Robert Kohler of Kohler Law Group: Outsourcing In-House Counsel for Startups

Robert Kohler of Kohler Law Group - Podcast Transcript

Scott Orn:

Alright. Welcome to Founders and Friends Podcast with Robert Kohler of Kohler Law Group. Robert is both an entrepreneur but has also started a really kickass law firm. The simple pitch is, outsourced in-house counsel and it’s such a simple concept but it makes so much sense and I’d never heard the pitch before and we see all these companies, our clients with messed up contracts or something wasn’t done right and just kind of the in-house counsel stuff. And so I want to have Robert on so we could talk about his practice and so you could learn a little bit more. Welcome Robert.

Robert Kohler:

Thank you very much. Nice to meet everyone out there. And Scott I want to thank you for the invitation to do this podcast.

Scott Orn:

Of course. When we talked, we totally hit it off on the phone. So maybe tell the audience like how did you get into this business like how did you have the insight that startups would need outsourced in-house counsel?

Robert Kohler:

I started on a big firm in Century City in LA. I’m not a big firm guy whatsoever. After one year, back then it was like, you need to stay for one year otherwise you’d look like you’re bouncing too much. So I stick there for one year. Like a year and a day afterwards, I had found another job. It was an in-house counsel for a software company and they were in Chatsworth in LA. And the founder who was a very wealthy, taken the company public, wanted to move to Belvedere in Tiburon. So packed up the whole company, moved up here and I was really happy. LA’s cool but the Bay Area is cooler. So came up here, worked there for a couple of years. It was a game development company and publisher. And I saw a real need for some of the small developers to have access to quality legal without just paying so much they couldn’t afford it. So I decided to just start my own practice and focused on small developers doing deals, didn’t have the resources to pay a big firm and that’s how it all started.

Scott Orn:

I’m nodding my head vigorously here because you’re nailing it like there’s a place for the Wilsons and the other big law firms and it’s typically around fundraising and things like that and you want to make sure that you get that stuff right. But all the other stuff can be done so much more cost-effectively and it’s by people like you who just know your stuff. You have a commercial background. You know business. So you know what the legal agreements look like. It makes a ton of sense to me.

Robert Kohler:

Yeah. And the DNA of Kohler Law Group is so basically it’s a virtual firm and back 20 years ago when I founded it, I was a little bit nervous to say it was a virtual firm because you have to have a marble foyer and all that stuff. Now it’s like if it’s not a virtual firm then well you’re stodgy and it’s very expensive.

Scott Orn:

The clients are a lot more savvy these days.

Robert Kohler:

Scott Orn:

Totally. They know what they’re paying if there’s marble anywhere around that.

Robert Kohler:

Exactly. And also I think … so my model is this, so I hire only 20 to 30 plus-year attorneys. They’re general counsel. Big firms coming from general counsel big firms or partners at a big firm and they say, “Oh my God this is such a perfect opportunity for me to be at home, have a balanced lifestyle family mix. I’m there to send the kids off to school. Take them to soccer practice. I’m also up until three in the morning to close a quarter-end or a year-end deal.” They understand the business side. So it’s business solutions plus legal and I think they’re a little maybe 60% is the legal side but also just giving advice on sort of business solutions that will be [inaudible 00:03:32] to the other party and it could be a Fortune 500 company or it could be a small developer. But coming up with deals that work and closing deals quickly and not over-lawyering.

Scott Orn:

I was really impressed because it sounded like fantastic lawyers but they really value their own personal freedom and it sounded like you actually employ a ton of women which I really respect. My Mom, owner of business, Vanessa’s our founder and so I know from my Mom’s business that a lot of her team members really value flexibility. Pick the kids up at school or doing whatever needs. I thought that was super smart of you to just kind of cater to that type of employee. Was there a few on the early days or you’re like, gave you the light bulb. And you’re like, “Oh my gosh. There’s a lot of great lawyers out there that I could hire like this.”

