When exactly do you start paying for lawyers, and to what extent?

April 28, 2019

by a searcher from Harvard University in New York, NY, USA

I know the common wisdom is "it's never too early to start building your team" and getting professional advice. But in reality, as a self funded solo searcher, it's financially impractical for me to have a lawyer and accountant with me every step of the way. I've done a lot on my own -- I formed my LLC completely on my own, I drafted my PPM and 50% of the subscription/op agreements on my own, filed the state and SEC registrations on my own. So far, outside of mandatory filing/registration fees, I've spent <$1000 on legal/financial advice.

However, I'm at a point now where I really need to start thinking about paying for professional services. But with a tight budget in mind, when exactly do you guys involve and start paying real money for lawyers/accountants?

Specifically, in the following timeline of a hypothetical search process, where and how in depth do you involve lawyers?
1) Searching / Prospecting
2) Connecting with potential targets and having broad convos
3) Sending an official IOI
4) Conducting prelim due diligence
5)Sending out a LOI
6) Conducting extensive due diligence
7)Submitting formal offer and closing

Reply by a searcher
from University of California, Santa Barbara in Los Angeles, CA, USA

We don't involve attorney's until after signed LOI and first level of business diligence. Attorney fees can kill you on a busted deal. We have also laddered our attorneys and use the big guns for purchase agreement and the cheaper guys for Operating Agreements and other routine transactional items. Of course, you have to make sure your funding partners are ok with that route as many just want to know some big name firm is handling it. Final note, we try to negotiate some kind of break fee discount with the larger shops up-front,

Reply by an investor
from University of Notre Dame in Pittsburgh, PA, USA

A good lawyer who understands search funds will work with yo. Agree with Sam that getting them involved at LOI stage if you are less experienced is worth it. Once you have sent out a couple and have a good template maybe less so but early on that advice is key. Some sellers want more detail in an LOI some want less - depends on the deal and negotiation strategy. Good luck

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