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How Startup Attorneys Create Value and Engineer Exits

 |  May 10, 2023

By: Rachel Landy (CLS Blue Sky Blog)

For almost four decades, scholars have been debating whether business lawyers provide value to transactions. The discussion began with a significant article by Professor Ronald Gilson. In the article, Gilson referred to business lawyers as “transaction cost engineers.” He argued that these engineers optimize the cost of a transaction by helping contracting parties find efficient ways to resolve negotiation stalemates. This way, they create more valuable deals.

Gilson’s theory gave us important insights into sophisticated corporate law practice, where outside lawyers are hired to make unique deals happen. However, the current literature does not explain how many business lawyers, particularly startup lawyers, operate. Startup lawyers can control the cost of their client’s eventual exit (for example, an acquisition or an initial public offering (IPO)) well before that transaction takes place. By doing this, they can influence the value of the startup itself. These lawyers are not just transaction cost engineers; they are exit engineers…