Lauren Creel of Cooley law firm, represents startups and venture capital funds with an emphasis on early-stage companies and financing

Lauren Creel of Cooley - Podcast Transcript

Scott:	Hey, it’s Scott Orn at Kruze Consulting and welcome to another episode of Founders and Friends. And before we start the podcast, let’s give a quick shout out to Rippling. Rippling is the new cool payroll tool that we see a lot of startups using. Rippling is great for your traditional HR and payroll. They integrate very nicely. But guess what? They did another thing. They integrate into your IT infrastructure. They make it really easy for when you hire someone to spin up all the web services in their computer. Which sounds kind of like not a huge deal, but actually we did this study at Kruze. We spend $420 on average just getting a new employee’s computer up and running and their web servers up and running. It’s actually a really big deal. It saves a lot of money. And the dogs are eating the dogwood. We see a lot of startups coming in to Kruze now using Rippling. So please check out Rippling, great service. We love it. I think we have a podcast with Parker Conrad. You can hear it from his own words. But we’re seeing them take market share, so shout out to Rippling. And now, to another awesome podcast at Kruze Consulting’s Founders and Friends. Thanks.
Singer:	(Singing). It’s Kruze Consulting Founders and Friends with your host, Scotty Orn.
Scott:	Welcome to Founders and Friends podcast with Scott Orn at Kruze Consulting. And today, my very special guest is Lauren Creel of Cooley. Welcome, Lauren.
Lauren:	Hi, thanks for having me.
Scott:	My pleasure. So, we worked together back in the day on a company called Fleetsmith. And I wanted to have you on because we really enjoy working with you and Cooley and just wanted to kind of spread the word a little bit.
Lauren:	Thank you, likewise.
Scott:	Yeah. Well maybe you can start off just by retracing your career a little bit and telling everyone how you ended up at Cooley.
Lauren:	Yeah. No, happy to. So, I’m a lawyer, and it was never what my intention was. So out of undergrad, I actually thought I wanted to be an economist. I worked in an economic consulting firm and went off to get a PhD in economics. And then, just kind of along the way, realized I didn’t want to be an academic, and so I had to do a career shift. And so, then I went to law school. Good news, it’s a good fit. And so, I actually started practicing, I’m from Texas, at a firm in Texas, in Austin, called Vinson and Elkins. Loved my time there. I was there for approximately three years. And then, relocated to the Bay Area. So, I’ve been with Cooley ever since, so I think we’re going on eight years. And now, my practice has shifted a little over time. I think when I started out, I was a generalist. I did kind of everything that a company can do. I really just do startups now, and then, the VCs that invest in them, and probably that’s what I’ve done for the past five or six years.
Scott:	Yep. It’s actually kind of amazing how we can all specialize in startups. It’s kind of like I always tell people; the magic of the startup ecosystem has gotten big enough to have a specialist like you and I and Kruze and Cooley. And we can all do very well and help a ton of companies and it’s really fun. I was checking out your bio, and I love one of your passions was Texas.
Lauren:	Yeah.
Scott:	I love Texas too. I’ve been to Austin many times. I love the food. I love the people. What about Texas is your passion?
Lauren:	I know, right? It’s like, [crosstalk].
Scott:	I loved it. I thought it was really funny.
Lauren:	I’m not from there, and so I think I love it with a deeper passion than if I was like born there. So my dad worked for an oil and gas company. I actually was born in LA. I’m a native California.
Scott:	Oh, no way. Okay, yeah.
Lauren:	Yeah, yeah, it’s very random. But so, we moved growing up every two to four years. And then, I ended up doing high school in Dallas and was like, “I’m done with Texas. I’m getting out.” I went away for undergrad. And then, you kind of get perspective and came back to Austin. And Austin is the best of all worlds to me. So, I think it’s I’ve lived in enough places that I know what I like and I don’t like. And so, Austin at least checks the boxes there for me. At least when I lived there, we lived downtown. You could go out to live music every night. I mean, literally you could walk down the street, you could go run at the lake. The quality of life is pretty dang fantastic. And then, my parents are there now. I mean, it’s very Texas to me, it’s kind of a hoot. They live on this, I call it a gentleman’s ranch where they have 20 acres and exotic animals that run across their land, right?
