Ep 49 – The Legal Side of Fundraising



Elke Trilla is an associate at Wilson Sonsini’s Boston office and a member of the Corporate Practice. Elke’s practice focuses early stage companies, venture capital transactions, and ongoing corporate governance matters.  She advises both domestic and international clients, including strategic investors, startup companies and established companies across a variety of industries and geographic footprints.

Elke is actively involved in the business and legal communities with a focus on creating opportunities for female and underrepresented founders to have access to funding and quality legal advice.

Select Recognitions:

  • Chambers, Future Minority Leaders (2019) 
  • 1 of 5 Rising Stars, Get Konnected, Boston’s 50 Most Influential Attorneys of Color (2019),
  • Super Lawyers, Business & Corporate Attorneys (2021)
  • Boston Magazine Top Lawyer, Corporate (2021)
  • Hispanic National Bar Association, Top 40 Lawyers under 40 (2022)


What’s the danger in following online startup advice as a new founder?

How can you break the dilemma of not having the cash to hire the good lawyers you need so you can raise cash?

If you’re a first time founder, how can you find and leverage the sharpest legal minds you can find to help you nail your raise and beyond?

In this episode, Elke Trilla, venture capital transaction and corporate governance attorney talks about the hidden perils facing you as a first time founder, the boring but game-changing details that can make or break your raise, smart ways to leverage your lawyer, and much more.

Note: The contents of this conversation are meant for informational purposes only and are not intended as legal advice. Please consult a licensed legal professional to obtain tailored advice specific to your situation.

Episode Highlights

  1. How vc funding is affecting women founders in the post SVB world
  2. How to face the sharp drop in funding effectively as a woman founder
  3. The unique advantage scrappy founders have in a tough fundraising environment and how to maximize that edge
  4. The danger in hiring Google to be your startup legal advisor and how to avoid the pitfalls
  5. How to help your legal advisor help your startup even if you’ve messed up
  6. Why your legal entity structure matters and how to get it right
  7. How to prep your legal team to support your fundraising
  8. A bird’s eye view of early stage funding rounds and structures
  9. What priced rounds are and why they matter
  10. A note on valuation and the legal terms you should watch for
  11. How to engage a great lawyer when you don’t have the money to pay them
  12. Payment structures for startup legal advisors and how to pick the right structure for your situation
  13. How to select a great lawyer who’ll deliver more value to you as a woman founder
  14. Pro tips to women founders from a legal mind

  Links and Resources:

Wilson Sonsini: Law firm where Elke practices 

Interview Transcript

Shubha Chakravarthy: Hello Elke, welcome to Invisible Ink. We are so excited to have you here.

Elke Trilla: Thank you, Shubha. I’m so excited to be here with you!

Shubha Chakravarthy: I hear you are pretty passionate about helping women founders, both as an investor and also as a corporate lawyer.

Can you talk a little bit about how you got into this line of work? What is the most fun and rewarding part of it for you?

Elke Trilla: I am based up here in Boston. I am a Latina and I spent most of my career working for major corporations doing big transactions. I started out my career actually in public accounting doing heavy tax work and a lot of cross border work.

I transitioned over and started doing mergers and acquisitions and working with public companies and private equity. I had dabbled with early-stage companies throughout my career and really enjoyed it.

But it was actually while on maternity leave a few years ago that I got into angel investing which really turned my eyes and my ears and my interests to working with early-stage founders, especially women and folks of color because it is just such an impossible journey for them without the right advisors and guidance in the early days.

So, it became a real passion of mine to take all my private sector corporate experience and share best practices and tips and tricks with these early-stage founders.

Shubha Chakravarthy: So how long have you been an angel investor?

Elke Trilla: I am an angel investor for almost three years now. It started out small and has really trickled into an exciting portfolio for me.

I’m also an investor in a venture fund. I invest with syndicates and other cohorts. There are other female investors. So, it is really exciting. I think there is a lot of great work happening in that space and a lot of new investors are coming to the table.

Shubha Chakravarthy: So, you talked about women and especially diverse women founders, a topic close to both of our hearts. What have you observed both through your legal work as well as through your investing work with respect, especially to fundraising in obtaining financing in general, that you think characterizes the lives of women founders?

Elke Trilla: The numbers are egregious. We all know how difficult it is to be a founder that doesn’t come from that traditional background. There is so much to be said about having a nest egg or something to fall back on, right?

So, many of us who don’t come from traditionally wealthy backgrounds would feel really risk averse to starting a company, not taking a salary, not having a clear trajectory of when you will have enough money in the door and not having benefits, et cetera.

