E136 Navigating Startup and Venture Capital Legal Risks w/Constantine Karides

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So if you show up on a first deal, you get on a
Zoom call, and there's you and five other

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folks, none of whom the client had seen before,
wondering what's going on.

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Oftentimes, startups or even, you know, venture
funds, depending who they are, aren't gonna

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question the fact that you have all those folks
on the call.

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It can become a pretty expensive endeavor and
when that's not answered necessarily, and I

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don't think it furthers the best interest of
the client at all.

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And the right time to ask that is when you have
the leverage when you're choosing the law firm

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before because after that, you're stuck with
the firm.

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Definitely wanna do that before you get too far
along.

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It's hard to pivot and change law firms.

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There's a lot of cost that goes along with
that, transition and otherwise, and also sunk

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in investment.

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What are the most important questions that
startups or venture capital funds should ask

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their lawyers before they engage with a lawyer?

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I think it's a little different for each of
those two, two buckets.

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If if I'm a startup, I I wanna look at my legal
relationship as as I would a strategic

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investor.

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And that is beyond lawyering, what can this law
firm or lawyer bring to the table?

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There are a lot of lawyers who can paper it or
put together initial formation documents and

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negotiate with investors and put together a tax
structure that works.

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And so beyond that, what what are you bringing
to the table?

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Do you have a network of, partners or potential
partners for the underlying business?

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Do you have a network of investors that might
be interested in the next round or the current

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round?

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Are you well positioned within your law firm to
be able to drive value to me if I need to ask

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you to make concessions on pricing or to try to
do alternative fee structures, which some

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startups need to do to be able to move forward
with an eye towards a broader relationship.

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And so I think I would, as a startup, wanna
make sure that I have hired a lawyer from a

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firm that can do the work, of course, at a high
level of quality, but also that brings to the

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table off balance sheet value, not just, legal
services.

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That you wanna make sure that that partner has
the right credibility internally to help the

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startup.

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Double click that and explain why that's
important.

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Especially if you're dealing

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with big law, and I'm I'm I'm at a big law
firm.

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Decisions are are are are often not made at the
lawyer level when it comes to doing things that

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are not straight down the middle.

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And so there's a layer of bureaucracy or even
just an inability to deliver on value

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propositions, on one hand.

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And on the other hand, an inability or or or
less of an ability to deliver the right talent

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or the right people.

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If your relationship partner is well placed at
a firm either because they have a significant

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portfolio of business and are at the higher end
of the ownership structure or are considered a

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star in the space, they will be able to,
without having to navigate that bureaucracy or

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even deal with people saying no to them, both
deliver the resources that are necessary for

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the project, and also be able to be flexible on
things like pricing or other requests

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that, most partners wouldn't.

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Essentially, the lawyer has leverage internally
whether they're bringing in a lot of business

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or they just have high standings within a firm,
and they could use that relationship capital.

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They could bring in the resources that the
startup needs.

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They could bring in the star guy.

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Maybe there's a guy or girl that's really good
in tax or in m and a when the time comes.

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They could bring that resource into the
company.

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On the other side, on the cost side, they could
be more flexible because they basically have

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that reputational capital internally.

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That's exactly right.

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And what about venture capital funds?

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So you're going out.

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You're talking to these law firms.

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They all seem pretty much to have a similar
pitch.

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What questions should a venture capital fund
ask before choosing counsel?

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So venture capital fund is looking for for
lawyers who are gonna be reviewing investment

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documents, in connection with their, go forward
investments in in portfolio companies.

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They're also going to be, looking for lawyers
who can help those portfolio companies grow,

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and so some of the same questions and and and
priorities that I just mentioned would apply in

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that vein.

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For venture funds, I think it's a little bit
different.

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I think venture funds certainly are repeat
customers and or I would say, for law firms, a

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a potential really steady flow of business.

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Mhmm.

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And so, with that in mind, I think venture
funds are are looking for really super

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competent, legal assistance.

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Yes.

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The relationship partner matters, maybe a
little less so than for a for a start up.

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And they're looking for partners within law
firms that can be flexible and be open to

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working with portfolio companies they invest
in.

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For me personally, a lot of engagements we
have, we we have fine relationships with a

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number of venture funds and we help them, with
respect to their investments in the series a,

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c, whatever it is.

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But the upside of that is oftentimes when they
refer you, to one of their portfolio companies

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who's ready to have a, you know, a significant
transaction, a listing, or even maybe just have

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to deal with some, you know, unwelcome
litigation or things like that.

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In many ways, you're investing into the
startups like a venture capitalist or an angel

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investor might.

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What are you looking for in terms of these
startups to decide, you know, who to take on,

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who to spend time on?

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That's a really good question.

