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When a Startup Is Sold, What Happens to the GC?

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By Casey C. Sullivan, Esq. on September 16, 2016 2:59 PM

It's the dream of almost every new tech startup: grow big, gain buzz, and get acquired. Indeed, acquisition has largely replaced IPOs as the get rich quick strategy of choice, as giant companies like Google, Yahoo, and Facebook have paid out billions to acquire promising new companies.

But for a startup's lawyers, getting acquired can mean major and sudden changes to their job, if they get to keep it.

Saying Goodbye to Your Startup Perks

When a startup is acquired by a larger company, many of the perks that draw attorneys to work in-house at startups can suddenly disappear, as David Ruiz recently explained in the Recorder:

In-house startup lawyers say they love the freedom of their job. They love the collaboration, the decision-making and the direct impact they have on their companies. But what happens when those early-stage companies sell to corporations with billions of dollars in revenue, hundreds of attorneys and layers of bureaucracy? For many startup lawyers, it means goodbye freedom, goodbye direct impact, and sometimes, goodbye job.

A Startup Exit Plan Can Help Lawyers Out, or Leave Them Behind

Many attorneys work for the parent company's legal team after an acquisition, and for some, that can be a worthwhile transition. Ruiz spoke to William Alvey, who worked as GC for a digital marketing start up that was acquired by IBM. According to Avery, in-house attorneys moving from startups to large, established companies can get valuable experience in working in a larger team, addressing more complex business issues, or developing a specialized body of knowledge. But Alvey already had that experience. He left IBM after six days.

In some situations, in-house attorneys will join the acquiring company for a limited period, in order to help with the transition. Some companies will try to retain in-house attorneys longer, with incentives like stock options that vest after a period of years, for example.

But some acquiring businesses will simply keep their existing legal team and let the startup's attorneys go. In the ephemeral world of startups, where the next big thing can get big and then disappear in the blink of an eye, maybe "pivoting" from one in-house startup gig to another is the most appropriate response to an acquisition.

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