That comes to play throughout the life cycle of a company and when founders are going out and doing fundraising, they are so desperate to get access to capital so that they can grow and scale their company, but they also have the weight of the world on their back as far as needing to support themselves, needing to support family members, maybe elders, maybe children, siblings, et cetera.

It is just a really a different playing field that those first-time founders are facing.

Shubha Chakravarthy: Is anything changing about that? I think we have all seen a lot of attention focused to your point about the low funding numbers that we have seen for women, whether it is VC or whatever other source of financing.

What is changing about this and what are the trends that you are seeing specifically with regard to first time female founders of color?

Elke Trilla: It is actually a pretty unique time. I think with Covid there was a ton of money flying around and for whatever reason, there were more investors coming to the table, right? There are all these great new fund managers who are starting funds, which is amazing.

Then they are deploying capital and portfolio companies. Similarly, there are people that are taking their private wealth and investing in their early-stage company.

So, I think there is a real underground movement happening when it comes to diverse opportunities to raise capital, which I think is really great. I know how important it is for people who actually are products of the problems they are trying to solve for understanding that market fit, right?

Who is better to solve women’s health problems than a woman. Who is better to sell the next great bra or workout wear for petite women or any size woman than a woman who fits exactly that profile?

Who is better positioned to create products for young and new parents dealing with toddlers than the people who are exactly in that space?

So, I think there are just tons of disruptive opportunities for both founders and investors to really come to the table, solve problems that they face every day, and find new ways get capital.

We don’t always have to follow the same trajectory and the same VC funds to get access to capital and grow and scale your company. There can be other ways to do it, and I think there are a lot of new players coming to the table.

Shubha Chakravarthy: Which is an extremely pertinent point you made. Clearly there was a ton of money that flowed into the VC system, as you mentioned during the pandemic, and things have fallen off a cliff starting in late 2022 and we are particularly seeing that as we head into 2023.

Any thoughts or comments in terms of implications for female founders as they look to raise capital in this new environment?

Elke Trilla: Stay focused on your products and stay focused on scaling. Try not to get bogged down by the noise. There is a lot of noise in the startup community about how funding is drying up, how difficult it is to raise, how so many companies are going to fold.

But I think we have to be honest with ourselves about what fundraising was like in the last two years.

During the pandemic, it was in the heyday. There was so much money flying around. Valuations were huge. Individual check sizes were enormous. That was a different time.

I think founders will be successful in scaling their company and raising are those that don’t need a 50-million-dollar first time check in the door. They are able to scale and make do with the funds that do come in.

They are able to hit the ground running and sell their business and meet new investors and bring the right investors to the table. Try really hard not to fall into the trap of negativity and noise that so much has been going around, talking about how funding is drying up.

Maybe the check sizes are not as big as they were in the last two years. But don’t let that stop you from continuing to solve your problem, develop the product you are focused on, and to reach the market that you are trying to cater to.

It can still happen for you even when you know the tides are shifting a little bit.

Shubha Chakravarthy: So, almost sounds like the fact that you historically had to be scrappy, can actually come to our aid because we have been forced to be frugal and do more with less.

You mentioned being focused on your product, your strategy, and on your market.

So, what are some initial things that a founder needs to do, when it comes to thinking about setting all of this up, how should she be thinking about corporate strategy?

What are the things she needs to have in place? Can you talk a little bit about that?

Elke Trilla: There are so many materials out there on the internet for first time founders that sort of give the false impression that someone can do this on their own. Especially when you are thinking about the legal considerations and risk management, you want to bring the right people to the table – advisors that can really coach you early on in the things that you don’t know.

Inevitably, unless you went to law school and you have worked with startups for a number of years, you are not really going to be well versed in how this goes and what are best practices and worst practices.

So, it is critical that you bring great advisors to the table that you trust. Advisors can’t just be touchpoint. You need to keep these advisors close to your heart and to your business product so they can help you identify pitfalls that you might not even be aware of, help you manage risks, and ultimately help you put forward a corporate strategy and business strategy that will sit well with investors.

That is really an end goal here – having every duck in a row, everything in place, to the extent possible that puts it forward to the investors, makes it obvious to investors that you have good advisors in place.

You have been advised well, and you understand risk management.

Shubha Chakravarthy: Sounds like a part of building a credible picture that you are a serious player.

Are there any stories, identities that come to mind of somebody who maybe didn’t follow this good advice and went to Google University for legal documentation?