Robert Kohler:

There are and actually they sort of flock to me. Because they’re like, “Wow, I don’t have to drive an hour to Palo Alto and an hour back every day. This is fantastic” And I’ve really come to understand that my attorneys are not just there for a quick okay, I need to fill some time before I get another real job. They’re there for the long haul because this is really great and it fits their lifestyle and a happy attorney equates to happy clients. So it’s a really good model. So women are particularly well-suited to it because they have family, they got kids. So I don’t select it female-only by any means but I’ve really had a lot of success with attorneys because they’re in it for the long haul and my attorneys have been with me for ten plus years. I think the most recent was like five plus years. They love it and they love the practice. They love the diversity. We’re hi-tech everything. It could be hardware, software, internet, bio, pharma, green.

Scott Orn:

I’m sure your clients love the continuity too because especially in legal and accounting is the same kind of thing. Like most of Vanessa’s early clients are still with us and it’s because once you understand the legal structure and understand what the company’s doing and what the contracts look like before, it’s much easier and you’re not taking chances, you’re not screwing things up unintentionally. I’m sure you get that kind of feedback.

Robert Kohler:

That’s exactly right. Another difference between Kohler Law Group and some other firms, if you’re in a large firm, then the project is going to be delegated to an associate based on their availability. And in this case, it’s the same attorney. Kohler Law Group doing 95% of the work. If they’re busy at the moment, then they usually have … they make time for that particular client because it’s their client or if they’re on a vacation or they’re sick, then another Kohler Law Group attorney will step in but typically, it’s like having in-house counsel. They know your personality. They know your appetite for risk. They know what your deal looks like and it’s just closing deals really quickly in a 24-48-hour turnaround. It’s fantastic.

Scott Orn:

That’s amazing. So one of the things I love about you also is that you’re an entrepreneur and I’d love to hear some of your businesses in a second but having that entrepreneur background yourself, talk about how that influences the kind of advice you give to your clients.

Robert Kohler:

Yeah. So I founded and sold and raised venture capital and dealt with the headaches of a board and day-to-day operations.

Scott Orn:

I’m living with a couple of headaches with a board right now. That’s the real thing.

Robert Kohler:

So I don’t have as much hair as I used to but anyway, also finding successful exits for those. And I really have a good understanding. I love being an entrepreneur and I love my advisory roles with companies as well. That’s just really what gets me excited. So the combination between the legal and the business is just I mean I wake up every day happy. I smile.

Scott Orn:

That’s great. As someone who consumes legal advice, I really appreciate lawyers who can kind of lay it out for me, the legal risk and then give me some business advice later on. Like simplifying things and letting me know like here’s the business ramifications if you make this decision. It sounds like you’re really good at doing that.

Robert Kohler:

Exactly and it’s just something that really very simple things. I mean getting the writing, keep it simple and just be very clear about hey what are the expectations on both parties? What are the deliverables? What are the payment terms? I mean it’s really basic. Like when you do a handshake agreement, essentially, okay, I’ll deliver this. I’m going to need this much upfront and here’s the delivery schedule and I mean it’s so basic but it has to be in writing to be enforceable and I’ve seen so many things go wrong where it’s just based on the email. Not a signed deal. It’s just an email and then things blow up. It’s not enforceable. So yeah agreements are very simple but they have to be spelled out and legally enforceable.

Scott Orn:

What kind of documents and legal advice do you give clients? Like specifically kind of what’s your bread and butter?

Robert Kohler:

So basically anything contracts. So contracts, HR, employment law and I do have a securities attorney that actually personally worked with me on my own ventures. Everything from corporations, shareholder agreements, fundraising, exit. So very very good and he works with a lot of my startup clients that say you know what, I don’t want to pay Wilson this much or Cooley or you name the name brand firm. But typically out contracts are everything from just reviewing a sales agreement, putting together privacy policy, terms of service. Anything contractual. Manufacturing agreements and if it’s international then we usually take the first step at coming up with a contract and then review it by local counsel just to make sure that it comports with whatever the local jurisdiction requires.

Scott Orn:

Audience might not always understand but like your contracts with your customers, there’s a ton of scrutiny on those. Once you start really accelerating as a business, like I’m doing two accounts receivable deals for Kruze’s clients right now. Both are in the audit stage like the bankers actually have to hire another accounting firm to audit those and a lawyer to make sure those contracts are enforceable. And if you don’t do this stuff right, A, you may not be able to clock the money and B, you might not be able to get an accounts receivable line and that’s really valuable capital as you’re growing your business because most startups as they start growing, they’re eating cash up and so being able to get a good credit line is actually very important for them.

