Charly Esnal: [00:00:00] Hello, friends, Charlie here from Base Miami wanting to welcome you to our video series where we'll be discussing all things related to expansion into the US market. And today we'll be having a chat with Lizbeth Flores. She's one of the partners at PAG law. Liz holds a Juris Doctorate from Harvard law school and a bachelor's degree in government, Magna cum Lauder from Harvard University.
And she has over 16 years of experience advising clients and complex cross-border transactions. Her firm PAG law has advised, hundreds of tech companies across Latin America and including market leaders like Mercado Libre, Opening English, Mural. Compare online, 99, and many others. And many other lawyers who were previously entrepreneurs as well, of founded companies such as Idear, the LAB Miami, Miami angels.
So, well, thanks Liz for being with us here today.
Lizbeth Flores: [00:00:57] Thank you for having me.
Charly Esnal: [00:01:00] Great. So, Liz, let me start by asking you this. We work with a lot of different entrepreneurs from Latam and many of these companies are looking for that initial NPT set up and support. So what is the approach that you take with entrepreneurs when they are saying: “Hey, I want to open my company in the US”.
Lizbeth Flores: [00:01:18] We try to keep it as simple as possible. And it's obviously much easier if the structure of the company in Latin America is very simple. So when we have a potential client who comes with a Latin American company already formed and they want to form a US holding company, and the Latin American company has various classes of stock with various rights, et cetera, it becomes much more complex.
So what I would advise to any entrepreneurs in Latin America who see a future establishing a holding company in the United States is to keep things as simple as possible. If possible, all common equity, no special rights outside of the ordinary, special voting rights, et cetera.
Of course, in some cases, it's unavoidable because you might have an investor who insists upon special rights. But any level of complexity really makes the transfer into the United States more complex and, as lawyers, you'd think we would like things to be more complex because we are fees, but it makes sense happy when we can do something, very quickly, efficiently and inexpensively for our clients.
Our clients are entrepreneurs and we would rather that they spend that money on growing their business rather than on legal fees. So that's why I always, I always advise keeping it simple. But at the same time, don't try to do it yourself. Definitely get legal help from folks who have done this before and who will steer you down the path of keeping things as simple as possible.
Charly Esnal: [00:02:47] Hmm. Yeah. That's cool that you had entrepreneurs also in the firms, so they know the grind that it takes and the money and that time is limited. So, that you can guide them on making it easier for them. And you just said something interesting, like, what are some of the pitfalls that companies make in this stage when they are setting up the company? What are the mistakes that you have seen?
Lizbeth Flores: [00:03:13] Well, I always say we make a little bit of money when we form companies from scratch. We make a lot more money when our clients have tried to do it themselves. It is very important to have good legal and accounting advice from the very beginning.
I'm just amazed. I have clients who do rounds in the millions of dollars, but yet they don't want to hire a US accountant. And then something comes up in a future round. One of the VC funds does diligence and finds there's a tax issue that could have been easily avoided if they had spent a couple of thousand dollars on an accountant.
Same goes for lawyers. I always say your legal structure is the house where your company lives. So unless you are a professional architect or a builder, you probably don’t want to build your own house because it's going to fall on top of your family. Well, it's the same for a legal structure. We have a lot of clients who tried to cut costs by doing things themselves from forms they found online and it gets very messy, costly, and time-consuming to try to unwind anything that was done improperly.
But at the same time, there are some things that clients can do themselves. And we will always point our clients towards those things that we feel that they can handle by themselves. For example, oftentimes forming a single-member LLC is really not complex at all, and it can be done through online sources, such as Clerky or a rocket lawyer, and things like NDAs tend to be very formulaic.
So we like our clients to save money. We want them to feel like when they are using us, we're adding value. So if the client wants to save, we can always point them towards things that are very easy and cookie-cutter, but there are certain things for which you do need lawyers’ help.
Charly Esnal: [00:04:59] Hmm. Awesome. That's good to know then that you're not going to just charge them for doing things that they can do themselves if there's some of them. But that you can overview that and say, okay, you know what? Yeah, maybe you can do this on your own time. But, but then this no, this, you need us for that.
So let's see. What is some of the legal support that they will need on an ongoing basis? In terms of compliance or, HR that kind of thing for the day-to-day.
Lizbeth Flores: [00:05:30] Well, we always advise, focusing on the things that venture capital funds are going to focus on when they do their diligence because that might seem very far off in the future, but certain things if done right from the beginning can save a lot of headaches and a lot of needless explanations that you're going to need to make to a potential investor. So the protection of intellectual property is very important. It's very important that from the beginning all the founders, employees, anyone who touches the intellectual property science sign what's called a confidentiality and inventions assignment agreement. We put them together for our clients that frankly, there are forms online that are great.
