (yes, you heard me right… $250,000). At the end of the day, these expenses are ultimately paid for by investors. In addition, within local venture ecosystems, the venture lawyers obviously do many deals with the venture capitalists in their area over the course of time. These factors certainly create the potential for major conflicts of interest, and according to many entrepreneurs, the conflicts of interest are real.
My team has always had the benefit of terrific legal counsel, and we haven’t personally struggled with this issue. However, if you honestly assess the dynamics of the venture relationships as well as the economics of where and how corporate lawyers get paid, you will have to agree that entrepreneurs probably should be keeping a close eye on your lawyers.
As I mentioned, there was a terrific post on this subject at TheFunded.com – Venture Legal: A Conflict of Interest and a Complicated Mess. The author of this post hit the issue right on the nail.