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Me personally and my team does approach,
startups as we would think about, making

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investment that a fund might make an
investment.

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And we also think about, you know, we're not
we're if we were good really good investing, we

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would be running venture funds.

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So we're not.

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We're we're lawyers, but we do have a sense of,
you know, what's real or what's not.

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There's certain hallmarks that are associated
with those kind of decision making.

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You know, who's their anchor investor?

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What's the background of the founder?

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You know, it does the strategy, at least to us,
make sense?

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And where's the referral coming from?

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They all add up and you know you have a pretty
pretty good client potentially.

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And at the outset, my personal view is that not
everyone follows this approach is you need to

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be flexible and malleable and work with them so
that they can get into a position to be a

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really strong company.

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And that means, in my opinion, not going at
them with your % max rate and trying to, you

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know, max bill or bring in a lot of different
lawyers who might not be necessary initially

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for the project.

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When we last chatted, you told me about the
leverage model that law firms deploy in order

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to maximize their profits.

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What is this leverage model?

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The financial services industry is evolving
rapidly.

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Reed Smith's team of over 200 financial
industry group lawyers helps clients navigate

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the complexities of the sector in an era marked
by technological advancements and AI.

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Reed Smith's lawyers have a deep understanding
of market dynamics, legal frameworks, and

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regulatory developments, and advise financial
institutions and technology companies on

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financing, lending, investment management,
restructuring, insolvency, and litigation.

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So in it in in its most traditional sense,
leverage model is is is pushing down work to

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the lowest level of, employee or associate in
this case, that can that can do the work.

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And and and the reality is that's kinda been
amended or modified or extended in a way that

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is is really more reflective of the drive and
then, you know, at the risk of putting us a

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little bit of a bad light, a big law to to
really drive revenues and profits and rate

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increases and all those things.

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So I think what you've seen is a lot of times,
law firms will staff cases, with too many

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associates in my opinion, or too many partners
even, with an idea of maximizing, you know,

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bubble hours, and its approach that, you know,
I I can't stand.

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It's not something I do in my practice or ever
have, maybe to the detriment of my firm, but I

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firmly believe, I really firmly believe that
the best thing you can do for a client and the

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most lucrative thing you can do as a law firm
is to build trust confidence, deliver great

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product, add value to your client and
everything else will flow from that.

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And so if you show up on a first deal and you
you get on a Zoom call and there's you and five

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other folks, none of whom you, you know, the
client had seen before and wondering what's

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going on, oftentimes, startups or even, you
know, venture funds depending where they are,

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aren't gonna question, you know, the fact that
you have all those folks on the call.

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It can become a pretty expensive endeavor and
when that's not answered necessarily and I

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don't think it it furthers the best interest of
the client at all.

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Going back to that initial question about
what's the best, what's one of the best

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questions a start up can ask is who's working
on my matter?

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You know, what are they each doing?

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What's their level of expertise?

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And make sure you're comfortable with it
because if the answer is I've got three

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associates, they're gonna well, why?

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What are they all gonna be doing?

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I think you're entitled to know that and you're
entitled to know who you work with.

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A lot of times, the people who are selling you
on a deal aren't the people who are working on

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a deal.

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And the right time to ask that is when you have
the leverage when you're choosing the law firm

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be before because after that, you're kind of
stuck with the firm.

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Definitely wanna do that before you get too far
along.

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It's hard to pivot and change law firms.

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There's a lot of cost that goes along with
that, transition and otherwise, and also sunken

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investment of time and energy.

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You wanna have your law firm be an extension of
your of your company or fund, frankly.

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You want them to be aligned with your
interests.

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You want them to be, pushing forward in a way
that helps you achieve your business objective

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or your investment objective.

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And you don't wanna have to get into a
situation where you're leery of speaking to

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your lawyer because you called up somebody and
you're, you know, next day you got a bill for

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half hour of of time when you thought you're
just, you know, calling a friend or a

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conversation.

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It's interesting because a lot of these
projects that people will call you about are

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hypothetical.

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So they might be a hundred, 200, a million
dollar engagement sort of a law firm.

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Why charge somebody $500 and keep them from
kind of discussing opportunities from you?

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It seems very short short term.

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You you just kinda said it in in exactly the
obvious way.

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What can come out of a client calling you?

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Only good things.

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Worst case, they engage you.

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There's nothing lost by having conversation
with your client encouraging them to speak with

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you, you know, or prophylactic counseling or
what have you.

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You know certain things that are or shouldn't
be unbalanced billable stuff in my opinion.

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When I spoke to the Reed Smith operations team,
they told me their words, Constantine's a

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rainmaker.

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We hired a full time person just to help him
with his relationships.

