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The Legal Side of Scaling with Corporate Attorney Rich McDerby

In this episode of Scale By Numbers, host James Vanreusel sits down with Rich McDerby, a partner at Manatt, Phelps & Phillips, to discuss the legal landscape for startups and businesses seeking to scale. McDerby, an expert in corporate law, especially in the VC and emerging company space, shares insights on navigating the complexities of legal issues, optimizing businesses for sale, and preparing for a successful exit.

Key Takeaways in this episode:

  • The Evolving Role of AI and Technology in Legal Practices: McDerby discusses the emergence of AI-powered legal platforms and their impact on the cost and efficiency of legal services for startups. While these platforms can be helpful for tasks like incorporation and drafting basic agreements, he emphasizes the importance of human interaction and strategic legal advice, especially for companies in highly regulated industries like healthcare. [4:35]
  • Strategic Budgeting and Engagement with Legal Counsel: McDerby suggests establishing clear legal budgets and maintaining regular check-ins with attorneys to proactively address issues and manage costs. As companies grow, he advises evaluating the need for in-house counsel, considering factors like industry, growth rate, and the complexity of legal needs.[8:42]
  • Optimizing Businesses for Sale: When preparing for a sale, McDerby stresses the significance of early planning. He recommends involving advisors well in advance to address tax efficiency, estate planning, and identify potential weaknesses in the business.[11:49]
  • The Importance of Critical Business Analysis: Business owners should objectively assess their companies, acknowledging any “warts” that may impact valuation. Addressing these issues proactively can significantly enhance a company’s attractiveness to potential buyers.[13:52]
  • The Connelly Decision and Keyman Risk Insurance: McDerby touches upon a recent legal ruling (the Connelly Decision) that highlights the importance of carefully structuring keyman insurance policies to avoid unintended consequences during an M&A transaction. [24:04]

Learn more about Rich McDerby and his firm, Manatt, Phelps & Phillips, which offers a unique blend of legal and consulting services designed to support businesses throughout their growth journey.