Almost all Private Equity and Venture Capital companies engage an outside counsel, instead of having their own in-house legal team. This piece intends to argue as to why it is imperative for PE and VC firms to hire in-house legal counsel.

1. To avoid high legal bills

PE and VC firms often hire outside counsel, which results in exorbitant legal costs. The outside-counsel generally charge by the hour whereas in-house counsel being a salaried employee of the firm, has a comparatively manageable fee. The in-house counsel not only saves cost, but also enables other members of the management team to focus on other aspects of the deal.

2. To mitigate risk

The in-house counsel being a full-time employee of the firm and a part of the leadership group, knows the company intimately. This knowledge helps the counsel make decisions which minimize the risk to the company before investing.

3. To drive value

The identification of risks prior to investing, results in the increase of the value. It is hence beneficial to the equity firm, in the event of them planning their exit.

4. A trusted insider

An in-house counsel is a part of the firm. The counsel’s incentives are invariably linked to the profits earned by the firm. Thus, having skin in the game motivates the counsel to be thorough with the due diligence in relation to the investments made by the firm

5. To wade through the complexities

In sectors with huge legislative oversight and/or IP-heavy industries, like financial services, media and entertainment, healthcare and transportation, the general counsel is the x-factor on business-critical issues, the general counsel is vital for guaranteeing the protection of intellectual property and driving monetization strategies. In industries with heavy government protectionism, a general counsel with a strong regulatory background and sector know-how can help lessen the risks and in doing so put the business on a path that enables growth.

6. When you have multiple investors

Portfolio companies owned collectively by many private equity firms are becoming the norm, and they require a general counsel with high emotional intelligence who can wear multiple hats and multi-task effectively. All of this, in order to adequately meet the expectations of personalities while keeping in mind the incentives at play, in addition to the legal responsibilities applicable towards dispersed ownership.

7. Plans to go public

When a private equity-owned company plans for an Initial Public Offering, the general counsel can play a pivotal role in going through the process as well as sorting the securities compliance and governance framework needed post-IPO. A general counsel can add immense value by running the play with respect to the project management exercise undertaken by the company to go public, including working in cooperation with finance and treasury on preparing disclosure documentation and managing the transaction; working closely with HR on executive compensation matters, including structuring and disclosure; and coordinating with investor relations, bankers, outside counsel and many other internal and external interested parties. It is even desirable for the in-house counsel to be part of the decision making group alongside CEOs, CFOs and COOs.

8. To formulate a good exit Strategy

Through the points above, we’ve seen how an in-house legal team helps the PE firms to protect and grow their investments, thereby leading to a successful exit for the funds’ investors. After being acquired in a private equity deal, the portfolio company will encounter new circumstances, and a competent team of in-house counsels will deal with these challenges and ensure that the value is not adversely affected. Eventually, enabling an exit at the right time.

Whether navigating complex ownership dynamics, regulatory hurdles, acquisitions, divestitures and/or exit strategies, the general counsel can play a strategic role at the leadership table.

1.When you plan to go public. 

2. When you are in a complex industry. 

3. When you plan for scaling up, scaling down or carving out. 

4. When you have multiple sponsors.