It is unquestionable that as a FinTech start-up; you need some type of legal representation. Whether it's to protect intellectual property, offer general legal advice, understand regulation, or secure funding. Most start-ups engage lawyers on a need-to basis or hire part-time legal counsel. However, timing is everything and if you wait too long to hire a permanent in-house legal counsel, you could be wasting valuable resources which could be supporting your growth plans.
Recently, I caught up with James Sullivan, General Counsel and COO of Ziglu, and Ehsan Haque, former General Counsel at Hamilton Capital Holding, a global private equity firm with USD 12bn AUM to discuss this topic. They are two of The City's senior-most lawyers. Their experience in C-Suite leadership is as formidable as their understanding of the legal industry. They are both well-placed to advise on the advantages of bringing the legal function in-house. Sullivan previously headed the legal function at Monzo and worked in Non-Executive Director roles, and Haque has over ten years of experience in leadership and senior positions across FinTech and banking, including roles at Nomura and AlphaSwap.
So why should you consider hiring a General Counsel for your FinTech start-up?
Risk management is often the most overlooked benefit of hiring in-house legal, yet arguably the most important. It can be broadly split into four smaller areas: commercial reputation, IP protection, funding and good governance.
- Commercial reputation
The commercial reputation of a FinTech start-up business is important from the outset. It is also an area that becomes costly to rectify, should a negative reputation be built.
Haque explains that in-house counsel can help establish a positive internal culture with reputational risk management. He explains “this is especially prudent, as there are examples of start-ups in the technology space that haven’t invested in this area early on. Failure to do this has subsequently had a negative impact on their respective reputations”.
The management of risk is critical in every business. And it is particularly important in businesses working in heavily regulated markets and at the early stages of growth. In-house counsels are well-placed to ask the right questions of regulators and parties impacting risk, and use that information to identify, assess and address the highest areas of risk.
- Intellectual property
IP is a business asset and important to potential investors. It will sit there on the balance sheet, potentially appreciate, and become a revenue stream. You need a lawyer to ensure that your fintech’s innovation is protected and preserved.
Raising capital can be a complicated process, with investor jargon, which can be confusing to those newly exposed to it. Experienced lawyers in the banking, finance and FinTech start-up space will have dealt with many similar deals and understand the language and process used perfectly well. By choosing an in-house lawyer over an external lawyer, you will save resources and gain more nuanced expertise.
A great example here is a start-up that needs to raise finance. Fundraising can be riddled with technical legal issues. The assistance here should be dealt with diligence. However, the assistance of a general counsel during fundraising is essential throughout the process, from agreeing on terms sheets, tax advisory, contract exchange, due diligence to closing the deal.
Instructing external lawyers on this work is time-consuming, expensive, and in some instances, the result can be lacking in quality. According to Sullivan, in-house counsel are uniquely attuned to your fintech start-up’s needs and can ask questions to identify, assess and address potential risks to your business.
- Good governance
General counsels facilitate good decision-making governance across businesses and all levels of leadership, making sure decisions are made with a full understanding of risk implications.
In-house counsel can help establish a positive internal culture with reputational risk management. This is especially prudent, as there are examples of start-ups in the tech space that haven’t invested in solid legal counsel early on. Failure to do this has subsequently harmed their respective reputations. And whilst an in-house lawyer’s primary role is focused on risk mitigation, they also bring something positive to the table too.
In-house legal counsel adds value to your business, they are able to assist in transactional work, advice on contracts, and provide ad-hoc guidance to different stakeholders in the business. Sullivan attests that in-house counsel are the best placed to provide sound advice to leadership, as they are primarily focused on keeping the business “on the rails”.
Often overlooked is the commercially strategic skill set general counsel's offer; providing pure legal assistance is only part of their work.
Sullivan explains that external lawyers can sometimes speak in a different language; using esoteric, nuanced terminology. It is the job of a general counsel to synthesise the technical jargon so that the business can readily understand, take the necessary action and provide appropriate advice.
They add financial value
According to Haque, early stage start-up businesses may not want to take on permanent lawyers as they can be viewed as a significant cost centre. External counsel or project lawyers seem to be a much more cost-effective way of developing the position, though this is a common misconception. In-house counsels are often able to add value in more than just a reactive technical application of the law to a business.
Haque goes on to explain that the general counsel will add expertise that covers governance, risk, regulatory work, compliance, strategy and of course the contractual/documentation side of growing a new business, including, but not limited to, building, infrastructure, employment, and tech contracts.
External counsel or project lawyers seem to be a much more cost-effective way of developing the position, though this is a common misconception. In-house counsels are often able to add value in more than just a reactive technical application of the law to a business."
And the start-up market’s understanding of lawyers being a “cost-centre” with little to no quantifiable value add and to equally be used as a last resort, is a misconception the people in this space are trying to dispel.
How can Marks Sattin help you?
It’s clear that the relationship between C-Suite and General Counsel is a special one. General Counsel is an advisory position. They can provide counsel on legal and risk-specific areas of growing out a new business, but equally important is the addition of commercial understanding of the business that General Counsel can provide.
The benefits of building this function are considerable and increasingly popular. More and more businesses are investing in the space and reaping the rewards in more ways than one. If you are interested in growing this function at your business or want to discuss the benefits further, feel free to get in touch with me.
We intend to host an intimate roundtable on this topic in the coming months, if you would like to attend please don’t hesitate to contact me to register.
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