Meet Our Mentor Series — Padraig Walsh
Pádraig is a partner of the independent Hong Kong law firm, Tanner De Witt, and a long-time mentor of Founder Institute Hong Kong. With more than 20 years of experience as a lawyer in Hong Kong, Pádraig has worked with startups and growing businesses in Hong Kong to provide a range of legal services. His advice has helped many founders avoid legal missteps and pitfalls. Today, we had a chance to sit down with Pádraig and to ask him to share his experience with founders.
Can you tell us something more about your approach as a lawyer to help business firms?
Padraig: I’ve been working in Hong Kong since the late 1990s. You didn’t hear the word “startup” at that time in Hong Kong. The closest were small and medium-sized enterprises — SME’s. In many ways, startups and SMEs are similar. At their core, they both require hard work and entrepreneurship to create a sustainable business.
Startups and SMEs diverge in their business philosophy. Startups look to leverage technology to scale rapidly. This differentiating element is the attraction for venture capital financing. It holds out the prospect of significant returns within a comparatively short investment term by private equity standards.
I have had an abiding interest in technology and business for a long number of years, and I have been fortunate to find a way to combine those interests and my legal practice. Mostly, I focus on guiding startups with financing and related legal documents and introducing founders and startup communities like Founder Institute to other legal issues that are important in business. These issues certainly include financing and investment, but also include equity incentive schemes, data protection, intellectual property, and technology contracts and transactions. Now, it gives me the pride to see founders whom I have helped from their early days building fully-fledged businesses and grappling with even more sophisticated legal issues. That is a hallmark of progress from my perspective.
Can you share a key recent project?
Padraig: This is always a sensitive subject for a lawyer, given our rules on confidentiality! Let me share an example that is already in the public domain.
We recently helped an insurtech business to prepare, negotiate and close it Series A investment round. This was a particularly pleasing experience, as I have helped that business from its very early days. The transaction was also challenging and intellectually rewarding.
The founder of this company had a prior career as a senior executive in the insurance industry. He was very clear on his commercial objectives and organized an excellent project team to manage the fundraising process. This made for a very well-structured, collaborative, and efficient process. Believe me, this is an exception, not the norm! Maybe there’s a lesson for founders to learn there.
Can you share some common mistakes you see startups make?
Padraig: Here are two common mistakes I see founders make.
First, founders often overlook legal issues that affect their business. Let me give you an example. If a startup is in the fintech space, then regulation is a critical element to address in the business plan. Financial service is a regulated sector of the economy. Sometimes, founders approach me with disruptive fintech business models without having considered regulation. This is a serious mistake.
Second, many founders fail to properly identify their ultimate objective and build their business to meet that objective. Let me explain more by speaking about venture capital financing. Many startups measure their success based on funds raised, and this has led to a culture of assuming that venture capital financing is the tried and tested route. However, venture capital is not for everyone. It is a particular financing model that is geared to accelerated growth and exit. This is only suitable for very few businesses. If you are looking for a stable business that generates decent cash flow and provides measured growth, then venture capital is not for you. Founders often fail to think this through carefully.
What is your favorite failure in advising founders?
Padraig: Well, it’s not a failure as such, but let me share an early learning experience of mine with you.
Before working on technology and startup transactions, I focused on a more traditional M&A corporate practice. That worked required a similar approach in some ways but is very different in other respects. Usually, the transactions were of a different order of magnitude of scale and value. The expectations from the parties were traditional, mainstream corporate expectations. As I shifted my attention to venture capital financing — especially in the earlier stages — my instinct was to apply the same approach. However, this was misguided. The landscape is different in venture capital. The pace of deals is faster. The attitude to risk is different. The transaction documents align to that environment. So, I had to “unlearn” what I knew, and construct a skill set that matched the scene. I was fortunate that a startup with experienced founders recognised my interest in the area, and gave me hands-on practical guidance in the course of financing I helped them with. This is a community that helps each other.
