When is it time to get an attorney?
Let’s assume you need money and you found investors that are ready to jump into term sheet negotiations. GET AN ATTORNEY! Attorneys are expensive but they are the key to preventing major problems down the road. If you have already a co-founder, chances are that you have already worked with an attorney. But if you didn’t and used LegalZoom to get your operating agreement done, now is the time to invest in a good legal framework for the future of your company.
A term sheet and the subsequent closing documents can have many pitfalls that an inexperienced entrepreneur most likely overlooks or severely underestimates. I could go through all the key areas like liquidations preferences, equity versus convertible notes, follow on provisions, etc. and I understand that there are a lot of self-proclaimed “Internet experts” that will give you detailed and free advice. Here is my advice to you: Get a pro to help you with that. There is a key advantage of having an attorney work with you on the term sheet and subsequent closing. You can be the relationship manager and your attorney should be the tough guy who will insist on the stuff that really matters. This way if things don’t work out there’s still some room to maneuver.
Good contracts ensure that your journey will be smooth – bad contracts may cost you your company or significantly disappoint you upon exit.