Scott:	Oh, wow. That’s amazing.
Lauren:	It’s just like the [crosstalk]. Yeah.
Scott:	That’s awesome. We have a lot of Kruze team members that live there or moved there, and it’s becoming a real cluster for us. So that’s really great. Well, so maybe talk about your practice a little bit. So, it sounds like you do both tech and life sciences. You kind of straddle both industries.
Lauren:	Yeah. That’s exactly right, yeah. And I think that’s for a lot of us who are EC/VC or startup attorneys, that’s kind of what it looks like, in part because “under the hood” they largely look the same. There’s definitely going to be areas where specialists get involved with one versus the other and there’s details there. But for what I do, I’m just general corporate counsel, so doing the day-to-day, the finance things. That doesn’t really matter kind of what kind of company you are. And so, I think on any given year it’s going to vary. Right now, I probably have slightly more companies that are just truly tech and not life science. But on any other given year, it might be the flip.
Scott:	It’s kind of like a nice, natural hedge.
Lauren:	That’s right.
Scott:	Both of those industries tend to move out of cycle.
Lauren:	That’s right.
Scott:	And biotech’s crazy hot, tech’s hot too right now.
Lauren:	Yeah.
Scott:	But sometimes it kinds of works out where that you pick up some work in the other.
Lauren:	Yeah.
Scott:	And then, when you talk about being just general counsel, maybe walk people through, A, when you get involved in companies, and B, the kind of stuff you do for them, maybe at both early and then later stage.
Lauren:	Yeah. So, I would love to be involved as early as possible. We’re kind of the first stop when you’re going to get yourself incorporated. So that’s where I’d come in is just help, counseling. Should you be a corporation? Should you be an LLC? What should your equity structure look like? And just getting you formed. And then, usually I just view it as, depending on the analogy that works for you, it’s I’m either your quarterback or I’m your general practitioner doctor. I’m your first stop to a law firm typically. Because especially with a lot of our startups, as they grow, they don’t even have an in-house counsel for a very long point-of-time, and that’s what we function as. And so, both I’m there, and the stuff that I would handle, your rank and file hiring, firing, getting consultants, doing financing, and kind of just working through that with you. But then also being the kind of liaison between you want to do venture debt, you need to do a commercial agreement. I will kind of help wrangle the cats, so to speak, and make sure the train stays on the track. And so, that’s truly when they’re early stage. The CEO and I typically have a very good relationship because that’s my point person. As they grow up, they’ll start to bring people in-house and probably have a GC. And so, then that’s going to be more my point person, and then, just the needs evolve. And we’ll go wherever a company goes, but those later stage ones, they’re moving overseas, we’ll help with that. They’re doing much more sophisticated contracts, we’ll help with. So yeah, we just, I think the firm is set up to grow and go where our companies go.
Scott:	Do you take them all the way through IPO, do you do all the IPO prep too?
Lauren:	We do. We have one that just went out that I helped with. My sweet spot is more on the startups. When they’re going to get… I’ll take them up until public, and then, once they’re kind of transitioning over, we’ll have usually in that year ahead of time, try to build out the team. The company is just going to have more legal needs, we’ll add bodies to it. And then, once they’re public, they’ll have somebody else that’s more of their point person. I’ll stay involved because I’ve got historical knowledge. But yeah, I don’t do the SEC reporting. That’s not my sweet spot.
Scott:	Yeah, yeah, yeah, that makes perfect sense. And you talked, about one thing that caught my attention was the getting involved as early as possible.
Lauren:	Yeah.
Scott:	And I’m a fan of that because my heart sinks just a little tiny bit when I’m talking to a potential Kruze client and they incorporated themselves or their uncle incorporated them, I’m not sure people understand that… There’s an old saying like an expensive lawyer is a cheap lawyer in the sense that if you do things correctly at first, it makes everyone’s life easier, including the accountant’s life easier.
Lauren:	Yeah.
Scott:	Maybe kind of talk about that a little bit.
