Why saving on legal bills can give a false sense of economy

In this episode, Legislate meets Claire Pardo, General counsel of Parkwalk Advisors. Parkwalk is one of the UK’s leading growth fund managers backing world-changing technologies emerging out of UK universities and research institutions with the aim of delivering world-class returns. Claire shares how she became a lawyer and the journey which led to her becoming General Counsel of Parkwalk. Claire also shares some legal tips for entrepreneurs including how to save on legal bills in a savvy way.

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Listen to the episode below:

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Charles Brecque: Would you like to share a bit of background about yourself and Parkwalk?

Claire Pardo: Yes, thank you for having me. I started off life actually not in law at all, I read physics at university, and I absolutely loved that but when I got to the end of my degree, I decided that more research was not for me and I wanted to do something practical, and I wanted to use the skills that I'd learnt, and the analytical skills in particular, in my career going forward. So, I started looking at law. After first training as a barrister, I then cross-qualified and became a solicitor, and I have been a corporate M&A solicitor for nearly 15 years now, which feels like a very long time. I've been in private practice at Macfarlanes and then Freshfield's and then Withers. Those different firms have given me the ability to work with companies of every stage really and every size. Very small companies all the way through to billion-dollar companies, everything from start-ups to extremely large listed companies. Through that experience, I think I came to realise that the companies I found most interesting were start-ups. That was where I felt I could add the most as a lawyer and the experience I had of structuring transactions and helping companies to get investments. I moved to Parkwalk just over four years ago and became Parkwalk's general counsel and on a day-to-day basis, I do everything legal at Parkwalk. Whether that's doing our investments documents, working alongside external counsel for our exits, working on our fund documentation and also occasionally assisting our portfolio companies with legal issues if they need any help.

Charles Brecque: What's been your favourite moment so far? 

Claire Pardo: That's a difficult one. My favourite moment came a number of years ago, I was about four years qualified and I was working on a very big transaction when I was at Freshfield's. We were acting for the UK government and for Northern Rock when it was sold for Virgin and it was an absolutely brilliant transaction to work on. I just loved it, I learnt so much from all of the people involved but the favourite moment, for me, most people were delighted when their deal was on the front cover of the financial times, mine made it to the front cover of Private Eye and that's definitely my favourite moment.

Charles Brecque: I imagine you still have that cover somewhere?

Claire Pardo: I do. I do, I have a hard copy of that Private Eye actually, it's a very treasured memory.

Charles Brecque: What do you wish you had known before becoming a lawyer?

Claire Pardo: I think I would like to have known quite how hard work it is. In private practice, in those first few years in particular, once you've qualified, it's very hard work trying to get to grips with not only the amount of work you have to get through but also, the breadth of UK law in particular and the way that all the different arms of UK law feed into one another. As a corporate lawyer, in particular, when you're running corporate transactions, you have to have an understanding of how all those parts fit together in order to be able to do your role really well. That's a big thing to get your hands around to start with. I think I knew it would be hard work, but probably didn't realise quite how hard it would be but I think that's probably the same thing I could say for parents. It's going to be hard in advance but the reality is a little bit harder than you thought.

Charles Brecque: What are the key contracts that you interact with most frequently? 

Claire Pardo: So, the key contracts that I look at the most, are non-disclosure agreements when we're first looking at new companies. We then move on to looking at subscription and shareholder agreements and sets of articles. So, every time we do an investment round, we have a new set of articles and a new subscription and shareholders agreement. I probably look at five or six sets of those every day, for six of our different companies. I also look at lots of employment agreements. Those are one of the key things that we check when we're making an investment into a company, checking that the terms are sensible that they cover all of the key areas such as intellectual property, confidentiality agreements, IP, those sorts of matters, which I know not everyone is fortunate enough to have the legislate employment agreement to work from. If they did it would be my job much quicker, I have to say but yes, that's one of the key things that we check.

