Capital raising and IPOs: the integral role of the GC and the legal team

Mar 30, 2022

Reading Time: 8 minutes

Deciding to grow a business through capital raising or an IPO means there’s a flurry of activity across the whole organization. As the general counsel (GC), you’re involved in conversations, planning, new legal team hires, choosing partners, and even selecting the best legal tech to support you and the business’ journey. It’s a time when two responsibilities — the fundraising process and the day-to-day workload — collide, leaning heavily on your own expertise and skills and those of your in-house legal team to get things done.

It’s a hectic time, so we’ve spoken with two GCs who have first-hand experience! Megan Lutes, General Counsel, Glowforge and Joshua Lute, General Counsel, Dutch Bros. Coffee, share their knowledge and learnings, as discussed with Matt Vaughan, Executive Advisor at LawVu, former GC at Xero.

Read below for their tips on:

  • getting involved early
  • working out what internal and external support you need
  • selecting partners that are right for your company
  • putting legal tech in place to organize your documents and data

Be part of the conversation, right from the start

The best time for the GC to join the conversations with the CEO, CFO, and other leaders in the business around capital raising and IPOs is as early as possible.

It’s around this time that you’ll have an appreciation for the relationship you’ve built with leadership, says Joshua Lute of Dutch Bros. Coffee. Getting involved early means you’re able to demonstrate your value as a thought leader, a partner, and a strategist and have the time to learn from the executive team what’s critical for the process to run smoothly.

Knowing a fundraising round is imminent also means you’re able to start pulling together a committee and start planning.

Megan Lutes of Glowforge suggests forming a committee deciding on activities and tasks such as:

  • who is leading each function in the fundraising transaction;
  • who is in charge of due diligence and which functions of the business need to be involved;
  • who is responsible for conversations with outside counsel, the bank, external vendors;
  • who is developing the sales pitch for investors;
  • who needs to have access to the war room of data so they can make informed decisions; and
  • who needs to be involved in the transaction, and how will they be kept up-to-date during the process?

Being in the loop early on also means you’re well-prepped for what’s coming up next!

Hiring for skills and success

When building your legal team, it’s crucial to hire for skills and expertise that translate well during intense periods of fundraising rounds. This means while you’re buried deep in fundraising activities, the new team member can either work directly in the transactional process or be responsible for the day-to-day.

One of the realities of a smaller tech startup is a limited headcount, so the advent of a fundraising round does not specifically dictate hiring for Megan. So she hires generalists who possess skills such as:
being able to get up to speed quickly on any given topic even if they don’t have a background it;
being business savvy;
having the ability to communicate clearly; and
having a logical approach to problem-solving.

Megan finds people with these skills grow with you and can tackle pretty much anything from a fundraising round to international expansion and beyond. “These are the people I need on my team because as you expand, your needs change. Ideally, you’re not swapping out your team. You may need to supplement with general expertise or hire a specialist as you grow, but ideally, you have a base team that will grow with you.”

Looking outside the business for support

If you’re looking for an objective point of view, bringing in an outside provider can assist you in seeing any skills gaps or over-subscribed areas of expertise in your legal team.

Before the first round of equity financing, conversations around strategically preparing his legal team for growth prompted Joshua to bring in an alternative legal service provider (ALSP) to complete a top-to-bottom team evaluation and produce a report card. This proved invaluable in informing the roadmap of what he needed to do to build his team to be the best in class for the company’s size.

When the IPO process began, the groundwork preparing the team and the wider business for the extra workload was already in place. Joshua had already discussed with his team how they would operate when his time was dedicated to an IPO or another equally-intense project. He had also consulted with functions such as finance for more support around contracts and related tasks.

Establishing a legal operations role

If there’s the opportunity to establish a legal operations role, it improves the speed you address all the systems and processes surrounding funding.

Bringing in a legal operations director with project management, tech experience, and business skills paid dividends for Joshua and the team. While the new team member came from a non-legal background, their exceptional expertise in building systems, document review, and setting up data rooms saved the team many, many hours searching for documents and provided an essential resource dedicated to the legal team.

Megan’s paralegal has project management skills which are hugely beneficial. After all, the majority of larger-scale legal work requires project management, from fundraising to IPOs, to making a plan to offer remote working.

The role of the GC

As a GC embarking on a fundraising round or IPO, there’s the need to balance business-as-usual demands while adjusting to the changing responsibilities, accountabilities, and priorities the transaction brings.

Depending on the business structure, who you report to may change, your focus may change, and when you move from a private to a public company, the fundamental nature of your role as the GC may change, says Joshua. “I would say I had to be more economical with my time and delegate better and more effectively. I still felt like I was doing my core function as the GC and supporting the transaction, which was critical to the company.”

Yet he concedes having the right team around him is paramount to maintaining balance, especially when smaller but important transactions arise. At these times, knowing the team can handle the extra work, or having the budget for additional resources from outside counsel, is key.

Sometimes, there’s the need to define what your role as the GC does and does not include, or at the very least have some definitions around what your priorities are within the team and the wider business.

