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Ask HN: Your lawyer investing in your series A round?

13 points by TimH ↗ HN
While educating myself I've seen that startup lawyers sometimes invest in angel or series A rounds. I was wondering what people thought of this. To me it seems a little disadvantageous as it means your lawyer's interests are now aligned with the other investors, instead of remaining independent. As a founder, would you be second guessing advice given to you by your lawyer after the event, or would you trust that the advice they give continues to be the best for the company, even if 'best for the company' sometimes needs to be divergent from the best interests of the investors?

3 comments

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cperciva
Lawyers who enter into business dealings with their clients have a duty, re-iterated by the ABA Standing Committee on Ethics and Professional Responsibility in a July 2000 report specifically about this topic, to ensure that their clients are notified of potential conflicts and encouraged to seek independent counsel.

If you trust your lawyer, you should expect him to handle such circumstances appropriately; and you should be prepared to seek independent counsel when he advises you to do so.

If you don't trust your lawyer, you should find a different lawyer. A bad lawyer can cause lots of problems for you whether he has invested in your company or not.

danshapiro
Lawyers will have many opportunities to subtlety shift a discussion one way or another - in fact, they might not even realize they're doing it. You are right to be concerned about subtle and systematic tilt in their perspective, and I would definitely not write off your concerns as moot because of any code of ethics. Only in interview questions are there truth-tellers and liars; the rest of the world operates in shades of gray.

But you shouldn't worry about this one too much, although not for happy reasons. Any $25k your lawyer may invest in the deal will be a drop in the bucked compared to another, much more influential bias: a VC can do a lot more for a lawyer's business and reputation than a typical founder. Entrepreneurs may found multiple companies and have big networks, but VCs go through lawyer-hours like fast food fries. They simply hire or influence so much legal business (directly or through portfolio companies) that company counsel is already tilted as far towards the A as they can go.

So I say - let em in. Make it official. At least now they have to tell you when a conflict emerges.

CatalystFactory
I'd agree with Dan, but would suggest getting an independent review of critical documents.

I'd also wonder what the lawyer's motivation for wanting to invest.