Robert Kohler:

It is. And you know, taking shortcuts on that is not worth it in the long run. I mean it’s not that difficult to come up with a template agreement or at least have if you’re the small guy and there’s the big guy and they put their paper in front of you, just making sure it’s reviewed, you make sure it’s not too onerous and there’s always concessions. That’s just how contracts work. There’s always concessions. It’s just determining where’s a reasonable concession and how is this going to affect me in the future. Not any conflict or what’s the conflict defined as? Is it a similar company or similar sort of client? Anyway, there’s a lot of little nuances that you have to think about on a going forward basis. What’s going to affect my potential for new clients, for revenues, for developers, for hiring independent contractors? There’s all kinds of things. But I think our firm is very very astute at looking at those and coming up with solutions that makes sense for both parties. We really create win-wins.

Scott Orn:

That’s great. Looking at the Kohler Law Group’s website, you have like the who’s who of startups you work with. Maybe you can even just name a few. Just so the audience know who we’re talking to here.

Robert Kohler:

Yeah. So basically where we fall in the ecosystem is again, most of our clients, not most of but majority of our clients work with a big firm for the fundraising and the board like some investors, et cetera and blah-blah-blah. But we handle the day-to-day stuff and we’ve grown with … so many of our clients especially recently getting a ton of startup clients. That’s just because also I’m very close to the startup community myself as an advisor and just I like to schmooze. I like to find interesting technologies. But some of our clients include and still include but they also included prior to going public, Splunk, Marketo, Facebook, Crescendo Bio, number of other very large publicly traded companies and our involvements actually slowed with them because they now have a huge in-house legal department but we handle overflow and also we really brought them to where they are now. I mean we were the primary law firm for getting them to the place where they did a C round or a D round and then hired a general counsel and we worked close with the general counsel. They went public, created their own in-house legal department and so we’re there as backup. So yeah.

Scott Orn:

All those companies you named had done IPO’s?

Robert Kohler:

Scott Orn:

So you know your work is legit because companies, before they go public, IPO’s going public and selling their shares to the public, they have to go through a lot of legal scrutiny especially on their customer contract. Like a company like Splunk, enterprise costumer with tons of contracts like so we know you did a good job with those guys. That’s awesome.

Robert Kohler:

Scott Orn:

Mm-hmm. Exactly. The bankers are going to review things very very closely. So yeah. Talk about … you mentioned a little bit about how you built your practice but like you talked about networking, you have a great personality so I have a feeling you’re someone who likes to get out there and meet a lot of new people. How did you build the practice?

Robert Kohler:

I built the practice just through a lot of networking and I consume so many tech blogs and so much content and then if I see something interesting, I’ll often just reach out to the CEO and say, hey, looks really cool. I’m not here to pitch you. I’m actually here to talk to you because you’ve got a fantastic amazing background, very diverse and I do too. You know what, we play in the same hitech sandbox. Let’s get to be friends. That’s really how it starts.

Scott Orn:

Yeah. I think a lot of those guys actually really appreciate it when you’re using their product. Like you can actually give feedback. You’re a consumer too. You also have these expertise and …

Robert Kohler:

I do a lot. This is kind of screwed up dude. And yeah. And they’re very appreciative.

Scott Orn:

That’s awesome. So a lot of networking and you have just a huge client base so you’re getting a lot of referrals I assume.

Robert Kohler:

Yeah.

Scott Orn:

That’s great. So aside from the law, you have a couple of different entrepreneurial ventures. One of which is a great restaurant in San Francisco.

Robert Kohler:

Scott Orn:

Two restaurants. Two restaurants. I’m sorry. I only knew about the one but yeah. Maybe you can share it with the audience.

Robert Kohler:

So ten plus years ago, I had a bunch of friends in my network of friends, my social network. And everyone was complaining, bitching about how much they hated their jobs. They’re all from culinary backgrounds, executive chef, front of the house manager, back of the house and I said guys you know what, why don’t we just go look around for an underutilized space? Found something in a place called Hayes Valley and just …

Scott Orn:

Which ten years ago was kind of quiet and not super safe.