Elke Trilla: Absolutely. So many startups come to us, and they were not trying to spend huge sums of money on, a CPA firm or a law firm. Some accelerator programs will go through, and they’ll sort of have one class on legal best practices or corporate governance.

But that is not really enough to handle everything that needs to be handled. Just from formation there are a number of things that need to be put in place that will put forward the impression to investors that you have done this correctly and that this company has been run correctly since it was founded, and it has been run correctly in the interim months and years since then that bring you to the today’s date.

It is also really important that you build relationships such that you are able to be transparent with your advisors. So, I’ll have founders that come to me. They have been chugging along by themselves.

They might even be accepting money on SAFE’s or convertible notes by themselves. They have never really touched point with a lawyer, and they are a little bit shy about it, or they are a little bit shameful that they are coming to us now when we need to do some cleanup work.

But the reality is, the more honest you are with me about what you have done in the past, the faster I can identify problems and triage it and ultimately fix it.

But it is really important that you are honest with your advisors when they do come to the table so they can help you clean up anything that maybe was done inadvertently incorrectly or “Frankensteined” together.

Shubha Chakravarthy: I think that is a really important point. But before we jump to that, I want to see if you can give us a quick, high-level overview.

Let’s say, I know I am going to hire a lawyer. I’ll come to that in a second. I have to have all my ducks in a row.

To your point, I know I am going to get financing. What are those high-level things I need to have in place before I ever make my first pitch or talk to my first investor?

Elke Trilla: For me, I think things that are really important, again, I’m a lawyer, so my lens is through the legal and corporate governance perspective, even when I’m wearing my investor hat.

But for me, formation is really important. I want to know that you understand what type of entity you formed, some people form an LLC, some people form a C Corp.

I want to understand that you understand the different implications of each of those entities and what your future plans are when it comes to hiring, what your future plans are when it comes to investing, because each of those entities will have different dynamics in play.

You don’t need to understand everything about the entire legal structure of each of those categories of entities, but I want you to understand why they are different and why you chose to form the way you did.

I also want to know that your shares were purchased properly.

So, many people go on the Delaware Secretary of State’s website, and they form a company, and then they just go out and they start running the company for years, but they never document it how many shares they own in the company, or how many shares their co-founder owns in the company.

Then maybe two years down the line, people decide that they don’t want to work together anymore or they have an incredible difference of interests or they are no longer aligned and how to pursue this company.

Then there are problems that come into play because it was never solidified who owns what in the company and therefore it is really hard to maneuver how to remove founders, bring in new founders, et cetera.

So, getting those ducks in a row from the beginning is really important. It makes your life so much easier down the line should there be a founder who wants to depart or should there be a new critical advisor or executive team member that you want to bring in.

It’s a much easier transition to make.

Shubha Chakravarthy: This tells me how important it is to get all of your documentation in place. There are other things too, as you mentioned. You know, they go ahead for two years and get all of their things done.

Sounds like there are some milestones too that I should be looking ahead as a founder for. What would those milestones be and what should I be cognizant of as I’m approaching each of these milestones?

Elke Trilla: Being really thoughtful and honest with your founding team about what the company’s goals or milestones should be in six months from now and a year from now and two years from now will be really helpful in setting up the cadence and the goals that you are trying to reach, both from a legal perspective, but also from a growth and strategy perspective.

You don’t need to drain the ocean in just your formation, you want to be able to talk to your legal team and say, “Hey I really need to do my first friends and family round in six months from now. What do I need to do to get that in place?” Or “I don’t plan to do any hiring of employees that I need to pay for a year from now or two years from now. I’m just going to use an independent contractor.”

Those things are really helpful for your legal team to understand because then we can pace out what legal work needs to be addressed in what period of time.

If you are not hiring employees, maybe you don’t need an option plan in place, or maybe you don’t need to worry about having good employment agreements available for you to use.

If you plan to do a financing in six months from now, great. Let’s talk about that sooner rather than later so we can make sure you have a nicely populated data room that is easily accessible to your investors.

It will create more traction with your real team and add more value when you are really able to articulate, “Okay, this is where I’m trying to be at month six. This is where I’m trying to be at year one, year two, et cetera.”

Shubha Chakravarthy: One thing you raised there really made an impression on me, which is this point around what kind of financing you raised from what sources.

I think one issue I’ve noticed is especially if as a first-time founder you don’t move in entrepreneurial circles, you are not really familiar with all of these types of instrumental sources.

How does a founder get familiar with them? What are the challenges you have seen and what are some things that you have seen work well for a founder to get familiar with these financing vehicles and instruments?

