While there are more and more “do it yourself” legal tools available for non-lawyers starting new companies, there comes a point when it helps—and probably is even necessary—to bring in an actual attorney who knows startups inside and out.
Glen Caplan, a longtime partner at Robinson Bradshaw, certainly qualifies. That’s why he’s the guest on this week’s episode of Exit Stories, which is hosted by Jurassic Capital partner Kevin Mosley and sponsored by Vaco.
Caplan has played a role in thousands of deals, both by representing companies and providing guidance to investors. Caplan has also fostered the Triangle’s startup scene as an entrepreneur and ecosystem builder, and even helped start the American Underground in Durham.
Here are some main takeaways from this week’s episode:
- As founders look toward outside capital to grow, it is important that they understand the legal obligations around accepting investment. In order to ensure that big moves down the road—like appointing board members and going public—don’t lead to conflict, Caplan recommends that founders do their research about the values and track record of potential funders. “You’ve got to do the reverse diligence, right?” Caplan said. “They’re doing plenty of due diligence on you and your business; you really should be doing the same diligence on your investors.” (15:27)
- Caplan and Mosley discussed what to consider when looking for investors and seeking to be acquired while continuing to run a business.
- Especially for private equity investors, having a company with a lot of growth or growth potential due to an exceptionally good idea is crucial. Know going into it that that you need to have a certain awareness that your company’s current growth rate matters.
- The best way to raise valuation when looking for capital is to seek competition. Caplan recommends that founders shop around by speaking to multiple funding sources, and for large exits (>$50 million) he recommends hiring a banker.
- These deals are going to take time and headspace. It is important that running the company remains a priority even through these processes. “You need to be a little bit judicious with the meetings that you take, because it could literally fill up your calendar every day for months, and you’ve got a business to build,” Caplan said. “Ultimately, that’s what matters. If the business is there, the buyers will be there.” (22:35)
- Something will always come up that makes it seem like a deal is going south, or even grinding to a halt. Getting lawyers involved early can help founders avoid legal “skeletons in the closet,” like patent trolls and IP infringement claims, as they approach closing deals. Although legal due diligence is hard work, it helps founders avoid these halts before they happen and enjoy the fruits of their labor. “It really is a team effort, and it’s exciting,” Caplan said. “It’s daunting, I think, for entrepreneurs who have never been through it before. It’s eye-opening how much work is involved and how many moving pieces there will be. But at the end of the day, it’s incredibly gratifying.” (36:15)