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Power law: The startup founder’s guide to making your first Legal hire
In this article lawyers with in-house experience discuss exactly when startups should think about making their first legal hire, and what traits equip a lawyer for success at young, dynamic companies.
Key takeaways
- Although hiring is a priority area for most founders, making a first in-house Legal hire poses a unique challenge.
- Factors like headcount and the complexity of the regulations in your sector should be considered.
- Experienced hires offer strategic input, while enthusiastic lawyers on a learning curve tend to get stuck in; get the best of both by welcoming a senior lawyer as an angel investor.
Startup founders tend to spend a lot of their time focusing on hiring. The most successful founders can quickly identify key skills and red flags in areas way outside their core competency: think of a technical founder hiring a sales leader, for example.
But making a first in-house Legal hire is an especially delicate decision.
Most founders have no direct experience in law, so how can they identify what kind of lawyer will best suit their business? Should the first Legal hire be an experienced General Counsel (GC), or someone at an earlier stage in their career? And what happens to your external law firm: how will you define their responsibilities once you’ve appointed an in-house lawyer?
Getting these questions right is important because a strong Legal hire can transform your approach to key milestones like funding rounds and acquisitions. Not only that – an in-house legal counsel is often a critical partner to the CEO and Board when it comes to corporate governance and risk management.
We talked to experienced lawyers to find out when to make that first Legal hire, and what qualities to look out for.
When should a startup bring its first Legal hire on board?
Every company is different, so it can be tough to pinpoint a hard and fast rule for bringing a lawyer on board. But to Anushka Herath, Associate General Counsel at HSBC Innovation Banking, “if you hit a headcount of 50 people and you don’t yet have a lawyer on the team, it might be worth thinking about kickstarting a hiring process."
Timing is often an important consideration when founders are searching for a first in-house lawyer. According to Bianca Stewart, Director of Legal at automotive marketplace Motorway:
Many founders will assess their plans and upcoming corporate milestones, potentially targeting a legal hire in advance of, for instance, an upcoming funding round. There is nothing wrong with being pragmatic and reacting to a business need, as long as the founder has a solid plan for where their new legal joiner is going to add value over the longer term, not just as extra resource for a specific short- or medium-term goal.
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Founders should also consider the nature of their sector. Startups operating in verticals with lighter regulation may not need an in-house Legal resource as early as companies in highly-regulated spaces like fintech or aviation.
Founders are often nervous about making a legal hire because, bluntly, lawyers tend to be expensive. But the upside of a senior lawyer who understands a fast-changing regulatory environment is huge.
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Unsure whether a full-time hire is the right step? There are alternative options, says Edward Bird, founder and CEO of legal tech startup Solomonic.
Nowadays there are more lawyers than ever practising as portfolio GCs, who spend a day or two per week working with a small number of clients. This might be a useful and cost-effective model for startups keen to test the water.
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In-house legal hires: Is culture shock inevitable?
A first legal hire “will be doing things that in private practice would be way below and way above their private practice pay grade, probably on the same day,” says Anushka.
“‘Business as usual’ jobs might include managing contracts, employment agreements and potentially elements of the company equity plan. But at the same time, founders may entrust lawyers with highly significant strategic projects concerning compliance, governance and risk mitigation.”
The variety and scope of a role in a startup or scaleup is exciting to many lawyers, but the comparative lack of structure in startup environments can be a culture shock. “The jump from private practice to in-house at a startup is pretty significant,” says Bianca. “As well as organisational culture, lawyers have to get used to working without the institutional support and infrastructure that in a large corporation or law firm exists to help them do their work.”
To thrive in a less structured work environment, lawyers getting used to startup or scaleup culture need to reorient their bias to learning and progression, rather than an obsession with avoiding mistakes. “Founders are likely to be more forgiving of errors compared to a private practice context,” says Edward, “as long as there is a clear intent to learn from mistakes and use the failure to improve.”
