When you need legal support, what are your options and what are the differences between them?
Just like for finance/ accounting, there isn’t a one-size-fits-all approach. Use the right resource for the right job:
Law Firms
There are certain things you should use a law firm for high-value/ high-risk work such as fundraising > series B, high-value M&A work and litigation, and where you need a specialist opinion on an important legal/ regulatory issue (eg FCA regulation). Law firm lawyers generally take a zero-risk approach and don’t get involved in making commercial or risk decisions.
In-house Counsel
Being an in-house lawyer is very different to being a lawyer from a big law firm. (It’s like comparing the CFO of a tech scale-up to a Big 4 audit partner.) In-house lawyers in start/scaleups are generalists who prioritize what’s needed and take a risk-based approach to help grow the business whilst protecting assets (IP, data, staff, etc), and managing the legal work and budget (including what and when to outsource to law firms). Your 1st in-house lawyer isn’t just there to get legal work/ contracts done. They need to set up and manage an efficient legal function that can grow with the business, help improve processes, set up templates and self-service, use tech where appropriate (existing or new), etc.
Fractional in-house – Like other fractional hires, use until you are ready to hire a full-time in-house lawyer.
Legal tech/ platforms/ AI/ self-serve
Should be used for efficiencies where appropriate, and managed by people who know what they’re doing and can oversee their use. That often includes platforms for cap table and EMI option management, contract lifecycle management, GDPR, risk management, etc. ChatGPT and other more sophisticated AI products can and are already being used by law firms and in-house lawyers, particularly for repeatable advice/ tasks, for contract summaries, contract markups, etc. But still need oversight.
When should you always get lawyers (internal or external) involved?
Those things that are going to be deal/valuation killers when due diligence uncovers them pre-fundraise/ exit because they’re hard, expensive, or sometimes impossible to put right.Examples include not having proper controls around share, option management, ownership and, for some companies, IP ownership (ie. proprietary tech, brand names, etc). It will depend on the type of business and how it’s valued, but could also be, for example, if the business model is based on doing something likely to cause big-ticket litigation as it grows, or relies on being regulated but can’t build in a compliant way, or it’s only profitable by using off-payroll staff who are employees (according to IR35), etc.
When should a business think about hiring an in-house lawyer?
Again it depends on the nature of the business, if you are regulated (FCA, pharma, etc) or you have a lot of contracts that are bespoke/ negotiated, you will likely need to hire sooner than, for example, an e-commerce business. But in most cases, it should be as soon as possible, and certainly when the management team are spending too much time on contracts / legal issues/ legal ops (management). If you use a fractional in-house lawyer, they should tell you when the volume of their work means a full-time hire would be of better value. They should then help you hire, do a hand-over, and then support after if needs be.
When it comes to who to hire, what are the key considerations?
Your first legal hire should be an in-house lawyer who has successfully set up and run a legal function before, ideally in your sector. The level of hire is also an important factor, too senior and they may not be close enough to the detail nor want to get their ‘hands dirty’, too junior and they may not be able to operate with enough autonomy to take decisions off your plate or may need too much supervision.
When it comes to legal tech, we hear about legal GPTs, contract review software etc. How useful are these things and how should they be (or not) used?
There is a lot of great tech on the market from AI contract review software, to cap table platforms, to CLMs, to legal front door ticketing systems, to template providers, to risk and data management platforms, etc.As general guidance, like any tech, these tools need a business use case and cost-benefit analysis first. They also need the right people to implement, manage and oversee their use. They won’t replace a good in-house legal function, but can certainly, if used properly, help with efficiencies.
Get in touch if you want to discuss your current legal requirements and the resources you currently have in place – it’s one of our favourite topics and we’re always happy to chat about what good legal support can and should look like.
