We used to wonder whether law firms would be happy to use Capdesk – after all, it means wrapping their heads around yet another tool. In the last few years, however, while working alongside many of our customers’ lawyers, we’ve seen them adopt the platform enthusiastically.
There are plenty of reasons why lawyers encourage clients to adopt equity management software. Bill Cogan, a Founding Partner at consultancy Seven Legal, and Mike Yang, a Partner in Orrick’s Compensations and Benefits Group, were both happy to share their perspectives on the matter. Here’s why law firms want you to be on Capdesk.
1. Lawyers need to know the history of your company
Capdesk is built on a transaction ledger, ensuring an audit trail of historical changes. The cap table updates automatically when you issue securities and saves information on which admin made the changes.
Whether your lawyer wants to get a picture of your company today, last quarter or last year, they can do so easily using Capdesk. Time spent digging through spreadsheets is eliminated, and there’s no more wondering which version is the right one.
Making the switch to software sooner rather than later means that when you engage a law firm, they can get up to speed promptly
“Choose a cap table management software from day one. If not day one, then definitely after your company has completed its first funding round.” Mike Yang
“It’s a good idea to introduce software before things in the cap table get too complex.” Bill Cogan
2. Lawyers understand human error is inevitable
Anything that relies on human input is subject to human error, and cap tables are no different.
Working manually leads to inaccuracies like optionholders listed as shareholders and share denominations not being correctly accounted for.
“Small errors swallow valuable time. I often end up making corrections across several different spreadsheets rather than providing strategic advice to help a business complete its latest funding round.” Bill Cogan
As well as being time-intensive, administrative cap table mistakes can lead to failure at business-critical moments.
“I’ve seen an acquisition fall through because of cap table issues. The buyer lost faith in the company because there was no record of who held which shares and for how long. Nor was there any detailed information about what the tax consequences would be as a result of the acquisition.” Mike Yang
3. Lawyers are consultants, not assistants
Lengthy tasks, such as updating your shareholder register or collating share certificate signatures, are not an efficient use of your lawyer’s time. You’re paying them for legal expertise, and it’s in the best interests of both parties for you to get as much of it as possible.
That said, your lawyer needs complete confidence in the accuracy and compliance of your documents – something which using Capdesk can help guarantee.
“Capdesk’s integration with DocuSign gives me full visibility over contracts and signatures. The process is smooth and saves a lot of time.” Bill Cogan
Some companies hesitate to switch to software because it requires an upfront investment of time and money. However, the administrative headache of an offline cap table only increases as a business scales.
“I’ve seen companies that don’t have clean cap tables: they spend a lot of unnecessary hours trying to recreate what happened in the past. However, it’ll save them a tonne of money and time, in the long run, to switch to Capdesk.” Mike Yang
4. Lawyers want you to look good to investors
Investors like a clean cap table, something that is difficult to guarantee with spreadsheets unless you’re willing to commit significant resource to their upkeep. Once it gets out of hand, it’s almost impossible to find time for a clean-up – especially during the all-encompassing process of raising capital.
“Don’t wait until you’re going through financing or acquisition to tidy up your cap table because you really won’t have the time for it.” Mike Yang
Prospective investors are time-poor and will request information about your business with short deadlines. To impress, you need to be able to serve up accurate information promptly.
“When approaching potential investors, having equity management software makes you look more serious.” Bill Cogan
Once investors are on board, it’s time to deploy your fundraising fundamentals. The last thing you want is to lose a deal at a late stage because terms haven’t been thoroughly reviewed. Keep your legal counsel’s focus where it should be – negotiating a good term sheet rather than debating the accuracy of your records.
5. Lawyers know strategy is the route to success
If your cap table is correct on Capdesk, your lawyer can jump straight to providing value in the form of high-level strategic advice.
“It can get a bit messy when I’m distanced from the day-to-day management of the cap table, especially if my clients are doing it themselves. Equity management software means I don’t have to tackle the admin but I know that things are taken care of.” Mike Yang
Many founders don’t have a background in law or corporate finance, and no wonder – it’s not an essential requirement for being a successful entrepreneur. However, this makes strategic advice from lawyers indispensable.
“I’ve had clients who didn’t know their share price or how to calculate it. Many lawyers won’t provide this service for you because it’s not where their value-add lies. Capdesk can help you manage your cap table independently, making you a much more appealing prospective client to lawyers.” Bill CoganThere you have it – five ways that Capdesk complements the work of lawyers. Find out more about the platform on a discovery call.