You Wouldn’t Do Your Own Heart Surgery, Would You? Then Don’t Do Your Own Legal Work

There’s a good chance that one of the first three articles you will see on any entrepreneur website will relate to the importance of putting together a solid business plan. While it is definitely true that a well-drafted business plan is important, even essential, I wish more emphasis was placed on retaining experienced legal counsel.

The problem is (well-deserved, I’m not sure) that even sophisticated business people generally disdain lawyers, and more importantly, disdain paying for lawyers. I love Fast Company’s website (fastcompany.com), a definite must read for entrepreneurs, but I was annoyed when I saw a brief survey they did of some CEOs. The question was something to the effect of, “What expense do you dislike paying the most?” Two out of three answered “paying for legal counsel.”

The truth is that retaining experienced legal counsel from the get-go can save entrepreneurs a tremendous amount of problems (and money) in the long run, than only seeking experienced legal assistance when something has already gone wrong. Often times, what is done is not easily undone, or at the very least, not cheaply undone.

For example, let’s use the “simple” task of forming and choosing a business entity. Anyone who listens to radio knows they can easily form their own company on a number of websites. So they go, pay a fee, fill out some paperwork, and like magic they are a company. That was easy, and saved a lot of money in legal fees, right? Well that depends.

For instance, they may not realize that choosing the wrong entity type can have severe tax consequences. One of those consequences is that instead of paying taxes once, they may end up paying taxes twice. At the entity level, and at the personal level.

Another problem with DIY company formation, is that you can potentially make yourselves unattractive to investors. For example, sophisticated investors want to see certain provisions in a company’s corporate documents. If you’re documents make it harder for them to gain control and receive certain equity stakes, you have just made their ability to invest in you more difficult. Ergo, vis-a-vis, one more reason not to invest in you.

On a more personal level, experienced counsel also bring relationships to the table. The simple truth is, private equity and venture capital firms like to deal with people they already know. Unfortunately, most entrepreneurs do not have such relationships. Retaining counsel with ties to the funding community not only gets you in front of those deep-pockets, it also gives you credibility.

Lastly, you may have noticed that I have qualifed the word “counsel” with the word “experienced.” The reason is that inexperienced counsel is sometimes worse than no counsel at all. Everybody and there brother “knows a lawyer who can help you with that.”  Just like no doctor can perform every medical procedure, all lawyers are not able to perform all legal tasks. An inexperienced lawyer will not necessarily be aware of all the legal, and non-legal, issues that come into play. Especially when you’re dealing with intellectual property issues (which are often the heart and soul of biotech companies), it is imperative to have counsel that is well-versed in the issues you will have to deal with.

So do yourself a favor and retain EXPERIENCED legal counsel before you go down the winding path of starting your own biotech company. Anytime someone says , “I hear what you’re saying, but it’s expensive and what I need done is really not complicated, and I can buy a book on how to do it,” I just ask them, “well, if you had a heart problem that required surgery, you wouldn’t do your own heart surgery would you?” I wish more people took my advice to heart (pun intended.)

My first guest blog

I was asked to do a guest blog article on Hopesandcures.org. It’s a great site that focuses on biotech companies that create treatments for life-threatening illnesses.

My article discussed why the down economy is an opportunity for biotech companies to explore SBIR/STTR grants as an alternate funding source.

I enjoyed writing it, so I thought I would go ahead and write my own blog on the business side of biotech companies. You won’t find hard science here, but you will find out more about the business of starting and running a biotech company. From funding sources to clinical trial set-up, I’ll discuss it all.

Anyway, here’s my guest blog article. Hope you enjoy it.

 http://hopesandcures.org/2008/12/10/guest-blogger-afif-ghannoum-biovenits/