The GC wears many hats in smaller legal teams, being pulled into the day-to-day as it’s ‘just what you do’. Yet there are times where you’ll need to take a step back to focus on your primary function as a strategist, working in the cross-functional and having those big picture conversations, finds Megan. Enabling your team to manage the day-to-day, with the resources to support them, means you’re able to align with the leadership team and participate in fundraising-related conversations around aspects such as goals, brand, image, and partners.

Megan’s also observing a trend where GCs are becoming more utilized in different business areas, especially in smaller companies.
“By the nature of your job, you’re overseeing a lot of business cross-functional tasks. If you’re good at your job, then theoretically, you are business savvy, a strategist, and also a partner, so it’s smart to see where your GC capabilities can stretch to.”

Choosing the right partners

Selecting stakeholders and partners for the next part of your company’s journey is an immense task and one that can make or break the success of the business.

In Megan’s experience, selecting the right partners is a bit like a puzzle. You’re establishing your goal of fundraising or IPO, figuring out where the funding might come from, what partners play at that level, and who’s interested in having your type of company in their portfolio. As the GC, having a strong relationship with your C-suite will ensure you’re part of the dialogue, participating in the conversations, and helping to make those decisions as a business leader.

While equity funding and IPO were not originally a part of Dutch Bros. Coffee’s business model, Joshua says there was a shift in the psychology of the company to enable it to grow the brand faster and provide more opportunities for people to run their own shops and live the lifestyle the company afforded. “We started looking for partners to help us get the places we wanted to go. We didn’t give up our vision or the mission, and we were very clear on what we were after, so we started looking for a partner who could see that with us.”

The qualities Dutch Bros. Coffee looked for in a partner centered around furthering the company’s mission. Spending the better part of a year talking with different equity partners, Joshua says it was clear very early on which partners really believed in the company, and matched that belief with a deep bench of people to support its growth. The partners also helped to ‘professionalize’ the business; it wasn’t just about the company anymore. It was also about outside vendors and supply chains, seeing where improvements could be internally led by hiring the right people or where some conversations were needed with external parties. Then, when it’s time to go public, says Joshua, you’re a lot more prepared, and a lot of the growing pains are already addressed.

“By then it’s no longer just the internal team that matters. It’s the whole organization — is it mature enough to step into the shoes of the requirements of being on the national stage?”

The function of outside counsel

Outside counsel provides extra resources in times of heavy workloads and also contributes specialist expertise that falls outside the capabilities of your in-house legal team. As decisions are made to pursue fundraising rounds or IPO, there’s the need for conversations around the role outside counsel will play and parts of the transaction it will be responsible for. It’s also the time for decisions around the reliance on outside counsel, and whether it would be more economical, both from budget and timeliness perspectives, to bring those specialties in-house.

For a fundraising round or IPO to be successful, there also needs to be realistic expectations around what individuals and teams can handle in-house. For Joshua, this means having honest conversations around his role as the GC, and how sometimes it’s a better business decision to seek outside specialist counsel.

“I’ve always felt the freedom to say ‘hey, you should have the best possible advice for your legal dollar on this topic’. If it’s me, I’ll work overtime to ensure I am an expert in the areas that matter to our company. However, there are going to be times when I’m just not going to be as good as the person who’s done the task a thousand times for 180 different clients!”

The connections between the whole leadership team and outside counsel are also critical to the success of a transaction. For Joshua that meant getting all core members involved in selecting the firm for the IPO, from being comfortable with individual personalities, the expertise they offered, and even with the firm’s culture and ‘flavor’. The result was buy-in from all team members who held the confidence they had chosen the best firm for the situation.

Learnings and legal ops — getting your ducks in a row

Leaning on the first-hand experience of others who have been through fundraising rounds and IPOs is invaluable as your company starts to explore its options.

Megan’s first fundraising experience at her previous company was a bit of a messy experience. No one knew where documents were, meaning countless months of digging through emails, files, and folders, trying to understand where everything lived so the team could begin to answer due diligence questions. Moving to Glowforge, Megan had the foresight to do things differently.

“The first thing I did, before a fundraising round was even imminent, was to get organized and to understand where our data was, already knowing what we would need to produce if we were to embark on a fundraising round.”

In retrospect, Joshua found several things he and his team did that paid off in the long run. There was the CFO they brought on board with public company experience, and the new audit partner they worked with. In talking with other GCs, Joshua says they all agree that the more preparation time you’re granted, the better. It helps to get your ducks in row, and makes your quality of living a little better as you go through the process.

When it comes to implementing legal ops, Joshua has some smart advice — start early.

“You always think you have more time. Accelerate the timeline of getting your legal ops in place; don’t let other priorities take over and leave the tool to work on later. It is invaluable to have your structures and processes in place.

While embarking on a fundraising round or IPO is hugely challenging, it’s also an exciting time when you can observe not only the growth of the business, but also the people on your team.

To learn more from Megan and Joshua, link through to our webinar The integral role of in-house legal in capital raising and IPOs.