Charles Brecque: With those contracts, what are the common issues or areas of friction that you identify in those contracts and how do you overcome them?

Claire Pardo: The funds that Parkwalk manages, are all EIS funds. So, although we don't guarantee the availability of EIS on all of our investments, it's something that we strive to get and it's something that we work very hard to try and get insurance on to make sure that our investments are EIS qualifying. Sometimes the EIS requirements that we have can look a little different to what other investors might want, and so there's a certain amount of educating that needs to be done about EIS and why EIS works in the way that it does and also how it interacts with other investors requirements. With investors that we work alongside very regularly, we all have an appreciation of what one another needs in a contract and that tends to make investments quite quick but if we come across someone who perhaps hasn't dealt with EIS before, we always take a little bit of time to explain how the rules work and therefore the impact that has on what we're asking for and why we're asking for the things that we are. We tend to find, actually, that when we do that our requests are not so problematic. Probably the hardest challenge that we deal with at the moment is the debate around anti-dilution and whether anti-dilution should be included in agreements or not. We don't like anti-dilution as a firm, we don't feel that it's fair, we feel that it unaligns investors with founders and also EIS shares cannot have anti-dilution rights. So, it tends to mean that we're unaligning all the investors with founders, but also investors with one another and in order to try and drive growth in a spin-out or a growth company, it's really important that all the parties are pulling in the same direction and have that same goal and those same rights to sit alongside each other. So, that I think is one of the biggest challenges we're facing at the moment.

Charles Brecque: What tips would you give to a new founder, especially around legal? 

Claire Pardo: Get a good lawyer. I would say that, wouldn't I? I think often when a founder is starting up a company, there is a real concentration, as there should be, on what to spend money on, and being careful with how money is spent. That's a great trait to have, but there is a slightly false sense of economy when it comes to legal work. I've seen and I've advised founders after the event, not at Parkwalk, but where they haven't taken the time to put in place properly drafted legal agreements and it makes things really incredibly difficult when things go wrong and sometimes these things do go wrong, especially if you've got two friends coming together and forming a company but no real legal documentation about what happens when one of you decides you want to leave or you're at a deadlock in terms of decision-making. Sometimes, legal bills do look expensive, sometimes they are expensive, but my key piece of advice is, make sure you get things paid but make sure you take really good, specialist advice from somebody who deals with this kind of work on a daily basis because they will help you to put in place a framework that hopefully, you'll never have to look at again but if you do have to look at it because something's gone wrong you know that you've got some brilliant drafted agreements that will help to resolve the situation in the best way possible.

Charles Brecque: I agree contracts are all about managing risks and if you can start from a solid foundation then you can do a lot of things.

Claire Pardo: I tell you what, the Legislate platform is so exciting and is such a key resource for new companies, you're absolutely right, being able to save money on legal bills where you can is a really good thing but you need to save it in a savvy way, in a way that doesn't put you at risk. Using the Legislate platform is fantastic, it gives you a really well-drafted set of documents, you can feel comfortable and confident using it knowing that you've got some great agreements in place that will stand you in very good stead.

Charles Brecque: If you were being sent a contract to sign today, what would impress you?

Claire Pardo: Very good question, firstly it would impress me if I'd seen it before I was being sent it to sign it, and more often than not I get sent something and I'm asked to sign it and my question is, 'Well, I'm going to have to review it first.' The other thing that would really impress me, actually, is if someone who had prepared it had taken the time to tailor it to the particular situation and had taken the time to think about how I as the recipient of the contract, was going to feel about the content of it. A note to say, 'I know that this particular clause really matters to you, so we've left it as it is,' or, 'I know that you have a particular regulatory issue that you need covered in an NDA, and I've already put that in there.' That sort of forethought and that planning, I think that always really impresses me.

Charles Brecque: You're the first person on the podcast to say you'd be impressed to see it first. There needs to be some tailoring and discussion. 

Claire Pardo: Absolutely.

Charles Brecque: Thank you very much, Claire.

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