Elke Trilla: Especially for first time founders, it will be a crash course, and there is an element of it where, you will have a legal team that will coach you through it and can really give you the tools you need to go out and start selling the product, the idea, and bring investors to the table.

But there is another element of it that really you can’t do by yourself unless you have already had a company and sold it and seen the whole process.

You wouldn’t be a first-time founder if that were the case. But it can be very complicated, and I think that people, even people who do a really good job digging around on the internet confuse and conflate the difference, so I can give you a little bit of an overview.

Usually, part one of fundraising is what they call a friends and family round. Essentially you would go around to your closest friends and family, people who just support you as a founder are excited to throw whatever money they have at you to get up and running and started.

It is usually a pretty frictionless process. That’s the idea. Those investors are probably not going to ask too many questions about the company. The company is probably pretty early stage. You may or may not have even mock financials in place.

Perhaps you have a model in place depending on the type of company. Perhaps there is a prototype. Maybe there is a point of entry in the market but usually those investors are just very happy to support you financially in whatever way they can.

The general ways that they would invest is via a SAFE or convertible note. SAFEs are a document that you would find on Y Combinator’s site. It is a standard, maybe two-page instrument that is very simple to administer.

There are usually one or two negotiating points, namely, the valuation, whether there is one or not, and a discount. But that is kind of it. It is an easy, pretty frictionless way to get money in the door and it shouldn’t cost too much in legal fees.

In fact, I have so many founders who go out and raise on a SAFE by themselves and then later will come back and admit that they have done this and then we have to do some corporate cleanup work. But it, is a pretty easy way to go out and raise.

The thing to know about SAFEs is that it is not equity in the company right now. Those investors don’t own equity in the company today, but it is a promise that in the future when the company does and goes to raise what is called a price round or a qualified financing at that time, the money that they paid for their safe, we will convert into a number of shares based on an algorithm of equity in the company.

Similarly, and sometimes depending if you are on the East Coast or West Coast, the next level of financing is on a convertible note.

So, similarly, this is not current equity in the company. This is a promise that it could turn into future equity in the company, a convertible note to work like a traditional note.

There could be interest that is paid on it, and it can be repaid. There can be a demand of repayment in them. Sometimes they are a little bit longer. Sometimes there is additional legal fees involved with negotiating them and just kind of papering it because it is a little bit of a more complicated document.

But on the spectrum of instruments and legal fees, it is somewhere in the middle. It is not a priced round, but it is not a SAFE. But it can have slightly more friction than a SAFE, but not too much depending on the level of sophistication of the investor and where the company is at.

Then the sort of dream of every founder is to be able to have a priced round. So, you will hear this called a number of different things.

Sometimes it is called a qualified financing. Sometimes it is a series seed round. There are lots of names that you could call it. But essentially definitionally, it is the same in that the company sells its preferred shares of the company.

It is a much bigger legal lift. There are more documents in place when you are selling actual shares in the company to investors.

What is exciting about a priced round is exactly that all of a sudden the shares in the company have a price, whereas leading up until this point, the valuation of the company and the value of each share in the company is a little bit of a fiction.

It is not like a public company where every day you have a price of the shares that is put out there based on how they are being sold and bought in the in the market. A private company, a startup company’s valuation and the shares of the company is really based on how much investors are willing to pay per share.

Shubha Chakravarthy: This is an amazing progression of how the founders proceed on their financing. At a very high level, what are the primary sticking points, if you will, on each of those?

You talked about a couple of negotiating points. If you can just hit on the highlights of what are the sticking points that a founder needs to be careful of and each of these three methods that you laid out.

Elke Trilla: I wish I could summarize it in such few words. There is not really a quick and dirty answer around them.

I mean, like I said, SAFEs are meant to be the simplest form of instrument, and so usually the items negotiated around the valuation of the company and the discount that you get.

This is not a true valuation of the company. It is really just a placeholder to dictate how many shares that particular stakeholder will ultimately get for the price that they paid.

It is an algorithm that works into a cap table, and it factors in a number of different things based on the company’s current scenario.

So, there is not really a low hanging fruit way to get you to those, “What should the valuation be or what should the discount be?” Similarly with a convertible note, it is the bigger points that are usually like “What interest is being offered, if any, and then what the qualified financing amount should be?”

So, the qualified financing definition is really when that convertible note will trigger into becoming equity in the company.

It will say if Startup Company Y goes and raises $5 million in outside investment at that point this convertible note will convert into equity in the company. Those are usually the trigger points.