Robert Kohler:

Scott Orn:

Yeah. It’s sketchy. But it’s close to the Opera and the Ballet. It’s huge now. I mean Hayes Valley is like an ‘it’ neighbourhood.

Robert Kohler:

It is. Exactly. So we got that and we had all of our friends come in. So I invested money and all my partners really invested a lot of hard work. They’re really diligent workers and it was great.

Scott Orn:

Sweat equity.

Robert Kohler:

Sweat equity. Exactly. So we did that and had our friends come in and basically just start basically banging out walls and painting it and turning it to a really successful restaurant. It’s called Sauce and then we opened a nightclub Shine. We sold that profitably. And then also then we opened a second Sauce in the Financial District, Belden Place in San Francisco. And the first Sauce, we were able to buy the entire building it’s in. So we’re no longer beholden to a landlord.

Scott Orn:

That’s huge. Especially in like restaurants and retail where a landlord can change things on you in ten years and really screw you over.

Robert Kohler:

Exactly. So there’s that. I have a couple of income properties. I have some ventures as well in hi-tech because I love hi-tech. I’m a hi-tech guy through and through. I played Dungeons and Dragons. I was in the Computer Club, Math Club, you name it, dorky. I didn’t go to proms but I did all that stuff.

Scott Orn:

You’re making up for that now.

Robert Kohler:

Exactly. Yeah. And then I advise companies and I love doing that as well. I’m advising a nanotech company, a crypto company, hardware and software crypto for everything from browser to mobile, voice, GSM, CDMA and also IoT stuff. So that and image recognition. I mean basically if it looks cool to me, I love it. And this is not so much legal consulting. This is very much on the business side. Looking over [inaudible 00:16:41]

Scott Orn:

How has your business experience like building Sauce ground up? How has that influenced your legal practice? Like the kind of advice you give to startups?

Robert Kohler:

It’s just pragmatic. I’ve been there. I’ve seen it. I know some of the issues you have to be careful. For a restaurant, it’s very different than a hardware or a software company. But there’s still things you want to make sure you have the continuity of the lease and just like in law practice, we have the continuity with the clients.

Scott Orn:

But pragmatic is such a good word because you wrote the checks for Sauce to get it going. You know how valuable capital is. You know how when you have a huge legal bill how that’s eating into the capital base of the startup. Like you’re giving really solid advice and doing it in a cost-effective way.

Robert Kohler:

Yeah. Exactly. And you know what, if something’s outside of our wheelhouse, I’m the first to say this is a great question. This is outside of what we do.

Scott Orn:

I think clients appreciate that. We do the same thing and our goal in those situations is get you the best provider and we know it comes back to us in spades on a good referral later. So it’s in our best interest to help you out as well.

Robert Kohler:

Exactly and I realize that too because you’re helping … ultimately you’re helping your client or I’m helping a company on advising. I’m giving them advice. And that’s what they’re looking for. They’re looking for connections and I mean my network is gigantic. So it’s pretty much I can find someone to fill whatever needs you may have and I love doing that too. I love being a connector. So it’s not just for compensation. I mean that makes me happy. I love doing it.

Scott Orn:

That’s great. I always like to have a few tips and things that people can learn. What are a few tips you recommend to startup entrepreneurs or maybe a funny story about … we were talking about before I turn the mics on but like what kind of things can you share with the audience to help them improve both kind of how they operate the business and also just being smart about their legal team and legal advice?

Robert Kohler:

So the first thing is, use your attorney as the bad guy. So let’s say you’re negotiating something, your negotiating agreement and there’s some points of friction there. You want to maintain that goodwill and have that person sort of respect you and the kind of a working-together attitude. And where there’s points where you’re like, “You know what, I don’t want to do this termination clause. It’s not working for me.” Basically feed your attorney that and say, this is kind of bad and you make the attorney be the bad guy. I mean I do for all of my deals, personal deals in companies in the past, I’d always have an attorney. So I would basically be directing them what to do but they were still the bad person. I would say like, “Gosh. You know what, I’m so sorry. It makes sense. I understand your point but I’ve got to defer to my attorney.”