Getting comfortable with being uncomfortable is part of the reality for an in-house lawyer. And emphasising the business reality, while maintaining compliance, is a necessary trait for successful legal hires. As Bianca points out:
A massive difference between private practice and in-house is the degree of flexibility lawyers need to build into their decision-making. Of course adhering to the law is non-negotiable, but having a can-do mentality and showing a willingness to think creatively is likely to be an indicator of success for in-house lawyers.
Does your first Legal hire have to be a General Counsel?
The profile of the lawyer you choose to hire matters, but there may be a case to hire emerging talent over experience.
On one hand, a senior lawyer joining as General Counsel is likely to offer authoritative strategic advice to the CEO and Board – but that authority comes at a price. According to Glassdoor, the average compensation for a GC in the UK is nearly £160k per year – a steep figure for cost-conscious founders. “What you get with a General Counsel is a true strategic partner,” says Anushka. “They are a business leader that happens to specialise in legal affairs – much like a CFO is a leader of the company who happens to focus on finance.”
So what are the merits of hiring a lawyer earlier in their career who might come in with a title of Head of Legal or Senior Counsel? “A lawyer who’s still on a learning curve may be more likely to eagerly jump into projects and ‘muck in’ with the team,” says Edward.
Thankfully, companies may be able to get the best of both worlds.
“One route could be to welcome a senior lawyer – a partner at a big firm, or a seasoned startup GC – as an angel investor,” suggests Edward. “You will get the benefits of their guidance without the cost outlay of bringing them on as a member of the team – indeed, they are helping finance the business at the same time. They will be able to contribute to important milestones like VC fundraising, and they’ll also provide sensible input when the time does come to make your in-house hire.”
In-house Legal and your startup law firm: Who does what?
Almost all startups will have a relationship with one or more law firms, either on a retained basis or to execute particular projects that need legal input. These relationships are often formed in a company’s earliest days – potentially even at incorporation – so will normally predate the first in-house Legal hire.
For a lawyer taking up a role as a startup’s first salaried legal representative, then, it’s important to clearly define areas of responsibility.
“Once you have an in-house lawyer, you probably don’t want your law firm to be responsible for ‘business as usual’ tasks like contracts – that way, costs can add up very quickly and the value they add is not as significant,” says Anushka.
Instead, law firms can be engaged to provide forward-looking guidance on the risk and compliance environment, especially in fast-moving sectors. Because they have relationships right across the market, they may be able to scan the horizon more effectively than a General Counsel or Head of Legal who has to focus to a much greater extent on the company’s priorities.
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Understanding your law firm’s attitude to the day-to-day work is likely to inform how and when they will add value: “As a startup it’s never good to feel like you’ll get a bill every time you send your law firm an email,” says Bianca. To Anushka, failing to set clear boundaries works against the interests of all parties: “When the balance is wrong, an in-house lawyer can end up acting as a highly-paid go-between for the law firm and the founders. That isn’t an effective use of anyone’s time.”
And an internal lawyer can add value to a huge range of processes across functions, observes Edward. “A good lawyer can execute at speed. In addition to their core responsibilities, that skillset is invaluable to, for example, your sales success. I’ve often seen strong legal work, delivered at pace, be the difference between winning and losing a deal.”
The verdict? An in-house Legal hire can have a massive impact if the culture fit is right
The right in-house Legal hire can drive real change in your approach to corporate development.
That said, there’s no easy set of rules that define when you should hire your first lawyer, or what kind of lawyer will benefit your business most.
Part of this answer is driven by business priorities: understanding your sector’s regulatory landscape and the complexity of your compliance obligations could define whether a more senior General Counsel or a relatively junior lawyer would be the best fit for your company.
The other side of the coin is cultural. Lawyers joining a startup need to exhibit a determination to get out of their comfort zones, embracing the massive range of tasks that fall to an early-stage company’s first Legal hire.
