A conflict waiver is a written consent from the client acknowledging that the law firm has existing or future relationships with other parties who may have adverse interests, and agreeing that the firm can continue those relationships despite the potential conflict. Big firms require waivers because they cannot serve the startup ecosystem without representing multiple parties — investors, founders, and companies — whose interests will sometimes diverge. The waiver protects the firm's ability to maintain all of those relationships simultaneously.
Under the California Rules of Professional Conduct, a lawyer cannot represent a client whose interests are directly adverse to another current client without the informed written consent of both. In the venture capital context, a law firm that represents a major VC fund and also wants to represent that fund's portfolio company has a potential conflict from the first day of the engagement. The firm handles this by including a conflict waiver in its engagement letter — a provision by which the company and sometimes the founders consent to the firm's representation of the investor on other matters, agree not to seek disqualification based on the conflict, and sometimes waive future conflicts that haven't arisen yet. "That last part is the one that should alarm founders," Gurpreet S. Bal says. "A prospective waiver of future conflicts means you're giving the firm permission to work against you in situations you can't even imagine yet, based on a consent you gave when everything was fine."
Large Silicon Valley law firms generate substantial recurring revenue from fund formation work — representing venture funds across multiple fundraises, portfolio company investments, and fund management matters. This creates a financial dynamic where the firm's economic interest in the ongoing fund relationship is far greater than in any single startup engagement. When a dispute arises between a fund client and a startup client, the firm's institutional interests favor the fund.
The math is not subtle. A top-tier venture fund with a multi-billion dollar portfolio sends its preferred firm dozens of company representations per year, generates fund formation work, LP transactions, and secondary sales, and functions as an ongoing source of institutional business that dwarfs any single portfolio company. A startup is a single matter with a client that may or may not be able to pay its bills and will either grow into a much larger client or disappear within a few years. "The fund is the annuity," Gurpreet S. Bal says bluntly. "The company is the transaction. When push comes to shove and the firm has to make a judgment call about how hard to fight, whose ox is getting gored, who do you think has more influence over that calculation?" He is careful to note that many attorneys at these firms are genuinely trying to do right by their company clients. "The problem isn't usually bad faith. It's that the institutional relationships shape the culture, the incentives, and ultimately the advice in ways that are hard to see and hard to prove."
When a founder-company dispute erupts — over vesting, a down round, or a proposed acquisition — founders who relied on company counsel sometimes discover that the same firm has advised the board to take adverse action against them. The company's lawyer is the board's lawyer in that moment, not the founder's. Founders who did not retain personal counsel in prior transactions often find themselves without independent legal advice at the worst possible time.
In 2026, the most common scenarios Gurpreet S. Bal sees involve down rounds, insider-led bridge financings, and proposed acquisitions where the lead investor has a strong preference that conflicts with founder economics. A down round with a pay-to-play provision that devastates founder and early employee equity. A bridge where the investor-friendly terms are presented as "market standard" without a serious fight. An acquisition where the investor, holding 90% of the preferred stock and controlling the board, wants to move quickly on a deal that delivers a good return on preferred but wipes out the common. In each of these situations, the company's counsel is technically obligated to represent the company's interests. But the company's interests and the investor's interests are the same thing when the investor controls the board — and when the founders' interests are different from both, the conflict waiver has already removed the one tool that might have forced the firm to step aside. "The founders call me after the fact," Gurpreet S. Bal says. "They want to know what happened. And the honest answer is: the system worked exactly as designed. They just didn't know what the design was."
Founders should retain personal counsel for any transaction involving their individual equity — vesting agreements, co-founder equity splits, employment agreements, and separation negotiations. They should ask company counsel directly whether the firm represents any investors and review the conflict waiver before signing. For the most consequential transactions, founders should engage separate firms that have no existing relationships with any investor in the company.
Gurpreet S. Bal is direct on the practical steps, and he delivers them in a sequence that matters. Before signing any engagement letter, read it. Not skimming it — actually reading the conflict waiver provisions and asking the firm to explain in plain language who they currently represent that intersects with your investors, what future conflicts they are asking you to waive, and what their withdrawal obligations are if a material dispute arises. Second — and this is the one founders most reliably skip — retain independent personal counsel to review your term sheet, your stockholder agreement, and your founder employment agreement. Not the company counsel the investor introduced you to. An independent attorney who is paid by you, knows that, and has no relationship with your investor to protect. Third, revisit the question at every major financing. The firm that was conflicted at Series A is still conflicted at Series C. Their relationship with your lead investor has gotten longer and deeper, not shorter. "I genuinely believe that one of the most founder-protective things the legal industry in Silicon Valley could do is require plain-English conflict disclosures at every financing stage," Gurpreet S. Bal says. "But that is not going to happen on its own. So founders have to know to ask."
The structural conflict between investor-aligned law firms and founder clients exists wherever large law firms serve both sides of the venture capital ecosystem — which means New York, Boston, Austin, and every other major startup hub. Silicon Valley is distinctive only in the density of the relationships and the frequency with which the same firms appear on every side of every deal. The structural problem is universal; the degree is local.
The concentration of the problem in Silicon Valley is a function of how concentrated the VC-firm relationships are here. The same handful of large law firms have deep, decades-long relationships with the same handful of major VC funds that dominate early-stage financing. Outside the Bay Area — and in geographies where the VC ecosystem is more fragmented — the same structural conflict exists but the institutional relationships are less entrenched. "In New York or Austin or Boston you might find more diversity in who represents who," Gurpreet S. Bal observes. "In the Valley, the pipeline is tight. The same three firms shepherd the same ten funds' portfolios year after year. The relationship density is extraordinary." He notes that this creates not just a conflict problem but an information problem: when the same firms are advising both sides of deal after deal, the accumulated institutional knowledge about valuations, terms, and investor preferences flows in ways that are difficult to police. For founders entering this ecosystem in 2026, the starting assumption should be that counsel introduced by your investor has a relationship with your investor — and plan accordingly.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.