What Your Client's Lawyer Wishes You Knew Before the Term Sheet
Consultants and advisors are often the first call a growing company makes, well before a lawyer is ever in the room. That is usually a good thing. By the time legal counsel is brought in, a consultant has frequently already helped a client sharpen its growth story, tighten its financial picture, and think through what capital or investor involvement is actually meant to achieve.
The friction tends to show up later, not because the consultant did anything wrong, but because certain decisions made early in a raise are hard to unwind once a term sheet is signed. This article is written for consultants and advisors who work with companies raising capital or scaling, and it is meant as general education, not advice about any specific client, deal, or engagement.
Nothing in this article should be read as legal advice, and it does not create an attorney-client relationship between the reader, any client of the reader, and Kaelus Law. Every company's facts are different, and legal counsel should be engaged directly to evaluate a specific situation.
Why Timing Matters More Than It Looks Like It Does
A lot of consultants assume legal review is a late-stage step, something that happens once terms are largely agreed and it is time to paper the deal. In practice, several of the most common and most expensive problems in a raise trace back to decisions made before counsel was involved at all.
That does not mean every conversation needs a lawyer present. It means a short list of issues tends to be worth flagging for legal review early, even informally, before they harden into terms a client has already agreed to.
Three Things Worth Flagging Before Terms Are Set
1. Accredited investor verification.
If a raise is structured to rely on an exemption that requires investor verification, the method used to confirm accredited status can matter as much as whether investors actually qualify. Verification approaches vary by exemption, and the difference between adequate and inadequate documentation is not always obvious from the outside. Flagging this question early, before investors are approached, tends to save time later.
2. Cap table accuracy before a priced round.
A priced round adds sophistication that a cap table built for a SAFE or a note may not have been designed to support, and errors discovered mid-negotiation are harder to fix than errors caught before term sheet discussions begin. If a client's cap table has not been reviewed since its last raise or since founder or advisor equity changed, that is generally worth a check before pricing conversations start.
3. Non-standard terms in side letters or investor asks.
Investors sometimes request terms outside a company's standard documents, particularly in competitive or fast-moving raises. Some of these requests are routine, others can create obligations that conflict with existing investors or with the company's governance documents. A consultant does not need to evaluate these terms directly, but flagging when a request looks unusual is often enough to prevent a problem from compounding.
Where the Consultant and the Lawyer Fit Together
None of this is a suggestion that a consultant's role should change. Advisors and consultants generally bring judgment, sector knowledge, and client relationships that legal counsel is not positioned to replace, and a company benefits most when both roles are working from the same information rather than in sequence with gaps between them.
The most efficient raises tend to happen when a consultant loops legal counsel in early, informally and briefly if needed, so that the issues above are addressed before they are built into an agreed term sheet rather than after. This is generally lower cost and lower friction for the client, and it tends to make both the consultant and the attorney more effective in their respective roles.
Consultants who work regularly with companies raising capital may also find value in a structured referral relationship with a securities focused firm, so that legal questions have a clear and fast path to answers without disrupting the advisory relationship already in place. This is a separate topic from the general considerations above, and one worth a direct conversation if it is relevant to your practice.
Frequently Asked Questions
1. When should a consultant bring in a securities attorney during a capital raise?
Generally, as early as possible, ideally before terms are discussed with investors. Early involvement tends to prevent issues that are more difficult and more costly to fix once a term sheet is in progress.
2. What is accredited investor verification and why does it matter?
It refers to the process used to confirm that an investor meets the applicable legal standard for participating in certain exempt offerings. The required method of verification depends on the exemption relied upon, and using an inadequate method can create compliance issues for the company.
3. What should a consultant look for in a client's cap table before a priced round?
Common issues include outdated ownership percentages, unrecorded equity grants, and conversion terms from prior SAFEs or notes that were not modeled correctly. A recent cap table review before pricing discussions can help avoid disputes later.
4. Are side letters with investors normal in a capital raise?
Side letters are common and often routine. Some, however, include terms that affect other investors or the company's governance structure, which is why unusual requests are generally worth flagging for legal review rather than assumed to be standard.
5. Does a consultant need legal training to flag potential issues?
No. Consultants are generally not expected to evaluate legal risk directly. Recognizing that a topic, such as verification methods or unusual investor terms, may warrant legal review is typically sufficient.
6. How early should legal counsel be looped into a growth or capital raise engagement?
Many advisors find it useful to introduce legal counsel at the point where a client begins seriously evaluating outside capital, even before specific terms are discussed, rather than waiting until a term sheet is drafted.
7. What is the difference between a SAFE, a convertible note, and a priced round?
These are different financing instruments with different mechanics, investor rights, and documentation requirements. The right structure depends on company specific facts, and a securities attorney can help evaluate which structure fits a given raise.
8. Can a consultant work alongside a company's outside counsel without conflict?
Yes. Consultants and legal counsel generally serve distinct roles, and companies are often best served when both are coordinated and informed rather than working separately.
9. What documentation issues most commonly delay a capital raise?
Common delays include incomplete or outdated cap tables, missing verification documentation for accredited investors, and unresolved side letter terms that were not reviewed before being offered to investors.
10. How can a consultant build a reliable referral relationship with a securities law firm?
This generally starts with a direct conversation about how each party works, what triggers a referral, and how communication is handled during an active engagement. Firms that work regularly with consultants and advisors are often able to structure this formally.
This article is provided for general informational purposes only and does not constitute legal, financial, or investment advice, and does not create an attorney-client relationship between the reader, any client of the reader, or Kaelus Law. Every company's circumstances are different, and consultants and advisors should recommend that clients consult qualified legal counsel directly before making capital-raising or financing decisions. Attorneys at Kaelus Law are licensed to practice law within certain jurisdictions in the United States and this content is not intended to constitute advertising or solicitation in jurisdictions where such content would not comply with applicable rules.
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