There can be a number of other things. Investors, depending on their interests, depending on their own experiences or their level of sophistication, could come at founders with things like pro rata rights or most favored nation clauses or major investor rights.

Especially in this economy I’m seeing a lot of investors send term sheets across, asking for lots of preferential treatments, lots of customized terms that they would like included, and the founders just need to understand what those are, what they mean, and whether the check size is big enough to entertain them.

Shubha Chakravarthy: All of this kind of really highlights for me how important it is for you to be as sophisticated as you can as a founder, but more importantly to have the right legal support to help you navigate all of these murky waters. I have a couple of questions on that.

First at what point should a founder realistically, hire a legal advisor?

We all know that you get what you pay for. Therefore, good lawyers cost money, but founders are cash strapped. So, what are your thoughts on when they should hire a legal advisor and how they should overcome this chicken and egg problem of “I can’t get funding unless I have a lawyer and I can’t get a lawyer unless I have some funding.”

Elke Trilla: It is a really difficult position to be in and it also exacerbates the difficulties of being a first-time founder.

You don’t even know that you need a lawyer whereas your peers who perhaps come from different backgrounds know right away they would never start a company without a lawyer, and they had one from day one.

So, my advice is always get a lawyer from day one. If not to hire, start talking to them, as many as you can. It is about educating yourself and it is about building relationships.

I do believe, especially with early-stage startups and first-time founders, it is as much a relationship business as it is a legal expertise. Business founders should feel empowered to go and shop around for lawyers and find the right lawyer that will become a trusted advisor and help them not only handle the technical legal side of things but manage risk as the company grows and scales.

You want a lawyer that is going to help you with as much strategy as they are around managing legal risks, so make sure you keep that in mind. Founders should also feel empowered to have early discussions around legal fees.

There are so many law firms out there that are very excited to have the opportunity to serve an amazing company that is solving really novel problems in a unique space.

You as a founder should really feel empowered to say, “Hey, what kind of legal fees are you willing to offer a company? At my stage, I expect to grow. I expect to bring in an investment. I expect to be able to pay your legal fees down the road. But right now, I can’t. What kind of arrangement can we come up with?”

And, if they are interested and if they are good at what they do and good at seeing the value and the potential for some of these early-stage companies, they will come to the table and negotiate those terms with you.

Shubha Chakravarthy: Excellent. Can you offer examples of some common industry arrangements that you mentioned for early-stage founders?

Elke Trilla: Sure. Every law firm is different. But again, you are not going to be the first founder that doesn’t have any money to pay legal fees.

So, the typical sort of shame and dirtiness when talking about money, you are sort of implying that you can’t pay bills is something you should really shred. You should really be able to say, “Let’s figure this out”, because I’m sure Google didn’t have any money when they first started out as well, and somebody represented them.

So, let’s figure out how this works. Fees to be aware of are fixed fees for particular projects. Perhaps deferrals give you a few months to be able to pay the amounts back.

Repayment options of course are another thing. Sometimes law firms will take a cut of the company, like a 1% interest or something in the company.

There are a number of different models. There are also service provider relationships that you can think about through accelerator programs or those sorts of third-party relationships where perhaps there are office hours.

Perhaps you join an accelerator, and you are able to get one-on-one time with a lawyer in that space, one hour a week or one hour a month. That is invaluable and you should definitely take advantage of those opportunities.

Shubha Chakravarthy: What would you recommend?

Let’s say I have access to a relationship like that. Is there a list of bullet points or topics that I should be taking advantage of in advance of going out and hiring a real lawyer on my own account, so to speak?

Elke Trilla: It really is back to basics. I think getting your formation right from the beginning is easy to do and something that most lawyers should be able to assist you with.

So, I would definitely hit on formation and post formation items. “Is the company properly formed? Is ownership of the company clear? Is IP protection clear?”

Putting consulting agreements in place, employment agreements place such that the company owns the IP.

Then part two is understanding your industry. Are there particular technical experts that you need to be bringing to the table? Are you a digital health company? What does that mean? Do you need to worry about corporate practice of medicine?

Are you a med device company? Do you need to be thinking about your IP portfolio? That is an expensive endeavor, but the value of the company is probably in the IP, so you need to hit on that first.

There are certainly nuances that will come up based on the industry that you are in, but I think you should be able to get a good sense of the lawyer and how sophisticated they are and whether they are a good fit for you by having a conversation around easy stuff like formation and post formation work.