Scott Orn:

That’s such a good advice and I’ve used the words like, “My attorney won’t let me sign this document.”

Robert Kohler:

Scott Orn:

Exactly. Totally use them as the bad guy. Good cop, bad cop works. You are preserving the relationship after that.

Robert Kohler:

Yeah. Exactly. Just in the long run because you don’t have an acrimonious relationship or dynamic to start out this long-term agreement where you’re working together and …

Scott Orn:

I also find that the other party in that transaction understands what they’re asking for. They understand they’re asking for something aggressive and so a lot of times, they’re actually just probing to see if you actually agree to it on the first rev. So pushing back and having a good attorney push back will actually help them respect you more and you get to the right deal points.

Robert Kohler:

And you’re still buddy-buddy. So there’s that. Here’s a funny story that you’ve mentioned. So after reaching out to a particular CFO for a long time because I love their product and I’m really interested. I’m like, “I want to talk to you and actually work with you as your attorney and save you money.” So finally, he said, he got an email from me and just before that, he was literally five minutes before that, he was reviewing an invoice from one of the big firms and immediately picked up the phone, called my mobile, started talking. He said, “I’m going to give you a try because this invoice is just so ridiculous. I spent $4,000 and an NDA, what? So anyway, so call me.” And after two months and we started working with him and doing more deals and usually it starts out pretty slow. Here’s a one-off deal, here’s another one and then we get involved with their VP of Sales and things like that and start doing more and more. And after the second month of billing, he called me up on my mobile again, he said, “You know what, I just reviewed your invoice and this is the first time in so many years I have not said what the fuck.” At the top of his lungs in the hall because he was like, “I can’t believe this bill. What’s going on here?”

Scott Orn:

Because it’s so reasonable.

Robert Kohler:

Yeah exactly. Right. Because he was like, I mean this makes perfect sense. This is less than I thought it would be but yeah.

Scott Orn:

That’s amazing. I love it. Is there something … so I think your advice on having a bad guy is awesome advice. Is there a common air in maybe it’s contracts or maybe it’s the way startups set themselves up that you see? Because this happens to us sometimes. Like we’ll have an early stage company come to us and they’re set up as an LLC and it drives me crazy because no venture capital fund can invest in an LLC company. So I’m always like, “Look, if you’re going to do this for real, you need to be a Delaware C corp.” Are there other things like that? Maybe it’s the 83(b) filing, what common mistakes do you see people making?

Robert Kohler:

I mean this is just a high level. So it’s not really thinking through where do you want to be? Where is this going to go? What needs to be in place? Yeah to be able to attract institutional venture capital, or even friends and family or even a super angel or an angel round. What needs to be there? You want to have all your docs in a row and make sure everything is tight to start with that might be a little more expense initially and more invested time on your part and your attorney’s part but really once it’s in place, you have that foundation to move forward and you’re not going, “Oh my God, we’ve got to unwind this. We got to go back on this.” It’s there and again, I think it’s more of a … it’s a time investment too on a startup founder’s part to do that properly.

Scott Orn:

I totally agree. And it’s a waste of … like when you have to go back and unwind things, it’s a waste of money and energy and you see and you know, the Series A investors know what they’re looking for. They’re going to make you do a ton of legal work if you’re not set up correctly. If you have bad contracts, you’re going to have to unwind everything. It is like just doing it right to start is hugely important.

Robert Kohler:

Exactly. And it’s not that much work. It’s incrementally more expensive and more time consuming. I mean I’ve been in situations too where you have to like, oh God. We have to clean up everything and it’s just so … I don’t like doing that either.

Scott Orn:

I don’t think you probably like the work. I know we don’t like that work. It’s not interesting to us. We do it because the client needs it but it’s not fun for us.

Robert Kohler:

Scott Orn:

No it’s not fun either. Exactly. You talked about earlier you’re advising a cryptocurrency company. This is totally on a tangent but I’ve been fascinated with the rise of Bitcoin and Ethereum and this thing called The DAO. Are you plugged into all this stuff?