Lauren:	I think that’s right. And I feel for our startups. They don’t have a lot of money. They haven’t fundraised oftentimes. And so, they’re trying to be super cost conscious, and I think we’re set up to help work with that. But I do think it’s exactly what you said, people then self-help. So, here’s what I would say, formation documents are not exciting. If they are, something’s probably gone wrong. And so, there’s plenty of resources out there. And even if you went to Cooley GO, we make our formation docs publicly available because we truly believe there’s nothing exciting or secret sauce. But where we have value and a place like you add value, is in the counseling. And that doesn’t even need to be a long counseling session. That’s a half-hour to an hour where we can talk through a company like, “Should you be an LLC? Should you be a corporation? And what are the implications?” And it’s exactly what you said is we get a fair number that self-helped around the edges. And it can be wrong entity choice. It could be failure to do some very simple paperwork, but if you fail to do it, like file an 83(b) election, there are pretty bad consequences. We just do this day in, day out. We are crazy efficient, and just can make sure you don’t drop the balls there, and then have this huge legal bill that is like twice what it would have been if you just called us.
Scott:	Totally.
Lauren:	Yeah.
Scott:	I totally agree. Let’s roll through a couple of those real fast because it’s really helpful. So, the LLC versus Delaware C-Corp, another hot button thing for me, maybe you can kind of give your opinion. I can chime in.
Lauren:	Yeah. No, absolutely. By and large, it’s going to be a Delaware corporation is going to be the answer. Not always, but if you’re kind of a typical startup, it’s a Delaware corporation for a couple of reasons. One is VCs largely need to invest into corporations. There can be exceptions to the rule, but especially if you’re thinking, “I’m a startup,” you don’t really want to put up barriers to raising funds. And part of it, the other piece, is that Delaware corporations… It’s like 99% of my clients are Delaware corporations. And what you can take from that is there’s just a market standard. There’re form documents. There’s a form way of doing things. It’s hyper-efficient. And then, if you want to do something bespoke, we can work around the edges. Versus the good and the bad about an LLC is there’s broad flexibility, and there’s just fewer data points, that equates to cost, if there’s not a one set way of doing it. And again, when you’re a startup, you’re not probably trying to be legally unique. You’re trying to be a market leader in other ways.
Scott:	Totally. Yeah.
Lauren:	And then, I think too, you get people I think that… And this is totally your space, but more on the LLCs, and they’re like, “Oh, it must have tax savings or implications.” But the great thing about under the current regime is with a corporation you qualified small business stock, right?
Scott:	I forgot about that, yeah.
Lauren:	That’s not available in an LLC unless you convert, and not only convert, at the right time. And that can have huge tax savings for our founders, which the equity is how they’re going to make money out of this. So again, you can have very sophisticated people that LLCs can make sense, and they will wait to do the conversion until later to kind of maximize their QSBS. That’s just, that’s kind of serial entrepreneurs that… You know?
Scott:	It’s too fancy.
Lauren:	It’s fancy.
Scott:	Because you’re overthinking it. Real fast, the venture capitalists want to invest in Delaware C-corps also because the case law in Delaware is very well known.
Lauren:	Yeah.
Scott:	So, everyone kind of, I always say everyone knows the rules of the game.
Lauren:	Yeah.
Scott:	And then, their funds cannot invest in passer entities like LLCs because it messes up the fund’s taxes.
Lauren:	Yeah.
Scott:	And then, you’re right about QSBS I wasn’t even thinking about that when I asked the question, but especially with the new kind of Biden tax rules or tax guidance coming out, we have companies to almost to the dollar figuring out how they can come in below $50 million in net assets in their next fundraise to preserve QSBS. Do you have a second to kind of explain that? I can kind of talk around QSBS too, but what is that? How should founders think about it?
Lauren:	Yeah. I’m going to lean on you to fill in my gaps here. And then, the great thing is is QSBS is not only just a benefit for your early founding team, but it’s also for your early investors. This is why they will be hyper-focused on it as well. And so, it’s this kind of, I’m going to call it a great hack in the tax code that continues. We hope it continues. But effectively, if a company, it has to be a corporation, issues stock directly, so it needs to be company issuing to person, not a secondary, that stock can be QSBS. You’ve got to be in certain industries, so not every company can qualify. And then, also, the company for qualified small business stock needs to have under $50 million in assets. You chime in when I get my data-
Scott:	It needs to be on a tax basis asset, not what their QuickBooks says, but actually the depreciation schedules coming out of your tax returns. So, this is really important. I’ve had companies kind of overthinking a little bit and looking at their QuickBooks. And we’re like, “Hold on a second. We need to get our tax team involved because we actually have to look at this on a tax basis.”