Shubha Chakravarthy: That brings up a really interesting point, which is, there are two aspects to working with a good lawyer. The first aspect to your point is that clearly you know your domain. So, if I’m in healthcare, if I’m in whatever domain, aspects of that law that you can help me with.

But for women, there is another one which is I may come to the table with lesser or with a greater naïveté, for lack of a better word, around what are the industry conventions around, for example, valuations.

So, in theory you could tell me, “Hey, that’s your job. I am here to just advise.” But that leaves the founder holding the short end of the stick.

How should a founder leverage the lawyer’s knowledge of what is happening in the marketplace so that she doesn’t get stiffed on valuation or any other part of the funding terms, and what can she do early on to know that she is working with someone who is not just going to throw legal agreements at her, but help her advocate a better deal for herself?

Elke Trilla: Absolutely, and I think this is so important and critical to first time female founders for really feeling comfortable and confident. You are reaching out to me with any of these agreements that they get.

Especially in this market, I’ve seen so much predatory investor or i-bank or relationships such that these founders will get these cold emails and say, “Oh My God, I read your profile on the internet. It sounds so great. I would love to invest. Give me 10% in the company. I’ll make all these introductions. It’ll be wonderful.”

Or “Join my accelerator program. Give me 20% in the company and royalties moving forward. It will be great.”

You need to feel confident that you can call up your lawyer like you would call up your sister or your mom or your close friend and say, “Hey, what is your pulse on this? What do you think are you familiar with this accelerator program? Or investor? Or banker? Have you ever done deals across from them? Do you know anyone in your law firm that has worked through their accelerator program or whatever category it is and be able to have candid conversations?

I think the more industry knowledge and market knowledge and strategy that your lawyer can share in those early conversations around formation are sort of how you would approach the business model or strategy.

I think it will become clear early on whether that person really has enough of a background in that early-stage company space to guide you and strategize with you.

If you find that you have aligned yourself with a lawyer that is not really able to help you think through these term sheets or negotiate better terms in these term sheets, that is fine. Go find another one.

There are plenty of us rolling around, so you don’t need to feel married to the first lawyer that you end up working with.

I think it becomes pretty transparent, like which ones will be helpful to you as the company grows and which ones are living their silos and perhaps aren’t really going to advocate for you that way.

Shubha Chakravarthy: As a part of advocating or this advocacy element, to what extent is gender bias an issue that you are seeing with female founders in terms of their interaction with a lawyer?

I mean, you could come to a position where you feel condescended to even by a lawyer. If so, how do you find the right relationship?

Or even identify a short list of lawyers where that is not an issue and where you can feel confident that you are respected as an equal, but a different expert as opposed to being an expert in the legal field that makes sense?

Elke Trilla: I feel really strongly that female founders should feel as enthusiastic about the money they are spending on their lawyers as they would about any consumable good that they spent a lot of money around.

If it were me, if I was going to buy an expensive leather good, and I was going to spend my hard-earned money on it, I’d better be very excited about it, and I feel the same way for service providers like lawyers.

If your lawyer is not responding to you in a timely manner, if your lawyer is being condescending or patronizing you when you are asking questions, I would feel very confident not working with them any further and going and finding a new one.

There is absolutely no reason why a lawyer should not show respect and deference and build strong, close relationships with their founders irrespective of their sex.

It doesn’t always happen that way, and I see a lot of female founders working with lawyers that aren’t a fit. They don’t offer them the same level of respect. They don’t offer them the same level of trust and guidance and it is better to rip that band aid off and find a new lawyer that really will team with you and be a part of your business strategy and your working group.

Shubha Chakravarthy: Just to push on that a little bit, let’s say that there is a certain norm around valuation or a norm around a certain term in your term sheet.

If you come across to me as friendly, but you are not really giving me the inside scoop, that this is a bit off market, for lack of a better word, what is the test that I can use as a founder to know that you are guiding me right?

Elke Trilla: Yes, that is a tricky one because if you as the founder don’t really know what market is, it is hard to give you any guidance to tip you off that it is off market.

What I will say is that your lawyer should be able to explain every term in the term sheet to you and say, “Okay, this person is writing you a $50,000 check and in return for their $50,000 check, they expect these 10 additional preferential terms. Let’s talk through those preferential terms and let’s parse through whether the value of the check that they are writing is worth those preferential terms.”

Again, the founder is in a little bit of a tricky situation because they don’t know what they don’t know. It really behooves, having great advisors who will say to you, “Hey, I know this investor and I know that these terms that this investor is giving are not the best terms that they could be giving you.”

