Betsy Flanagan of Startup Studio interviews venture capitalist David Hornik of August Capital and the creator of VentureBlog.

Betsy Flanagan: I thought I read on your blog that you talked about the importance of dealing with a top-tier law firm. Did you say that or I can’t remember?

David Hornik: I could well have said that. I mean, I don’t know if I would have used...

Betsy Flanagan: You didn’t realize there was going to be a quiz? You didn’t memorize it?

David Hornik: I’ve been writing VentureBlog for a little over four years. So, you know, whatever I’ve said in that first year, forget it! I don’t even know if it was true. It was crazy! No, no. I mean, what I would say to you on that topic is attorneys that understand startups are incredibly valuable and helpful because they know all sorts of things about the things that have not worked, the things that have worked. And more importantly they understand the things that we’re looking for. They understand that there are a set of standard terms, right? I’ve known entrepreneurs to say, “I’ve looked at these standard terms that you VCs want and they’re bad terms, they don’t make sense and, you know, I have to restructure the company, I only have common stock, I only do this, I only do that.”

In every instance I’ve had those conversations, I’ve said, “You know, really, if you think about the thing that you think is problematic here, the reasons why you can’t do it the way you’re doing it. Now there are a range of choices, right? It’s not that here’s the document, it’s done, I know that this is the answer. But it’s a range of choices that are logical, rational, standard choices and then you can debate over the question of where you fall in the spectrum of choices.” Great attorneys that know your market and have worked with venture capitalists and have worked with, you know, venture-backed startups know what the range is. They know how much they can push on the ends so that, you know, when you come to an investor and I say, “Oh, I’m excited about your company, I’m ready to invest. Tell me about the vesting on your founder shares or whatever,” that their answer doesn’t make me go, “OK, that’s crazy. Like how did you do that? That doesn’t make any sense.”

What I say is, “Well, maybe you know...” And sometimes they just don’t know and the answer is, “You really need to go see my friend at such and such at one of these three law firms.” I’m not going to tell you where to go because you’ll think, “Oh, it’s fixed, it’s fixed.” You know? “This guy’s gonna...” Talk to any of these firms, meet with an attorney and talk about the kind of standard terms and then we can have a discussion about what makes sense.

What I have written about quite a bit is that--one of things that I think is spectacular about the Bay Area and one of the reasons that I think it’s a great place to start companies is that there are attorneys and lots of them that really understand how to start a company. How little companies grow. What financings look like. What things impact the future. If you’ve never done this before, you might understand corporate law but you won’t necessarily understand the impact of a multiple liquidation preference in your series A and how that echoes through to your series D, right? But if you have been in the Bay Area and you’ve been practicing this stuff for the last two decades, you know, it’s second nature and I think that’s incredibly valuable.