Lauren:	Okay. Yes. See, and this is also when my companies are wanting to do their QSBS analysis, and I’m like, “We need an accountant now,” or at least somebody with tax… And the point is, so that can mean up until for your first couple of rounds, you can actually issue qualified small business stock. Those later rounds are going to blow that. But the benefit here is that there are certain kind of restrictions. But if you have held your stock for five years by the time of an exit, which especially for your early stage startups, often gets met by the time you have an exit event, it’s up to 10 million of the gain is basically essentially tax free. It’s just this hack in the tax code where they’re incentivizing people to invest in startups. And so, that can have a huge impact on exit and have a huge tax savings. And so, there’ll be things, too, along the way, we will help. One of the ways you can blow that up is if you repurchase stock from people, and you don’t think about it. And so, that’s just places where we try to add value as when you’re trying to get liquidity, great. But let’s structure it so you don’t just hate yourself a year from now when you exit.
Scott:	It is like the lone remaining kind of tax hack for startups, and you save a ton of money on capital gains. It’s crazy. And you’re right about the investors caring about it too. Pretty much every fundraising kind of document process we go through, it’s asking the founders in the company really to rep to QSBS. Which just for full disclosure, we always kind of are pretty cautious about that because there are things that we don’t know or maybe the founders don’t know. So, we always kind of try to give comfort, but not do a full rep. But sometimes everyone… It’s a little bit of negotiation there. But everyone should be laser-focused on that if the amount of capital you raised is getting close to $50 million.
Lauren:	Yeah, yeah, yeah. And it is, it’s like this is one of the reasons why being a corporation isn’t bad.
Scott:	Yeah.
Lauren:	You always hear LLCs are the tax efficient way, but, hey, here we’ve got a hack for you.
Scott:	That’s a really good point. I’m so glad you brought that up. Hey, it’s Scott Orn at Kruze Consulting. And before we get back to the podcast, quick shout out to ChartHop. ChartHop is one of my favorite new SaaS tools on the market. And basically, what ChartHop does is it puts your org chart in the cloud. And I always like to say it brings transparency to your organization. And so, everyone in your organization can see who they report to. They can see the full org chart of the company and how their group relates to other groups. It also has a lot of information on the individuals in the company. And so, you can click on the ChartHop profile and just get where people live, their experience, Slack handles, all this kind of stuff. And it’s just a really great tool. The other thing is ChartHop has started doing some cool stuff around compensation and budgeting planning. And so, you can actually start seeing what the cost structure of the company looked like during certain kind of scenarios. So, I’m loving ChartHop. Check it out, charthop.com. We use it at Kruze, really like it, and I can’t recommend it enough. All right, back to the podcast. The other thing you mentioned was, and this is so simple, but we’ll just spend a minute on it, 83(b) filings. They are just, again, my heart sinks, when someone asked me the 83(b)-filing question because I know they haven’t done it. And my immediate reaction is, “When was the stock issued? Do you have 30 days still?” kind of thing.
Lauren:	Yeah.
Scott:	Can you talk people through that?
Lauren:	Yeah. So, if you’re a founder and you’re issuing stock, if it’s unrestricted, so no vesting, you don’t need to care about an 83(b). So, if anyone is just listening and their stock is fully vested, and you’re like, “I didn’t file an 83(b),” rest easy. So, this is truly for founders where you’ve issued stock with vesting restrictions, which does happen in most startups, particularly if it’s more than one founder, right?
Scott:	Yeah. Pretty much all the time, I mean, you know?
Lauren:	Yeah, you’ll have vesting restrictions. And so, basically, again, it’s kind of like a tax hack again, but basically if you have vesting on your shares, you need to file what is called an 83(b) election. It’s a one pager. And you send it to the IRS. And here’s the ticket, it is 30 days. It is 30 days. There is no exception to the rule. I have had a client mean to file it, had a baby come early, just kind of got off track because was doing the newborn thing, and was like, “Is there an exception?” IRS does not care. And the catch is this will basically result in, when you bought your stock, there’s no spread between what you paid and what the stock was worth typically in the early companies. And so, you’ve basically, and again, I’m going to look to you to help with the tax here, but you’ve really saved yourself a lot on taxes. If you fail to file, you’re basically having this tax event every time you vest, and on that spread, you’re realizing income. This can be [crosstalk]-
Scott:	It’s ordinary income tax, not capital gains tax kind of thing, eventually, yeah. So that’s the big difference.