Or, “I just did a deal last week for a similarly situated company and the terms were very different and I don’t think there is that much actual difference between your two companies.”

I think having that level of candor with your lawyer is really critical and if you are not getting that in the early days in the conversations, I don’t know that you will ever get that in that relationship.

Shubha Chakravarthy: To that point, is it also fair to expect that the lawyer will advocate for you and negotiate on your behalf for more aggressive terms?

When you are a founder, you need the check. I mean, let’s be very clear about it. When the check is so close and there is a term sheet, the temptation is, “Let’s just take it, we’ll deal with this later.”

How should I expect my lawyer to advocate for me in that situation? How do I draw that fine line to make sure I’m not pushing too hard but at the same time, I’m not just turning over and saying, “Okay, I’ll take whatever you give me?”

Elke Trilla: That is another part of the relationship too. It is a delicate balance of both negotiating on behalf of the company and trying to get the most favorable terms that the company can get, but also following the money, right?

Not pushing the investor away so hard or putting such contrary terms into the agreement or each of the term sheets such that the investor will not want to invest.

Having a good lawyer in play, they will know how to delicately toe the line and there will also be reasons for toeing the line. There will be reasons for saying to the founder, “Hey, I think you should accept these terms because ultimately they don’t matter.”

Or “There is a very low likelihood that these terms will even come into play.” If you have experience, you can similarly say to the investor, “Hey, investor, I don’t think these terms are quite appropriate for a company of this size or of this industry or with this background, and here’s why.”

Experience with so many term sheets and so many startups will make everyone more versed in the negotiation process, and it is not meant to be a battle or a knockdown or drag out fight between company and investor. You probably don’t want a lawyer who is going to be in the boxing ring for negotiating.

You really want a team of people in place that are able to be level-headed, business-minded, understand the risks, understand the concerns of the founder and the investor, and be able to translate between the two because ultimately it is in everybody’s best interest that the company gets cash in the door.

So, we want to help you get there, but make sure you are not giving away the company or things that you don’t need to be giving away in the meantime.

Shubha Chakravarthy: One last question and I want to move on to the happily ever after, after the funding. That question has to do with valuation.

I read research that women get funding on lower valuation terms, and they also get smaller checks for a larger share of the company. What is your observation on this and what steps can founders take to position themselves, so the risk of this happening is lower?

Elke Trilla: It is absolutely true. You see it in the statistics, then you see it in practice. I think the best thing a founder can do is acknowledge it. I think knowing that going into negotiating period and the period of fundraising that they will have a harder time receiving higher valuations.

They will have to collect more checks because the check sizes are smaller to get to that particular number that they are trying to get to.

I think that will be the best thing that they can do to arm themselves. They’ll be as skeptical as they need to be about the term sheets that come in the door. They’ll understand the additional effort and time that will need to go into their raise, and then they can work around it.

I also think that understanding the inherent bias against female founders will open up opportunities to work with new investors that perhaps companies, and early-stage founders hadn’t considered before.

There are other opportunities to get access to cash from different investing pool than doesn’t need to be the same sort of traditional players who are writing checks.

You can go out and find a new set of investors and find a way to loop them into your circle. I think that will really help get them to where they need from a fundraising perspective and also potentially bring new investors to their board.

Not only are you selling equity in the company and getting cash in the door, but you are also bringing these investors potentially to the management table with you and looking for new blood, new expertise.

Hopefully, those investors are also women and can offer new perspectives and diverse perspectives.

Shubha Chakravarthy: Excellent. So now you have got the funding. The check has been cashed and it is sitting in your bank account. What does the founder need to know in terms of post-funding steps or things to watch out for where they can expect their lawyer to step in and provide judgment support?

Elke Trilla: Again, it is all back to the milestones, right? So, you know that you needed this funding to get to this milestone. All right, so we have got the funding. We are going to use the money appropriately to get to that next milestone.

Keep your lawyers in the loop. If you are having board meetings, definitely invite them to the board meetings. Let them understand how things are going, where the money is being spent. Help them understand what your needs are when it comes to additional fundraising.

There are a lot of companies that are out doing bridge financings now. Perhaps they have already done one round of financing, maybe a seed round, but they need a little bit extra money to get them over to their next hump, but they don’t want to sell equity, so they go back, and they do a SAFE round or a convertible note round.

The earlier that your lawyers know that the nimbler and more available they will be to you when you need it.

It is also great to have them looped in when you get new term sheets in the door. Some companies are not even shopping for funding, but they get term sheets, and they need somebody ready to hit the ground running and negotiate that term sheet and potentially do a transaction for them.

