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Venture Capital or Private Equity: How investors affect in-house legal teams

In-house lawyers are business-savvy people, often attracted to the challenge, potential rewards and legal complexities of working in-house, and some specifically in startups. Yet each startup provides a vastly different work experience depending on its culture, services and investors.

Lauren Zajac, Chief Legal and Compliance Officer of ExtraHop, has found this last factor particularly true. With legal leadership experience in private equity (PE) and venture capital (VC), she has a deep understanding of how legal teams fit into both investor environments.

Let's clarify the definitions of VC and PE: both offer pathways for businesses to secure funding which enables them to run and grow their companies. PE is capital invested into a private company (not listed or traded), and VC capital is provided to startups that show potential for serious growth. It is easy to confuse the two as VC and PE are essentially firms that invest in companies and then generally exit in an initial public offering (IPO) event. However, the way they do business is worlds apart.

Comparing the two investor structures

Zajac says the most noticeable difference between the two investment structures is the type of people you work with. "VC folks are typically operators." They often have lived experience of running or working for businesses and startups. This makes for a more straightforward relationship between leadership, the board and investors, as there is a shared understanding of the mechanics of business. Things are more intuitive and can require less explanation.

"Intuition isn't something you can always explain, it's based on years of doing, failing and learning," says Zajac.

In a VC structure, people innately understand there is less need to justify decisions. In other words, there is less bureaucracy and fewer hoops to jump through to get things done. For the legal team in particular, this can be liberating. It allows counsel to be proactive and helps to break down the hindering stereotype of the 'department of no'.

'More resources' defines PE from VC. PE firms typically invest more considerable sums in more mature businesses than their VC counterparts. "For employees, this translates to more access to resources, tools and learnings, which is tremendous," says Zajac.

As legal teams struggle with the perennial battle to do more with less, the opportunity to have more resources is significant. More resources mean stellar legal tech and workplace platforms, legal operations capabilities and more hands making for lighter work.

Zajac notes that while VC-backed companies usually have an operator culture, in contrast, PE firms can see business leadership come from a much more academic, high-level point of view. "You're dealing with people who are masters of investment and financial modeling; things are much more detail orientated."

That can be difficult for operators (everyday employees) as the trust that VC has in its people getting on with the job is not there. There are more frequent board meetings and presentations (often monthly) to the PE investors on the business standing.

"There is also a greater expectation regarding the kind of information that you must present to the board and your sponsors that have a vested interest in how you're running from day to day," says Zajac. "It's always hard as an operator to balance doing your day job and putting together materials to keep your sponsors and board members up to date."

An unexpected benefit of working for a PE-backed company is the networking opportunities it presents. Zajac says PE generally funds back numerous companies and will organize events to get the executive leadership team of their respective business together.

"If you're the General Counsel (GC) in VC world, you would build your GC network independently, it doesn't generally come from your investors. With PE, it comes along with the ride. So without having to do anything, you're automatically part of this club where you can talk about things that only other people who do your job know."

A fitting analogy for the two is playing rugby versus soccer. VC-backed companies are all about getting dirty, heading straight into tackles and just doing it, whereas PE is more about fancy footwork, less physical contact and more high-level strategy. Neither sport is better than the other, just different, which is the same when it comes to working in PE or VC businesses.

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