How CFOs can build a ‘minimum viable legal’ function

‍This interview is part of a collaboration with CFO Connect - Spendesk’s global community of finance leaders - and our global community of in-house lawyers at scaling businesses. We'll explore the various projects that need the collective brainpower of legal and finance leaders.

Who does legal work before legal? In the early stages of a business, this responsibility often sits with the CFO. Finance leaders need to build a ‘minimum viable legal’ function that keeps businesses on track with legal work, until they hire a full-time lawyer - but where should they start?

Hi! 👋 Who are you?

I’m James Sullivan, I’m the Global General Counsel at Bitstamp, a crypto exchange platform. Previous roles include Chief Legal and Risk Officer at Ziglu, and VP Legal at Monzo. 

How can CFOs build a 'minimum viable legal' function?

The best place to start is by addressing the following issues. Getting on top of these can save finance leaders a lot of time.

1. A database for contracts

Most lawyers share the experience of being the first legal hire, joining a business, and realising quickly that the company doesn’t have a contract repository. 

No-one knows which contracts have been signed, where they’re stored, or key details from the documents, like renewals and termination dates.

Businesses often hire lawyers when there’s a funding round in the works, and setting up a data room can be one of the first things the lawyer is asked to do; having a foundation for a contracts database in place is incredibly helpful, and will make due diligence much easier when the business is approaching a future funding round. 

Having five must-haves for all your contracts, and communicating these must-haves with the business, is a great way to regain control of an unruly process

2. Options and incentives

CFOs often have to build out an options and incentives scheme, and it tends to be a lower priority, ‘side of the desk’ activity. 

But there’s a ton of meticulous accuracy, good governance and ongoing management required; if you make mistakes, the business often has to deal with it later down the line, which can prove to be a massive headache.

It’s important to get a solid understanding of:

• The process and documentation for issuing option grants
• The scheme, and how to set it up
• Deadlines around tax reporting
• Key dates for valuations
• Your preferred cliff and vesting schedule 
• What you want to achieve for good leavers

It’s also worth spending money on solutions like Capdesk instead of running everything in a spreadsheet. 

3. Version one of a contract playbook

This is about understanding where your gives and takes are when it comes to contracts.

Having five must-haves for all your contracts, and communicating these five must-haves with the business, is a great way to regain control of an unruly process.

Which five terms are the most important in your documents, and need to be included in each contract? Define these, and use this as a basis for version one of your contract playbook. 

This will prevent you having to answer repetitive contracts-related requests that come through.

Want to learn about how contract playbooks can help increase efficiency and enable self-serve? Sign up for our contract playbooks session on July 11th, 10:30am BST.

The first step is often the hardest - where can CFOs get started when addressing all these issues?

Contracts are a great place to start, but within the world of contracts, there are so many points of improvement.

There’s no harm in starting small. If there’s little to no control over who signs contracts, for example, you can implement a system that ensures contracts go through a select group of people, depending on the document. 

Make sure people understand who has signing authority, particularly for sales and procurement, and direct all signatures to those people via an eSignature platform. 

Even if your contract process is disorganized, you can maintain a level of control by having limitations in place on who can sign them. It’s an effective starting point, and you can build from there to really transform your contract process - but start small. 

Lawyers end up in a situation where it’s difficult to understand what’s been signed, the terms people are agreeing to, and where signed contracts actually live

Starting small is great advice - is there any other task where this strategy would be just as effective?

Privacy - it’s a lot to ask for early stage businesses to have a stellar privacy program in place. But even having a basic privacy notice that reflects:

• The relevant tools the company is using
• The types of data the business is collecting and using
• What this data is being used for

Is a great start, from which you can iterate and improve as you go.

Are there certain processes the CFO should immediately outsource?