Robert Kohler:

I’m not. No. So the crypto company, it’s not cryptocurrency.

Scott Orn:

Okay. Sorry.

Robert Kohler:

This is just basic NSA crypto.

Scott Orn:

Oh it’s security technology?

Robert Kohler:

Scott Orn:

Oh wow.

Robert Kohler:

Scott Orn:

It’s security. Yeah. Yeah it’s hardware, software and … How did you get involved in that?

Robert Kohler:

A lot of these … the companies I advise is just from random sort of meetings and sort of a social event or meeting just online and start talking. Like the nanotech company. And like wow, this is really interesting. You’re able to determine the size of a molecule and determine what that indicates in terms of human health. I mean that sounds really cool.

Scott Orn:

That’s interesting.

Robert Kohler:

It is really cool. So I mean this is a garage company right now. And I mean literally a garage company. But I like taking flyers like that too and it’s fun for me. And it’s fun talking to the scientist. He’s one of those guys where I really don’t understand most of the words or acronyms or anything else but I sort of get it. Like when he dumbs it down, I’m like write this for a third grader. I mean seriously. Write this for a third grader because then I’ll understand it.

Scott Orn:

That’s a good exercise though because that’s how you have to communicate with investors too.

Robert Kohler:

Scott Orn:

Yeah. And being able to simplify the pitch. Fred Wilson, a famous VC had a great blog post today where he talked about Twilio because Twilio went public today and he said, it was the best seed pitch he’d ever heard and all the [inaudible 00:25:18] walking, opened up his laptop, write five lines of code and made Fred Wilson’s phone ring. And at that point, Fred Wilson’s like, “We’re in. I’m investing in Twilio.” And today they went public at like a $1.5 billion valuation.

Robert Kohler:

Scott Orn:

It was up 65% or something. Yeah. Crazy. So what are you seeing in the financing market? Are you seeing valuations stay the same or is it cooling? What are you seeing out there?

Robert Kohler:

I’ve been seeing a marketly different valuation. I mean I think in some ways I read stories in Tech Crunch and basically all the blogs where it seems like it’s cooling a little bit but I mean Exel just raised an incliner and I forgot …

Scott Orn:

Everybody raised.

Robert Kohler:

Like billion, billion dollar. So the sub-limited partners are still bullish on it. And Uber and Airbnb, all those guys are raising just ungodly amounts of money. So I don’t know. And I think for startups, I haven’t really noticed a real shift in that. Especially if you’re doing like a quarter million or $500,000 or a million dollar, I think there’s still if you had the right pitch and you have the right people to speak with and you’re trusted as well and you have the experience, the background, I haven’t seen anything. It’s not like some of the bubbles previously.

Scott Orn:

Yeah. I feel exactly as you do. Like I don’t think valuations are really going down. The only thing I’m seeing is that good companies are totally getting funded and sometimes they’re getting funded even higher valuations. I feel like last year it kind of warped everyone and was like even mediocre companies were getting funded last year and I think that’s slowing.

Robert Kohler:

Scott Orn:

I agree with you on that. But if you have the goods, you’re getting funding and there’s a lot of people fighting over your deal. Can you tell the audience kind of just where they can find you online, how they get a hold of you, what your web address is, all that kind of stuff?

Robert Kohler:

Yeah. So Robert Kohler. K-O-H-L-E-R. The firm is Kohler Law Group. Www.kohler-law.com. And email is rkohler@kohler-law.com.

Scott Orn:

That’s fantastic. Thank you for being on the podcast. You’re a super high energy guy. It’s really fun interviewing you and I highly recommend your services. Like outsourced in-house counsel makes so much sense and I see just ginormous legal bills for very basic things like you’re talking about and having someone who’s actually focused and not having like the associate at a big firm like you’re talking about is actually really really important and it just cuts out so much back and forth. So you actually save money and you get a better product. So I’m a fan of what you’re doing. Thanks for coming on Robert. Really appreciate it.

Robert Kohler:

Thank you very much for inviting me. I appreciate it. Nice talking to everyone.

Scott Orn:

Thanks.

Robert Kohler of Kohler Law Group: Outsourcing In-House Counsel for Startups

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