So, it is important to keep your lawyers plugged in throughout. I know it seems expensive and perhaps burdensome, and you know you don’t want to be running up the bill. But it is a whole different level of strategy and business acumen that I think is really worth the time and effort.

Shubha Chakravarthy: On that, to what extent do you support cap table management, and what should a founder be thinking about in terms of managing their cap table post getting funding and going forward? How do you support that process?

Elke Trilla: We spend a lot of time on cap table management and coaching people how to use cap table management. But there are a lot of great tools out there. Carta is one that comes to mind.

You should definitely be doing it before your fundraising because your investors are going to want to know who is on your cap table, who you issued SAFEs to, who you wish convertible notes to, is there an option pool, et cetera. What are the terms of each of each of those tranches?

It is really important to do that early on. I think that would be part of your formation conversation and just sort of ongoing, good corporate governance formation and good corporate governance hygiene for the company.

So, it is definitely something really important and something we are happy to coach founders through, so they know how to keep it correctly done themselves.

Shubha Chakravarthy: Taking a step back, we have kind of covered a lot of ground here. We have talked about instruments. You talked about steps.

So, if you had to take a step back, look at your experiences, especially with diverse women founders, can you summarize for me what the top mistakes are that you see first time diverse women founders make?

What do you think is causing that and how can they better equip themselves to not make those kinds of mistakes?

Elke Trilla: I want to be really thoughtful about thinking of it as a mistake because I don’t want to send the impression that there is sort of a paternalistic way of doing things.

But I do think there is so much to be said about building your team of trusted advisors early on as women. I’m a mom, I work a full-time job. I feel like I’m very self-sufficient and I can sort of do all the things all the time by myself.

But I need help. We all need help and understanding and recognizing where our skill sets start, and end will be really important to the growth of the company.

Similarly for founders, I think that surrounding yourself with people who fill the gaps in your knowledge and your experience is critical. The earlier you do that, the better because they can help you avoid the potholes.

Perhaps you build a whole business strategy around a product that is really not going to work from a legal perspective or a regulatory perspective. Perhaps you have a FinTech company that wants to sell a particular product, but actually that is not possible in the current regulatory regime.

But the founder has already gone out and sort of made pitches under this product, et cetera. So, building those relationships, making those connections with advisors early on is nothing but a value addition to spend the time and effort doing it from day one.

Shubha Chakravarthy: Got it. Along those lines, if you had to say, “Here are five things in terms of best practice that I’d recommend you do as a founder, before you ever start fundraising,” what would those top five things be?

Elke Trilla: Clean documents. Making sure your formation documents are correct, signed, and dated along with making sure your purchase of your own shares of the company is correctly done is important. You are paying for them. If you needed to file an 83(b) election, which is like a technical tax issue, just make sure your formation was done correctly.

It is obvious who owns the company. It is obvious you bought your shares in the company, protecting the IP and the company from day one.

So, making sure you have good employment agreements and consulting agreements in place, I think is exactly where you need to be leading up to.

A fundraising is thinking about a data room, right? So, your investors are going to want to poke at the company. They are going to want to know certain things about the company – business plan wise.

They are going to want to know, “Do you have commercial contracts in place? What do those look like?”

So, talk to a lawyer, think about what a traditional investor will want to see in that data room, and then have a data room populated. Then work with a lawyer to make sure the term sheets that you are getting in the door if you are going to consider them are negotiated.

Well, there is connectivity between the company and the potential investing team. Really understand and think through what the implications are for having this investor invest in the company. There will be different implications if they are writing a check via a SAFE or a convertible. Well, no.

But if they are a lead investor in your series seed round, you need to understand that they are potentially going to join your board, or potentially they are going to be a stockholder that you need to go out to every single time you are trying to do something material to the country.

So, companies so really understand what you are getting yourself into with each kind of upcoming round of financing and what it means.

Shubha Chakravarthy: Excellent. This has been a very thorough and comprehensive conversation. Is there any question that you wished I had asked but I didn’t?

Elke Trilla: Oh gosh, I can’t think of one. I know you asked me this question in our preview, but I can’t think of one. This has been great.

Shubha Chakravarthy: Fantastic. So, thank you so much for this conversation. I have learned a ton. I know our audience will as well and I’m sure we will come back to it over and over again as the reference manual for all things legal. I appreciate it and thank you for everything you are doing for women and diverse women founders as well. This has been a pleasure.

Elke Trilla: Thank you so much, Shubha! This is so great and thank you for all the hard work you are doing as well.

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