Lauren:	It’s problematic for both the founder, because you’re getting hit with ordinary income that you didn’t think you were getting hit with, and then, also for the company, if 83(b) elections weren’t made, they’re supposed to be making certain withholdings that they probably aren’t making because they didn’t think to think about this. So again, it’s such an easy hack. It’s just taken your 83(b) election and stick it in the mail. You can even DocuSign it now. The IRS rules have changed. They’re trying to make it easy. But you will, you’ll find companies, to your point, where you hear two months later, “Oh, I didn’t get around to it.” There’re ways to help. There are no ways to solve, right?
Scott:	Yeah.
Lauren:	So that’s just-
Scott:	It’s really expensive to try to do anything around it. And it’s kind of like, I hate to say it, but it’s kind of a litmus test for are you an organized founder and are you going to be successful? It’s not a good… And if you make that mistake, hopefully you learn your lesson that moment and you become an organized founder. But it’s not a signal to your investors that you’ve got your stuff together. It’s-
Lauren:	No. We [inaudible] all the time. If I’m investing funds on those first rounds because you’re… Especially if someone didn’t have a law firm involved, it’s way too easy to mess up, right?
Scott:	Yeah.
Lauren:	Yeah.
Scott:	It’s scary. Speaking of, you mentioned early in the conversation, Cooley GO. Can you talk about… I mean, it’s a resource that I send tons of entrepreneurs to. It’s really amazing. I think Cooley was like the first startup law firm to really get its content out there and really help people in a proactive way. It’s been going for, I want to say, like 10 years or eight years or something like that, right?
Lauren:	I think that’s right. It’s kind of… I’ll give a throw-out, Matt Martinez helped spearhead it. He’s kind of the head of the EC/VC practice here. And I think the entire group of us startup attorneys have kind of embraced it. I mean, I love it. I think it is also just something that speaks volumes to the firm in the sense that we really do invest in trying to add value to startups. And we know that you are cost-conscious, and so, this is a free resource. And so, it does a couple things. It, one, just has FAQs. So, it’s like this 83(b) election, there is going to be a little blurb on it and you can go read about it. It is truly set up to be for, “I’m a startup CEO,” so it’s that tone. It’s not going to be technical. It’s supposed to be a very easy resource. The other thing is if you guys see questions that you think aren’t being answered, tell me. Because it’s like, truly, it is supposed to be for that market.
Scott:	I do the same thing. I love it when people email me and say, “Hey, I didn’t see this question answered. Can you answer it for me?” And we immediately make a video for it. It’s that easy.
Lauren:	Yeah, right. No, we’re trying to just build out the community. The other thing it does is we make a lot of those common documents publicly available, so your offer letter, your IP assignment agreement for your employees, your consulting agreement, the incorporation documents. And truly, they are best of breed. They’re up-to-date with current law. They’re publicly available. They are the same form I use for my paying clients. We’re not giving you a generic, hacked version. Because again, it’s this compassion or this belief that we have that these documents are very not exciting, right?
Scott:	Yeah.
Lauren:	And this isn’t where we add value. We add value in the counseling. We add value as you grow up. We want to preserve your money so that you cannot put it towards legal bills when it comes to building your company. Because again, when you get big, you will have big legal needs, and we’ll be there for you. The other couple of things it does that I think are nice is if you go, I think it’s under trends, we do… Quarter on quarter, I think, according to PitchBook, we’re number one or number two on firms doing financing. So, we do a very large volume of financings, and internally we pull the data behind those deals: evaluation, how much it raised, what industry are you in? And then, we actually anonymize it and make it available, and you can kind of go through on Tableau. And so, if you’re like, “Hey, what was the pre-money valuation on a series A deal?” It just is an easy way to get a pulse of what’s going on in the market.
Scott:	Yeah. It’s actually really helpful to know where the valuation trends are going. Also, terms like liquidation preferences or bridge rounds or the distribution between seed, series A, that stuff, Cooley does produce a lot of really helpful data.
