In the often emotional atmosphere of building a company, leaders of growing enterprises should access not only the specific expertise of their professional advisors - whether they be attorneys, accountants or financial advisors - but also the experience and judgment of those advisors. Getting the most out of your professional advisors means tapping into the "value-added" services they can provide to you. Lawyers, accountants and other advisors willing and able to provide these value-added services can mean the difference between successfully completing complex commercial arrangements or financing transactions or having them fall through.
When you think about the myriad issues that arise with even the most basic of deal term sheets, it is little wonder that the entrepreneur who lacks a fully-staffed, experienced-ladened in-house management team often turns to outside professional advisors to help get the deal done. Getting the deal done requires structuring, negotiating, documenting and closing the deal. Early involvement by your professional advisors often provides the greatest value. For instance, a deal term sheet presented by a placement agent for the placement of common stock usually will lead to many issues, including valuation, control, board representation, compensation, registration rights and management's tie to the company. Without the proper advice, an entrepreneur may be confronted with the possibility of giving away too much of the company, find the company has sold or mortgaged its future or otherwise prevent the entrepreneur and his or her management team from fully realizing their goals or strategic direction.
In order to be a value-added member of the transaction team, the professionals must have knowledge of the company's industry in general and knowledge of the company's operations, structure and capitalization in particular. They also must possess the judgment and personality to properly mesh with the management team and the other professionals. Nothing is more frustrating for an entrepreneur than for a deal to stumble because the professional advisors either do not understand the company or its industry, cannot work well with the other professionals on the transaction, or do not have the experience and expertise to properly assess the situation and advise as to the best path toward completion of the transaction.
Experienced professional advisors can assist the management team in many areas besides documenting a transaction or commercial arrangement. For example:
Preparing the Business Plan: Advisors experienced with start-up, emerging and middle market companies have drafted or reviewed a multitude of business plans. Such advisors know what the investor, banker and venture capitalist is seeking, and equally important, know how to convey the company, its operations, prospects and strategy. Experienced counsel also knows how to provide appropriate protection without adversely impacting the marketability of your deal.
Industry Experience: An entrepreneur should select advisors who have experience in the company's industry. Whether it be telecommunications, software, pharmaceutical or some other biotechnology or life sciences industry, advisors who have guided others in your industry will know what is important to your company and will be able to anticipate issues and suggest solutions. Growing companies often require judgment, skills and a level of responsiveness that is markedly different from those required by large, mature companies with layers of in-house management covering many areas of expertise.
Financial Advice: Financial advice can and should come from your lawyers, accountants and bankers. For example, counsel should be aware of the current trends in valuing companies, including the ranges of valuation companies currently are receiving and the valuation methods utilized. Counsel also can guide management in allocating stock options among the management team (such as, how many options should the CEO receive as compared to the CFO or the head of R&D?)
Deal Points: Experienced counsel will advise you as to which points are negotiable, which clauses and terms are customary, and what issues and terms are deal breakers for each side. An entrepreneur can effectively negotiate only if he or she knows the parameters for the negotiations. Counsel and other professional advisors who have negotiated numerous similar transactions should know these parameters and should be able to offer creative alternatives to overcome business issues.
Investor Networking/Gaining Access to Sources of Capital: Advisors experienced and comfortable working with growing companies should be familiar with various financing sources that may available to them and can assist the entrepreneur in identifying and networking with venture capitalists, venture and investor organizations (such as the New Jersey Technology Council, among others), investment bankers, commercial banks and accountants.
Increasingly, start-up, emerging and middle market companies are discovering that their professional advisors can and should provide value-added services like those noted above. Tapping into your advisors' business skills and other resources may be the best way to fully realize the benefits of their services. Such advisors may be neutral sounding boards, who, with intimate knowledge of your industry and company, as well as your directors and management, can provide valuable insights and counsel. If you select the right advisors and properly utilize their services they can be valuable members of your team, partnering with you to make good things happen for you and your company.