CFOs can free up their time by outsourcing:

• Employment contracts - alternatively, having a standard document in place can be helpful
• Complex regulatory matters, particularly at a fintech or healthtech 
• Standard terms - the business will likely use these repeatedly, so getting them right from the get-go is important 
• CoSec, which sounds simple but can be a time-drain
• Funding-related tasks - you definitely need to spend money here, as it's critical to business growth 

The work you outsource sits on either end of the complexity spectrum - it’s either super complex, and therefore needs to be handled by a legal professional, or it’s incredibly mundane and time-consuming, in which case you’re better off getting external support to focus on it. 

What are the most common issues for businesses that don't have legal processes in place? 

It’s always clear to the first lawyer joining a scaleup whether the business has robust legal processes in place or not. In most situations, the worst-case scenario is unfortunately the reality! 

Businesses may be dealing with a few of the following key points:

1. Little to no handle on contracts

Lawyers end up in a situation where contracts aren’t being stored in a unified workspace. It’s difficult to understand what’s been signed, the terms people are agreeing to, and where signed contracts actually live.

Version control also tends to be a massive challenge - there’s a contract in negotiation with a supplier, but lawyers can’t find the latest version of that document. 

Find out how Cazoo implemented Juro to create a structured repository and make their contracts structured, scalable and searchable.

2. An inconsistent approach to data management

The business may have raised funding before they hired their first lawyer, but that doesn’t mean they have a good data room in place. 

This does lead to a free-for-all situation, where everyone is trying their best with the resources they have - but there’s no consistency, and not having a centralized location for key documentation makes due diligence much more difficult in the future.

3. Costly auto-renewals 

This ties in well with point one - not knowing where contracts are stored and managed, or what’s in the contract itself, can lead to automatic contract renewals. 

Auto-renewals can be a point of contention for early-stage businesses - getting locked in an expensive contract for another year is frustrating, especially if it's for a service the business is no longer using.

Being able to turn to an external lawyer that has the corporate memory to tell me what happened one, two, three years ago is an absolute win

4. A lack of data privacy hygiene 

Employees may sign up to various free products and services to help them in their specific roles. The business isn’t aware of what they’ve signed up for, but also, employees themselves aren’t aware of the personal data and security implications of using free versions.

Free versions of products usually have less protection on data privacy, but with no policy in place to manage this, it can become a problem.

5. Inability to use and implement legal advice

On a more granular level, the business may reach out to outside counsel for advice, but employees either don’t fully understand the advice being given to them, or they’re not aware of the intricacies that come with it.

They’re not embedding that advice in the business, which means the company’s investment in external counsel isn’t being utilized to its full potential. 

What does great look like with a ‘minimum viable legal’ function? What does the first lawyer want to see? 

This dream situation is one where the company has been sourcing the work to external counsel. Being able to turn to an external lawyer that has the corporate memory to tell me what happened one, two, three years ago is an absolute win. 

The in-house lawyer usually has a set of questions to get answers to in their first hundred days, and they’ll likely turn to the CFO for assistance. 

Being able to provide an answer is super helpful - it doesn’t have to be a great answer, but anything is a better starting point than nothing, as it helps the lawyer identify gaps in the business.

There are plenty of resources out there to help CFOs understand the first 90 days of an in-house lawyer - this document by PLC is a great example. 

Having information in a centralized location is a great way to ensure people can find what they need to, when they need to

Finally, do you have any advice for CFOs handling legal work? 

If you’re a CFO building a ‘minimum viable legal’ function, be as diligent as possible - even if it annoys your colleagues!

Chase for documents, ask questions, get everything you need early on in the process to save future headaches for everyone involved. 

Getting a group email address for the future legal team is also a great way to ensure there’s a paper trail of everything legal-related for the first lawyer to sift through. 

Creating a ‘minimum viable legal’ function is all about future-proofing, so having a legal@company.com address can save you - and the first lawyer - hours of work.

Think about the impact your actions will have in a few years’ time - eventually, your company will go through a fundraise, or work on a transaction. Having information in a centralized location is a great way to ensure people can find what they need to, when they need to. 

This is a content collaboration with CFO Connect - Spendesk’s global community of finance leaders at scaling businesses - and our global community of in-house lawyers at scaling businesses.