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You obviously have an ability to bring in a lot
of business.

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Tell me about your philosophy and how does that
philosophy differ from the typical lawyer?

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So I

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I'm fortunate.

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I've been doing this a long time now.

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This is my thirtieth year of practice.

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Over that period of time, what I've learned is
that, engagement on a personal level with your

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client, people who lead that client or several
people who lead that client, in a way where

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they, trust you to look after them.

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One of the one of the things that I think
clients like as lawyers, yeah, if they have

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great in house counsel and they have a little
think thought thought out, they're much more

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focused on, you know, I want the very best
lawyer to do x y and z, and we deliver that in

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certain areas.

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But more generally, they wanna know you're
looking after them.

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That I've got this great lawyer, this great
team, that I can go to bed at night knowing

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that my documents, my transactions, any, you
know, risk I have is being managed in a way

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where, they're not just looking to make dollars
off of me, but they're looking to advance a

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deeper personal connection.

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And so I've been fortunate to, become really
close friends with many of my clients, I think

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it's that personal touch and being available to
them all the time that has served me very well.

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That results in probably not being the most
aggressive biller or the most interested in

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setting up, you know, all sorts of ways to
price and set different prices.

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But I don't care because I think in the long
run, we do better, they do better.

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You have, parties that you throw when your
companies have big milestones.

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You are very social with your clients.

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Talk to me about kinda mixing your business and
professional life.

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Thank you for listening.

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Now I've always been kind of an outgoing kind
of a person, so I've always loved, you know,

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I've always loved getting people to laugh.

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I like to feed people.

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I like to have them at my dinner table and get
to know them, frankly.

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You know, just as we've gotten to know each
other, it's great.

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When you kind of peel that initial layer back,
you're much more likely to want to do something

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together, right, the kind of facade or that,
you know, veneer we all have, when that goes

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away, it's a much better way to to develop a
business or otherwise.

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And so it's become part and parcel of what I
do.

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I love to host big dinners.

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You know, you can call them networking dinners
or just a bunch of like minded people or

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friends, and that generally is good for
business for sure.

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I love going to ball games.

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I love going to concerts.

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And so I always like to have big, not not
entourages, but big groups of people going.

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And, you know, when people are outside of their
professional, you know, day to day, they're

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just like we were when we were kids.

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Right?

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You're just hanging out and you're getting to
know each other, and and it's a much better

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forum to, start talking about things, in a way
that can lead to business relationships.

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Because frankly, it I'd not and ideally and I'm
at a point in my career, thankfully, where I

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can do this.

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You wanna work with people you like on the
legal side, or you you so or you or you have

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this, like

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Especially post COVID, I feel like everybody's
behind Zooms.

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There's less interaction and, you know, we're
we're wired evolutionarily for when we lived in

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a 50 person tribes, and I think people are
really struggling from that.

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I think that's why you're seeing some of these
mental health issues in society.

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So I think it's really powerful what you do.

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What mistakes did you make on early on in your
career as a lawyer?

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That's a great question.

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I think one of the things I decided early on in
my career was, you know, working at a at a

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fairly big law firm out of of law school was
was kind of a tiring, exhaustive, process,

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still is, maybe worse, and that wasn't
something I wanted to do in perpetuity.

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So I decided pretty quickly that until and
unless I develop my own client relationships,

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I'd be, you know, working for the man kind of
so to speak.

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No leverage.

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You would just be trading your time for money.

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But in order to kind of make that leap into
starting to generate my own business, do

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anything for anybody basically, was not in a
position to be selective and so probably took

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on a lot of work and a lot of clients that in
hindsight were probably bad ideas with people

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that I probably didn't respect.

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Not that they were doing anything on law
enforcement, but just like jerks or assholes,

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you know.

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And so, you get into that web and that lasts
long longer than you'd want it to, even if it's

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your own client per se.

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So, that's one thing.

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Talk to me about AI.

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How is AI affecting the legal profession?

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So in time, I think it's gonna have a very
prominent, significant role in performing a lot

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of the legal functions that are more rote and
repetitive.

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I think there's the beginning of that, not not
so much yet in in big law firms or or even, you

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know, regular law firms.

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I think, plaintiffs firms are are the first, I
think, to really kinda lean into AI, and

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they're doing so, if they're class action firms
in terms of figuring out algorithmic approaches

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to onboarding plaintiffs at a cheap price, and
that's a big part of the game that those guys

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play, and they do it very, very lucratively.

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They are also pretty proficient in reviewing
documents, but not in a way that I think the

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courts prefer, so just maybe like a first cut
review.

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Most courts are leery of AI involvement, you
know, people got in trouble for having briefs

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drafted by AI even though their briefs weren't
that bad.

