Many law firms have practice groups that specialize on serving emerging growth companies and the most focused of these have developed some real specialization in representing borrowers in venture debt transactions. If I were to do an informal poll of other venture debt lenders, I’m confident we could compile a list of law firms nationally that represent borrowers most frequently (and capably) in venture capital and venture debt deals. Many firms have one or two partners that act as the domain experts and they become a focal point for transaction trends, market data and specialized expertise in documenting venture debt deals. Closing deals with these domain experts is very efficient as we avoid rehashing documentation nuances…if the language was good enough for a similar borrower on the deal we closed with them last week, let’s not quibble. Having said that every borrower is unique and market terms have the usual ebb and flow. Working with knowledgeable and capable attorneys makes life easier for borrower and lender alike.
For a variety of reasons, some of these firms occasionally fail to fully capitalize on their institutional knowledge and domain expertise. A lawyer is one regional office won’t engage the domain expert in documenting a deal. Maybe the domain expert is busy or travelling. Skeptics might surmise that the pressure on each attorney to maximize billable hours plays a role. (Note to self: never work in an industry where clients track your income by the hour). Whatever the reason, the failure of law firms (or any business for that matter) to capitalize on their institutional knowledge results in the same questions and deal terms being negotiated from scratch on each venture loan. Questions of legal or tax structure that were answered in another transaction last week are rehashed this week with another counsel from the same law firm. For clients, fees and blood pressures elevate quickly.
Lenders and borrowers tolerate a certain amount of educating new partners on the subtleties of a venture debt transaction. We recognize that domain experts became specialists over time and we need to train the next crop of professionals. Clients made similar investments in me in the early part of my career and to a large extent still do. If you are lucky enough to have domain expertise in a certain specialty, those resources need to be monetized and maximized. One of my first questions as we meet a new borrower is “who is your legal counsel and by that, I mean the partner’s name – not just the firm.”
Eastward Capital Partners
432 Cherry Street
West Newton, MA 02465
o: (617) 762-3611
c: (617) 947-6272
Eastward Capital Partners – providing $1 – 10 million venture debt, growth capital and equipment financing to venture-backed, emerging growth companies since 1994. We also provide expansion capital to non venture backed companies.
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