How I Invest with David Weisburd
E136: Navigating Startup and Venture Capital Legal Risks w/Constantine Karides
Fri, 07 Feb 2025
In this episode of How I Invest, I interview Constantine Karides, a Lead Partner at Reed Smith, to discuss the critical role lawyers play in the startup and venture capital ecosystem. Constantine shares insights on what founders and investors should look for in legal counsel, the leverage model law firms use, and how AI is reshaping the legal landscape. From the importance of choosing the right law firm to navigating legal costs effectively, this episode is packed with actionable advice for entrepreneurs, venture capitalists, and investors.
Chapter 1: Why is it important to choose the right law firm early?
And the right time to ask that is when you have the leverage, when you're choosing the law firm before, because after that, you're kind of stuck with the firm.
Definitely want to do that before you get too far along. It's hard to pivot and change law firms. There's a lot of cost that goes along with that, transition and otherwise, and also sunken investment of time and energy.
What are the most important questions that startups or venture capital funds should ask their lawyers before they engage with a lawyer?
Chapter 2: What should startups consider when selecting legal counsel?
I think it's a little different for each of those two buckets. If I'm a startup, I want to look at my legal relationship as I would a strategic investor. And that is beyond lawyering, what can this law firm or lawyer bring to the table? There are a lot of lawyers who can paper or put together initial formation documents and negotiate with investors and put together a tax structure that works.
And so beyond that, what are you bringing to the table? Do you have a network of partners or potential partners for the underlying business? Do you have a network? of investors that might be interested in the next round or the current round.
Are you well positioned within your law firm to be able to drive value to me if I need to ask you to make concessions on pricing or to try to do alternative fee structures, which some startups need to do to be able to move forward with an eye towards a broader relationship?
And so I think I would, as a startup, want to make sure that I have hired a lawyer from a firm that can do the work, of course, at a high level of quality, but also that brings to the table off-balance sheet value, not just legal services.
That you want to make sure that that partner has the right credibility internally to help the startup double-click that and explain why that's important.
Especially if you're dealing with big law, and I'm at a big law firm, decisions are often not made at the lawyer level when it comes to doing things that are not straight down the middle. And so there's a layer of bureaucracy or even just an inability to deliver on value propositions
on one hand, and on the other hand, an inability or less of an ability to deliver the right talent or the right people. If your relationship partner is well placed at a firm, either because they have a significant
portfolio of business and are at the higher end of the ownership structure or are considered a star in the space, they will be able to, without having to navigate that bureaucracy or even deal with people saying no to them, both deliver the resources that are necessary for the project and also be able to be flexible on things like pricing or other requests that most partners wouldn't.
Essentially, the lawyer has leverage internally, whether they're bringing in a lot of business or they just have high standings within a firm, and they could use that relationship capital. They could bring in the resources that the startup needs. They could bring in the star guy. Maybe there's a guy or girl that's really good in tax or in M&A when the time comes.
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Chapter 3: What questions should venture capital funds ask potential law firms?
They could bring that resource into the company. On the other side, on the cost side, they could be more flexible because they basically have that reputational capital internally.
That's exactly right.
And what about venture capital funds? So you're going out, you're talking to these law firms, they all seem pretty much to have a similar pitch. What questions should a venture capital fund ask before choosing counsel?
So venture capital fund is looking for lawyers who are going to be reviewing investment documents in connection with their go forward investments in portfolio companies. They're also going to be looking for lawyers who can help those portfolio companies grow. And so some of the same questions and priorities that I just mentioned would apply in that vein.
For venture funds, I think it's a little bit different. I think venture funds certainly are repeat customers and are I would say for law firms, a potential really steady flow of business. And so with that in mind, I think venture funds are looking for really super competent legal assistance. Yes, the relationship partner matters, maybe a little less so than for a startup.
And they're looking for partners within law firms that can be flexible and be open to working with portfolio companies they invest in. For me personally, a lot of engagements we have, we have fine relationships with a number of venture funds, and we help them with respect to their investments in the series A, C, whatever it is.
But the upside of that is oftentimes when they refer you to one of their portfolio companies who's ready to have a significant transaction, a listing, or even maybe just have to deal with some unwelcome litigation or things like that.
In many ways, you're investing into these startups like a venture capitalist or an angel investor might. What are you looking for in terms of these startups to decide who to take on, who to spend time on? That's a really good question.
