It isn't putting people and deals together that make us corporate lawyers. It is seeing them fall apart.
Before we get to it, here's a little snippet.
Walking into the kitchen one day after a call with a client, I was asked by my father if my call went well.
"Oh, one of my clients is out of business, you know, shutting down."
"It must be sad to have to lose a client and the business.", he said.
"Oh no, not at all Papa. This looks like a complicated wind up, there could be as much business here as there ever was."
He couldn't resist repeating one of his favourite lines on lawyers at funerals. One of them, I don't know which one but it was funny.
To be fair, corporate insolvency is lucrative. But this post isn't about corporate insolvency. It is about what happened much earlier, when we were putting the deals together, forming the relationships that created the businesses we advice.
We know that corporate finance is defined by success and failure. Businesses fail for several reasons and bad deal-making can be, but isn't necessarily one of them. We also know that bad deal-making affects the big and small, lenders as well as investors, multinational companies and governments. Armies of corporate lawyers work hard to iron out as much as they can, bring out the best of their experiences and deliver advice in ways that grow the pie and prevent things from falling apart. The fact that they do a commendable job is often under-appreciated.
When transactions put together by sophisticated parties advised by well-informed lawyers and consultants fall apart, another army of equally effective advisors come together to pick on the carcasses (or phoenix if you will) to save, salvage and rescue everyone involved.
Here's the trouble.
What troubles us today lies not the deals advised on but the deals that no one advised on.
Over the past 18 months, as we patted ourselves on the back for having advised on crazy numbers of startup and venture capital deals, we began to see a string of similar assignments come to us from various unconnected parties. These involved startups having each of the following things in common:
(a) The startup had raised angel or seed investments;
(b) The startup has failed; and
(c) The shareholders are in mayhem.
Many of these assignments are still ongoing due to how painful and complicated it has all turned out to be. We have investors who feel they have been "taken for a ride", sometimes outright defrauded, stolen from. Entrepreneurs who have worked hard and found failure even more bitter, facing legal proceedings and reputational damnation. Sensible people acting unreasonably. Disputes and legacies that have no end in sight. All this over what was once upon a time, a crazy idea that got funded by excited investors.
All these startups had another thing in common - none of them had the budgets to hire lawyers during the deal-making process. Almost all of their problems could be traced back to the lack of understanding and implementation of their own deal terms.
Our workmanship isn't poor, but it isn't at scale.
Where did we go wrong?
When we started our startup and venture capital practice, we understood the problem of affordability well. We were able to devise a pricing model that would allow us to provide enough attention at a reasonable cost and service a considerable number of startups and angel investors. Just like us, many other lawyers who also operate in our space innovated service delivery models to reach as many of those who need it, as they can.
A few years onward, it looks like our collective efforts don't even amount to the tip of the iceberg. Irrespective of our pricing model, the model of our service delivery ensured that most businesses did not receive the professional assistance when they needed it the most. In most cases, noone counselled any of the parties on how they should structure their deal terms, keep promoters incentivised, protect themselves, avoid gross misjudgements. No, we didnt because each of us thought we were doing as much as we could and it would all square out.
It hasnt.
What we are doing about it.
Restoring confidence among investors, entrepreneurs and startups who have suffered will turn out to be an important task for all corporate lawyers in the days to come. But even more challenging will be to devise service models that benefit a greater number of investors and startups in both, an efficient and effective manner.
We think the best way to approach this is to alter the manner in which we work with startups, seed and angel investors. While we enjoy our role as transaction counsel, if we fail to evolve a service that educates and protects a larger number of startups and investors - we will have failed at the very objective we embarked upon 4 years ago.
While investor trust is suffering across sectors, at this stage, our focus is on angel investors in startups and designing something that will enable them to avoid the mistakes that frustrate us most because they can be avoided easily with or without a lawyer. Even more than that, to ensure investors in private equity walk in with their eyes and ears open. As a beginning, we are organisinglimited seats workshops which will touch upon some of these themes. Join us by sending us an email at contactus@innovelaw.com.
From there, we will expand these efforts to include a greater number of investors and entrepreneurs. Even if you are shy of legal budgets, we hope that we will see fewer of you embroiled in avoidable and unnecessary outcomes.