The internet is full of advice, mostly bad, but occasionally useful. Our Tech Law Link Lists series tries to collect the useful bits. This is advice worth reading, but it may not be advice thats right for your startup. This first installment is about finding the right lawyer.
Lawyers or Insurance Salesmen? Naval Ravikant, 2005. Dont just go with the lawyer that the VCs insist upon. These lawyers will work with the VC on a hundred financings and with you on only one. Where do you think their loyalties lie?
Startups Need Specialist Lawyers, But Not Big Firm Lock In. Jose Ancer, 2015. A big-firm partner will try to cross-sell you on all of her firms other lawyers. Not because the other lawyers are the best fit for your startup, but because the lawyer wants the origination fees associated with this cross selling.
Its the Hours, Not the Rate. Jason Mendelson, 2013. In all my years of auditing lawyer bills, its the hours that always stand out. The hours, in any complex matter are what spiral out of control. In these big issue situations (litigation, patent stuff, M&A, IPOs, etc.), the amount of hours that an efficient and creative lawyer will save you far, far outweigh whatever hourly rate they may charge.
Picking a Startup Lawyer in NYC. Matt Mireles, 2010. Make sure your lawyer is focused on wealth maximization, not risk mitigation. Includes some recommendations for individual NYC lawyers.
How to Work with Lawyers at a Startup. Mark Suster, 2010. When to hire a lawyer, how to choose a lawyer, how to manage costs, and more. Your startup law firm should be local, right sized, and startup focused.
Lawyers are referees, not coaches. Babak Nivi, Venture Hacks, 2008. Lawyers teach you the rules of the game, but not how to win it. Your lawyer will tell you whether something is legal and whether it would breach a contract. A good lawyer can tell you about problems that tend to arise in similar deals. However, lawyers generally cant tell you whether something will create value.
Contracts are for the Divorce; Not the Honeymoon. Jose Ancer, 2014. Some lawyers make mountains out of molehills. Others provide real value by helping founders avoid legal traps. Know when to listen to your lawyer and when to listen to your VC.
Startup Lawyers Poker: Fee Deferrals. Jose Ancer, 2015. In many cases, fee deferrals are just clever ways for firms to lock in already de-risked founders and have them ignore massively marked-up price tags on legal services. Read this post and think about how big-firm legal fees, even if deferred, will affect your runway.
Be Cautious About Deferred Fees in Dealing with Lawyers. George Grellas, Hacker News, 2011. These have their legitimate role in the world of startups but, as with any other form of easy credit, they can wind up costing you far more in the long run than if you simply negotiate good rates or fixed fee amounts for work you have at hand.
Should I pay my investors legal fees? Venture Hacks, 2007. Startups will probably need to pay their investors legal fees. Try to get the legal fees capped (for both your lawyer and the VCs lawyer) before negotiations get started. Dont give up a big chunk of equity for the privilege of paying your investors legal bill.
i always advisor founders to agree on a fee cap with their lawyers before a fundraise or big deal. saves so much ill will later.— Sam Altman (@sama) July 15, 2014
What Are Standard Legal Fee Arrangements For Un-Funded Startups? Jason Mendelson, 2007. $5k fixed fee for incorporation, founder issuance, all initial contracts. Also discusses common terms for deferring legal fees.
What should legal fees in a Series A financing be? Yokum Taku, 2007. Legal fees in Series A venture financings routinely exceed $50K.
A Challenge To Startup Lawyers. Fred Wilson, 2011. When you have a seed stage company that needs to incorporate and close a seed round where all parties are willing to close on a set of standard docs without negotiation and where the investors agree to go without counsel, I think the legal fees for such a transaction should be $5,000 or less.
You Should Read Every Word of Every Legal Doc. Elad Gil, 2011. Thats a lot of reading.
Top 10 Reasons why Entrepreneurs Hate Lawyers. Scott Walker, 2010. Reasons: jargon, unresponsive, overlawyering & failure to prioritize, inexperienced associates doing all the work, and lawyers love to point out problems without offering solutions.
Lawyers are like phone companies. Their bread and butter is in tricking you into racking up minutes.— Bram Cohen (@bramcohen) January 3, 2010
Lawyers Cant Tell You You Cant Do something. Bram Cohen, Venture Hacks, 2010. My particular gripe in that tweet had to do with the practice of billing up several hours to answer a question asked in email, when all that was really wanted was the answer if the lawyer knew it off the top of their head.
Legal Fees: Start Swearing Now. Dick Costolo, 2007. Costolo is now Twitters CEO. The ghost of his old blog lives on at archive.org. It advises startups to find a law firm with experience in financings, corporate creation, contracts - especially contracts, patent/IP work, M&A work, options plans. Since your startup will be paying fees for both sets of lawyers (your lawyer and the VCs lawyer), try to get both firms to cap their fees at the start. Also, try Dicks patent-pending-financing-legal-fees-negotiation-tactic:
Before the two sides start negotiating, I call both sides and start swearing about how upset Im going to be if this costs more than some reasonable amount. Im generally informed that its going to cost a lot more than that reasonable amount, upon which I call and email both sides again and the investors and swear a lot more about how capital inefficient this is and what a waste it is, and since I actually feel this way and am by now swearing in the office about the cost, it has the added effect of not sounding disingenuous.
What did we miss? Leave a note in the comments.