Lauren:	Heck, yeah.
Scott:	Yeah. And so, that’s a resource everyone can access easily, cheaply. What’s kind of the message to… You talked about kind of the services you do for a late stage company, for an early stage company. Are there specific industries inside of tech or inside of biotech that you’re focused on? Like you like biotech drug companies or you like diagnostic companies or you’re a SaaS person? I’m trying to kind of let the audience know what kind of companies you really like working with so they can reach out to you.
Lauren:	Yeah. No, and it’s a great question. I’m agnostic in the sense that… Because, for me, it’s the legal piece that’s interesting. And I mean, I love going to your board meetings and learning about it and it lets me… I’ve got this academic in me from my previous days, and so, learning about the different industries, so I’ve got kind of just companies across the spectrum. I think lately it’s been this wonderful trend we’ve seen, I actually have more women CEOs in the past year than I think I’ve had across my entire career. And I’m not exactly sure why that is, but that’s… So, I think that’s a portion of the clientele I have now and I love it. It’s super fun.
Scott:	Yeah. We’re seeing the same thing. I don’t know if it’s selection bias for us because Vanessa Kruze is our founder, and so, we have a woman CEO. So, I’m not sure if women CEOs pick us more often, but we’re definitely seeing that allocation go up. It’s just really good. It’s like the venture capital markets are opening up to people of all colors, ethnicities, sex… It feels like it’s… It’s not equal playing field yet, but it’s going that way. And when I look back on like when I used to work at Lighthouse, a venture lending fund, we had two women partners out of five, and we were totally unique. No one had that kind of ratio, you know?
Lauren:	Yeah, yeah, yeah.
Scott:	So, it’s really, I’m actually really proud of that. It’s really cool.
Lauren:	Yeah, it is. Right. And I think you’re right. For whatever reason, this last year has been really just a sea shift, and it’s great.
Scott:	Yep. As a general counsel, a woman, do you have any words of wisdom for all the female founders who are out there that are listening to this, or just for my wife when she listens to this?
Lauren:	Yeah. I mean, so I think if you’re a startup, know that there are both funds that are run by women who are truly just looking to invest in women. So that’s one thing that’s, I think, lovely to at least try to do a pitch call with them to see if that’s something, to have that voice, to have that support. There are also funds that may not necessarily just be women VCs, but they have expressed a commitment to being behind kind of, I think they call it MWE, minority women enterprises. And so, that’s also something that you might want to take into account is just these people are committed. We’ve also had in the last year more funds and entities have kind of, not even events or things around it… So, for example, and my intel may be a little out-of-date, but I think Goldman Sachs and B of A and there’s all of these very big entities that are now devoting funds to founders. And so, know that there are resources. Go ahead, attack the normal VCs, but there’s also these other ones that you might want to entertain.
Scott:	Yeah. I’ve heard about the Goldman Sachs one where they’re super-focused on women and people of color.
Lauren:	Yeah.
Scott:	That’s really, really amazing. Well, this has been really helpful. Thank you so much for taking the time. Maybe you can tell everyone how they can reach out to you if they want to work with you.
Lauren:	Yeah. Yeah, I would love to. And thank you for having me.
Scott:	Of course.
Lauren:	If you’d like to reach me, so email’s easy, LCreel, so C-R-E-E-L @ Cooley, so it’s C-O-O-L-E-Y, .com. If you Google Lauren Creel and Cooley, we get a splash page that comes up, so you can find me that way too. And those are the best ways to get ahold of me. And I’d love to talk to you. My bread and butter are startups, and so if that is you, please talk to me.
Scott:	Definitely will. And I can vouch for your work. The company we worked with on together was eventually acquired by Apple, so they did pretty well for themselves. And we’ve done, worked on IPOs and done a ton of stuff, so it’s been really great working with you. And thanks for the time, Lauren. Really appreciate your time here.
Lauren:	My pleasure. Thank you for having me.
Scott:	Cool. My pleasure. Bye-bye.
Singer:	(Singing). It’s Kruze Consulting Founders and Friends with your host, Scotty Orn.

Lauren Creel of Cooley law firm, represents startups and venture capital funds with an emphasis on early-stage companies and financing

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