Anyone who comes into the company needs to sign one of those from the get-go because a venture capital fund will come along and they’ll be very concerned to make sure that they are investing in a company that has protected its rights to its intellectual property. And sometimes it's just too late to go back.
For example, if you have a founder who leaves the company and hasn't signed one of these documents, which again is very cheap and easy, and can be found online and take about five minutes to sign and review. Then, oftentimes, it's hard to find that founder or they don't cooperate and they won't sign it. And that will raise a red flag for the venture capital funds. So you want to save those headaches.
Charly Esnal: [00:06:49] Awesome. And, in that sense, when they're getting ready for either an angel investment seed investment or actually a VC round, how would you help prepare them for that?
Lizbeth Flores: [00:07:03] Yeah. Well, the number one thing is to have all the legal documents in order and well-organized so we can do that as lawyers.
We have a lot of founders who just don't want to touch the legal documents. And it's very important for the founders to know what they have, what their legal documents say. Take the time for the lawyer to answer any questions that you might have and have them very well organized. Sometimes, our clients to save money will want to collect their own signatures. And that's fine, but send a copy of the signed document to your lawyer and definitely keep everything in an organized file. It will just save so many headaches when you have investors down the line doing diligence.
Charly Esnal: [00:07:46] Awesome. I wanted to ask you... maybe this is a tough question. I don't know if you can answer it, but it's in terms of rough numbers of investments that an entrepreneur should plan. For legal fees in their initial 6 to 12 months in the US, it can be rough. But it's like, do I need $10,000 a year or $100.000 dollars a year in legal fees to survive those initial months?
Lizbeth Flores: [00:08:08] So, assuming the company has kept things simple in the home country as far as not having, a lot of crazy rights given to their investors and different classes of stock, et cetera, we can easily keep legal fees between, I'd say $4.000 and $5,000 for the first six months to a year of entry into the United States and that includes a formation of the US company. The flip of the Latin American shareholders into the US company and basic documents you need to get started. The confidentiality and inventions assignment agreements, some basic vesting agreements for the founders, et cetera.
So it doesn't need to be a lot. And again, if the founders don't do it right from the start, it could cost a lot more to go and fix that situation later on.
Charly Esnal: [00:08:57] That's much less than what I thought, so good. And, now more on a personal level, I'm dealing with entrepreneurs from Latin America all the time, and you've helped a lot of very large companies to also smaller guys.
So, if you had to give one piece of advice for entrepreneurs that are considering moving to the US and, and bring their business to the US, what would that be? Just one kind of big advice.
Lizbeth Flores: [00:09:21] It would be, I think humility is very important. And, as entrepreneurs, I'm a small business owner myself. So, if we don't come in with humility, certainly being an entrepreneur teaches us humility. The market is always changing. There are always people to learn from and people who will, willingly, give of their time. There are so many resources out there. So I would say an openness and a willingness to learn and understand that the way things work in the home market isn't always the way things work in the US or other markets. So just, being willing to constantly learn, adapt and take advantage of the resources that are out there. I think to me, this is the beauty of having a small business and being an entrepreneur, and growing a business. It's an opportunity to constantly learn, to constantly get exposure to very smart people in the market, and learn what people are doing with their companies.
So I would say, looking at it as a learning experience and being able to grow from those who have come before.
Charly Esnal: [00:10:23] Awesome. It's funny because we do have a presentation that we do. A webinar that it's the “7 deadly sins of US market entry”. And one of them, when we talk about the team, is the importance of being coachable and having that beginner's mentality. Especially with entrepreneurs is tough sometimes because they've done so much in their own market and they had such success that sometimes they get a little bit hard-headed like I know everything and I know my market.
And when you get to the US it's like, no, you don't know anything. You have to leave anything that you thought that you knew in your country and start from scratch in the US so, I agree completely with that beginner's mentality to keep it when you come to the US. Yeah.
Lizbeth Flores: [00:11:05] So I think the pandemic has really taught us the importance of that beginner's mentality. When the pandemic started, I think the assumption for a lot of people was that everything was just going to go away and the investment would stop and things would come to a halt, but what's resulted in has actually been a great opportunity for many tech companies. But in my opinion, the companies that have been able to thrive are those that have been able to rapidly adapt to the changes, rapidly see what's going on in the market, and pivot.
Charly Esnal: [00:11:38] Yeah. And it's funny because COVID is a lot like, I would say, one of those things that startups kind of have to face all the time, that it's constant change. Things can change so rapidly that you need to have that mentality, as you said, to be constantly adapting to the changing environment.
So it's cool how it all worked out. Well then, that was that for the questions that we had thank you so much for everything that you shared with us today. I hope our entrepreneurs learned more on how to start their US entry the right way also what to take into account and not to make those mistakes that you mentioned.
And, and now they know also that they can contact you and your firm for any kind of support in those initial steps in the US it would be our pleasure. Okay. Thanks, Liz.
Lizbeth Flores: [00:12:33] Thank you.
