Do I need a General Counsel at my startup 🤔
#Founder2Founder — The What-Why-How of making the GC hiring decision
A common question early stage companies struggle with is how to manage a host of legal related work. At the earliest stages, the answer is easy, you just get an external counsel for company formation, fundraising docs help and so on. But this work can start adding up pretty quickly so you run into two problems — it gets expensive, and coordination by the CEO/founder can become time consuming. This is where the discussion gets more interesting — where to go from here.
To help pull together some best practices on this, I reached out to Jill Passalacqua and our very own Rob Horton. Jill has worked at both public companies, growth stage startups, as well as early stage startups, like Avi Networks, where she was the first hire in the legal function and built it from scratch until Avi’s acquisition by VMware. She is now the GC at Harness, another fast growing enterprise software company. Rob was a GC at three companies (including MuleSoft and Infoblox), where he supported the companies from startup to through IPO and to sale, and he has broad general management and operations experience across these firms. He’s now COO at Lightspeed and no stranger to these questions from founders.
Role: What is a GC and how is it different from my current counsel?
Typically, the first internal counsel hired by a startup will be a contracts attorney, or other specialist, needed to support the business as it builds revenue. A General Counsel, or GC, is an executive hired to strategically build the in-house legal function so it can support the business as it grows and matures. While a contracts attorney specializes in one area, a GC usually has depth in multiple areas of law (commercial, employment, governance, and maybe privacy or government regulation (depending on industry)). With this broader knowledge, a GC is expected to advise on the legal risks, but also to advise with a broader view of the landscape of the business. Typically, the GC will also have a network of relationships and knowledge in other areas to determine what work should be handled by the in-house legal team and what requires a specialty best handled by outside counsel. The GC will manage outside counsel, the legal budget and resources necessary to support the team.
Scope: What are some of the functions they are driving at my company?
The in-house legal function typically manages and leads commercial agreements supporting the Sales function-driving the form of sales contract and the negotiation of sales-related agreements; risk management and litigation; mergers & acquisitions, IPO preparedness-everything from governance to diligence to entity management; intellectual property-patent prosecution, copyrights and trademarks; employment and immigration; privacy, compliance, product licensing, and product compliance (international, ADA etc).
Depending upon the stage of the company, some GCs are also responsible for Human Resources and Operations. Even if not, the GC must be versed in these subjects to support, for example, Human Resources in compliance with local laws. A capable GC must interact with and support several functions within the management team-the Sales function on commercial contracting, the Product team on intellectual property and product compliance, Human Resources on immigration and employment law compliance, and the CEO and CFO on governance. IPO preparedness and board-related matters.
Leveling: How about a VP Legal, are they different from a GC?
VP sales, VP WW sales, and CRO — these roles differ largely based on scope and leveling within exec staff based upon seniority of person, depth of background and skills, and scope of role. Likewise, a VP of Legal typically has less experience or is responsible for one practice area of law, such as commercial contracts or patents. A VP of Legal typically reports to the CFO. A GC leads the entire legal function and usually is a company officer who reports to the CEO.
Timing: When am I ready to hire a GC?
Typically companies start seeing a need for one in the $5-$10M ARR range. Beyond this stage, the pace of sales contracting (and consequent legal costs) and the complexity of the business (e.g. internationalization) tend to make it a requirement to hire someone to manage the entire landscape of legal services. Adding legal services usually goes in the following order:
- External counsel who helps with company formation, fundraising etc
- Sales contracts — time to bring in another counsel for run rate business — typically external, but could be a contractor.
- Go full time to hire a GC as your commercial and corporate structure gets more complex.
Recruit: Where to go next, what to look for, how to find one and convince them to join?
No different than other hires — ask your investors, look at number 2s at other companies larger than you, and exec recruiters. Your outside counsel could also have suggestions of great people.
Originally published at https://zerotopmf.substack.com on September 13, 2022.