Me personally and my team does approach startups as we would think about making an investment that a fund might make an investment. And we also think about, you know, if we were really good at investing, we would be running venture funds. We're not. We're lawyers. But we do have a sense of, you know, what's real or what's not.
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Chapter 4: How do law firms use the leverage model to maximize profits?
You kind of said it in exactly the obvious way. What can come out of a client calling you? Only good things. Worst case, they engage you. There's nothing lost by having a conversation with your client, encouraging them to speak with you, or prophylactic counseling, or what have you. Certain things that shouldn't be unbalanced, billable stuff, in my opinion.
When I spoke to the Reed Smith operations team, they told me their words. Constantine is a rainmaker. We hired a full time person just to help him with his relationships. You obviously have an ability to bring in a lot of business. Tell me about your philosophy and how does that philosophy differ from the typical lawyer?
So I'm fortunate. I've been doing this a long time now. This is my 30th year of practice. Over that period of time, what I've learned is that engagement on a personal level with your client, people who lead that client, or several people who lead that client, in a way where they trust you to look after them. One of the things that
I think clients like, as lawyers, yeah, if they have great in-house counsel and they have a little thing thought out, they're much more focused on, you know, I want the very best lawyer to do X, Y, and Z. And we deliver that in certain areas. But more generally, they want to know you're looking after them.
That I've got this great lawyer, this great team, that I can go to bed at night knowing that my documents, my transactions, any, you know, risk I have is being managed in a way where they're not just looking to make... dollars off of me, but they're looking to advance a deeper personal connection. And so I've been fortunate to become really close friends with many of my clients.
And I think it's that personal touch and being available to them all the time that has served me very well. That results in probably not being the most aggressive biller or the most interested in setting up all sorts of ways to price and set different prices. But I don't care because I think in the long run, we do better, they do better.
You have parties that you throw when your companies have big milestones. You are very social with your clients. Talk to me about kind of mixing your business and professional life. Thank you for listening. To join our community and to make sure you do not miss any future episodes, please click the follow button above to subscribe.
I've always been kind of an outgoing kind of a person, so I've always loved getting people to laugh. I like to feed people. I like to have them at my dinner table and get to know them, frankly. Just as we've gotten to know each other, it's great. when you kind of peel that initial layer back, you're much more likely to want to do something together, right?
The kind of facade or that, you know, veneer we all have. When that goes away, it's a much better way to develop a relationship business or otherwise. And so it's become part and parcel of what I do. I love to host big dinners, you know, home networking dinners or just a bunch of
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Chapter 5: Why is building trust with clients more beneficial than maximizing billable hours?
You're just hanging out and you're getting to know each other. And it's a much better forum to start talking about things in a way that can lead to business relationships. Because frankly, and ideally, and I'm at a point in my career, thankfully, where I can do this. You want to work with people you like on the legal side.
Or you have this like... Especially post-COVID, I feel like everybody's behind Zooms.
There's less interaction and You know, we're wired evolutionarily for when we lived in 150% tribes, and I think people are really struggling from that. I think that's why you're seeing some of these mental health issues in society. So I think it's really powerful what you do. What mistakes did you make early on in your career as a lawyer?
That's a great question. I think one of the things I decided early on in my career was working at a fairly big law firm out of law school was kind of a tiring and exhaustive process, still is, maybe worse. And that wasn't something I wanted to do in perpetuity, so I decided pretty quickly that until and unless I developed my own client relationships, I'd be working for the man, so to speak.
No leverage. You would just be trading your time for money.
But in order to kind of make that leap into starting to generate my own business, do anything for anybody, basically, was not in a position to be selective. And so probably took on a lot of work and a lot of clients that, in hindsight, were probably bad ideas with people that I probably didn't respect. Not that they were doing anything on the law floor, but just like...
jerks or assholes, you know? And so you get into that web and that lasts longer than you'd want it to, even if it's your own client per se. So that's one thing.
Talk to me about AI. How is AI affecting the legal profession?
So in time, I think it's going to have a very prominent, significant role in performing a lot of the legal functions that are more rote and repetitive. I think there's... The beginning of that, not so much yet in big law firms or even regular law firms. I think plaintiff's firms are the first, I think, to really kind of lean into AI, and they're doing so if they're class action firms in terms of
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