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So, AI is emerging, probably slower than people
think, It's definitely slower than the people

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who've developed AI for law would like, and
there's resistance always to change within any

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profession, and I think legal profession being
the most resistant, probably the most

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protective.

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AI is not as widely used in legal profession.

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It's not as widely adopted in litigation.

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Why is that?

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It will be.

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It's just not move not moving as quickly as, as
people think it might maybe should be moving.

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Our firm is has taken deep dive into this, and
we're already introducing AI in certain aspects

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of our, our business, the way we, you know,
handle a for profit business, and also in

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different parts of our legal services.

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And we're doing it in two ways.

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One is we're looking to engage with, do test
runs with the best or who we think are the best

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or who we're advisor the best AI legal
providers, and we're sorting through that,

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presently.

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We also have our own tech subsidiary, which
we've had for a while, that has really been at

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the forefront of, making things like discovery
or do discovery and litigation or due diligence

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in big corporate transactions much more
proficient and inexpensive, and it's actually

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been a good business for us.

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They've been developing their own proprietary
AI for those functions and others.

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And so between the two, we think we're gonna be
right there, and we're not hesitant to to

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deploy it or use it.

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But I think it's still several years away from
being a a mainstay, day to day in a significant

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way.

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And when it does happen, I think it'll happen
broadly as opposed to, oh, that firm's doing

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it, that firm's doing it.

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You know, big law tends to run as a herd, and
so when when it happened

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Is is that clients pushing firms to use AI or I

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don't think clients are pushing for AI just
yet, you know.

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They wanna make sure that it it the tech the
technology is appropriate, that the industry

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accepts it, that there is no resistance by the
bodies that overlook the legal profession in

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terms of using AI.

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And I think, you know, the people who drive
decision making in law firms are more my

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generation, right, in fifties or so.

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So maybe not as quick to move to a new
technology as somebody in their thirties or

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their twenties or

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something like that.

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So But you have the internal political capital
to kind of push the technology.

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Yeah.

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You know, I'm not sure what it does fully in
terms of the the law firm models that we've

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talked about and others.

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You know, on the one hand, it's gonna
potentially replace a number of you know the

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associates you need and it'll replace it in a
way that should be cost beneficial to the to

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your client.

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But then it should open up the opportunity for
the you know the the the work or the advice or

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the high level strategy that we provide to
metastasize and become much larger.

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So you know some firms are well if I lose a
hundred associates and I can't build them in a

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way that we talked about, how do I make that
up?

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Or where's where's the profit gonna come from
utilizing this technology?

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And I think the profit is there.

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I think the profit is geared more towards,
let's talk about, you know, how we're gonna

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help you structure this startup or this
investment.

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You know, these are things that are not, at
least for the foreseeable future, replaceable

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by AI just yet.

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Anytime you drive down costs, you get more
startups started and more funds started, and it

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it expands the pie.

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So we've seen some counterintuitive kind of
results of driving down costs.

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So oftentimes, these businesses get much
bigger.

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That's I mean, that's been the history of
technology.

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Right?

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People are people get afraid it's gonna end
this or end that, and it ends up usually, maybe

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it'll be different, I don't know, in creating
more opportunities for everybody.

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What would you like our listeners to know about
you, about Reed Smith, or anything else you'd

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00:21:07,105 --> 00:21:07,744
like to share?

328
00:21:07,744 --> 00:21:08,884
Thank you for that question.

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00:21:10,269 --> 00:21:18,750
Well, I would like your viewers to know that
engaging lawyers can be a really great part of

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their business, and getting the right lawyer
can be extremely additive to the growth of

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their business for the startups.

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00:21:28,115 --> 00:21:33,634
And for the, you know, GPs can be really
strategic in helping them see around corners on

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investments and and things like that.

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And that me personally, and you know that, I I
really like to think I put myself completely,

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00:21:44,940 --> 00:21:50,460
make myself completely available to clients and
bring with it not only the years of experience

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00:21:50,460 --> 00:21:51,855
I have, but the network that

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I've

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00:21:51,974 --> 00:21:56,615
developed, the approach we discussed, and a
really solid team as well.

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00:21:56,615 --> 00:21:58,714
And and how can people reach out to you?

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00:21:58,775 --> 00:22:00,954
They can, email me.

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00:22:01,494 --> 00:22:08,450
That's c karides, c k a r I d e s, at reedsmith
dot com, where they can, I guess LinkedIn is

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00:22:08,830 --> 00:22:12,350
probably a little bit of an older, way to reach
me?

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00:22:12,350 --> 00:22:16,450
Well, Constantine, you've been a great friend,
and, thank thanks for jumping on the podcast.

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00:22:16,670 --> 00:22:17,808
Thanks for having me.