Start-ups and in-house counsel: Friends for life?

The term 'start-up' is most often colloquially used to describe a company at an early stage of its business journey or a newly established business.

Taxing statutes have given start-ups long periods to continue enjoying their status. However, on a more practical note, a 10-year period is substantial in the journey of any business, after which companies are no longer referred to as a start-up.

Any business in general, and start-ups in particular, face manifold challenges from fierce competition to unrealistic expectations, attracting the right talent, navigating regulatory challenges, financial management, cyber security, creating an impressionable brand and reputation, and, most importantly, winning the trust of customers.

When you own a start-up business, legal services are a definite ‘must have’ and not a mere ‘good to have’. Quite often, companies hire part-time legal counsel or hire lawyers on an as-needed basis. But certain types of companies wait too long to hire in-house help, costing them money that they could be putting towards growth in the business. Legal counsel is critical to any management team, specifically if it is a high-growth startup in a heavily regulated industry such as aviation, pharmaceuticals, etc.

The key benefit of having in-house legal advisors is that they are the internal advisors from idea to execution, as opposed to hiring a legal team as an afterthought once a legal issue arises. If the legal team has a seat at the table and is in the critical business meetings, they will be able to advise key stakeholders at the outset on issues ranging from the risk of taking on specific projects to hiring practices and everything in between.

In-house legal services can be a much more cost-effective solution overall. Lawyers help start-ups deal with common transactions, set up systems for statutory compliance and avoid costly mistakes. As former US Deputy Attorney General Paul McNulty unequivocally said, “If you think compliance is expensive, try non-compliance”.

More importantly, a lawyer on the early team can contribute to a thriving company culture by asking questions and providing perspective on crucial transactions. Lawyers, particularly corporate transactional lawyers, have repeated exposure to the types of deals - and the associated risks - that a start-up will face. The dynamics between a CEO and the investors on the board are a function of the legal arrangements articulated in the financing or investment agreements. Lawyers understand these transactions and the perspectives of the negotiators involved. When the complexity of the transactions requires specialist advice, an in-house counsel can play the savvy procurer of legal services to target efforts whilst limiting costs.

Legal education and training includes a strong emphasis on questioning assumptions and probing for further information. Lawyers are trained to ask the right questions at the right times. Rather than crippling the company through risk aversion and over-analysis, having a lawyer on the early team contributes to a data-driven, analytic culture of thoughtful decision-making. Further, lawyers are trained as advisers and service providers.

The last decade-and-a-half has seen the role of in-house counsel consistently evolve. There has been a dramatic shift in paradigm following the global financial crisis of 2008. The worst recession in decades prompted companies to look harder - across all business units - at expense management and the bottom line and this was further accelerated in the last few years by the pandemic that brought the world to its knees. Senior management started to realize that they could get the same level of legal work and competence and cut out massive costs in external legal fees by no longer viewing in-house legal departments as cost centres.

Over the course of the last decade or so, much more work has been undertaken in-house, with outside law firms being asked to handle more of the specialist advisory work. Effective in-house teams evolved to the point where they could identify potential risks before they arose, helping companies to proactively avert crises, rather than reacting to matters after they occurred.

For a legal department to be as agile as the business it supports, it needs to have a range of both internal and external legal talent to draw upon. Fortunately, today’s legal services market provides a range of options that were not available to previous generations of in-house lawyers. Taking advantage of these options can give the legal department the robustness it needs. Lawyers typically have good analytical and problem-solving skills and are aware of the happenings across the organisation. Given this role, they are in a prime position to support and steer the business to greater success.

Eventually, whether a startup is able to achieve the exalted ‘unicorn status’ and remain profitable is not predictable. But one can only equip themselves with the right legal and financial advisors, top talent, continuous innovation, compliant and ethical operations and nimble approach and hope to get there.

Priya Mehra is Chief Legal, Regulatory & Strategic Relations Officer and Mudita Roy is Associate General Counsel at Akasa Air.