Checklist for Hiring a Startup Lawyer

While there’s a lot of great content available on the ins and outs of working with lawyers, fast-moving pragmatists may just want a quick checklist for doing their diligence.

Here is such a checklist:

1. Are they really a “Startup Lawyer”? (Specialized)

If you have a heart condition, you call a cardiologist. Brain condition: neurologist. And if you’re an early-stage technology company, you hire a lawyer with heavy experience working with companies exactly like that. Founders end up with big frustrations when they engage lawyers lacking the specific expertise they need.

Sidenote: not all startup lawyers regularly refer to themselves as “startup lawyers.” What you should be looking for is a corporate and securities lawyer with demonstrated expertise in early-stage “emerging companies” work, including angel, seed and venture capital financings.

2. What other legal resources and professionals do they have access to? (Scalable)

Scaling startups often need a dozen different lawyers throughout the course of their life cycle, in addition to the corporate and financing work that startup lawyers do: specialized lawyers focused on commercial contracts, tax, employment, trademark, data/privacy, etc. It is not necessary that they all be under the same firm. In our experience most companies benefit from the flexibility afforded by not being stuck with one large firm or a single go-to partner.  The right IP specialist for early stage planning may not be the right person for bet-the-company IP litigation.

But your startup lawyers will serve as the “quarterbacks” of the legal team, so you need to confirm they have access to quality specialists, as well as junior staff like associates and paralegals to get day-to-day needs covered efficiently.

3. Is the firm’s cost structure appropriate for what I’m building? (Right-Sized)

Two things make up the cost of a law firm’s services: (i) the cost of compensating the professionals to attract and retain them in a highly competitive talent market, and (ii) the “overhead” infrastructure costs to manage the firm itself and coordinate all the people.

Solo lawyers have virtually no overhead costs, but that also means they lack scalability. We’ve seen scaling startups hit huge problems with slowness/bottlenecks when depending heavily on solos. Solos can’t move their simplest, most straightforward work down to junior team members who can bill at lower rates. And they can’t confer with colleagues when it comes to solving the most challenging problems that arise. At the opposite end of the spectrum are large marquee traditional firms with hundreds of lawyers. They’re pricey because of their high overhead costs.  But if you’re going IPO soon or executing a $500 million fast-moving financing, they are your best bet.

In the middle of the spectrum are high-end boutique firms, with more scalability than solos, but leaner infrastructure than “BigLaw.” They can have very high-end lawyers to ensure quality, but are structured better for “non-unicorns.”

4. Are there conflicts of interest with my potential investors? (Trustworthy)

A lot of the high-stakes negotiations you have with investors for financings, and on board governance matters, will involve significant misalignment of interests. It’s not uncommon for repeat players in the community to try to push their favored lawyers on entrepreneurs. The smartest teams pay very close attention to conflicts, and find independent counsel. Law firms regularly representing investors (who do many financings in any given year) and companies (who will, if they’re lucky and successful, do a handful of financings throughout their life) have conflicts that never truly disappear, even if a company is willing to waive it.

How do you fully trust a lawyer to advise you in negotiating a term sheet, when the term sheet was delivered by a VC fund they have a deep relationship with and with whom they do a lot of work? Short answer: you can’t. Arguments to the contrary are hot air.

5. Are they actually good to work with? (Good)

Working with law firms is not and never will be like buying a piece of software. It’s a complex, human-driven service, and firms vary wildly in terms of the “user experience” you get in working with them. Testimonials and references can be valuable in this regard. Pay close attention to the specific people you are going to be working with. Even within firms, some professionals are way better to work with than others, or better suited for your company’s age and stage. Hiring a law firm with an A-level brand will still suck if you get their C-team.

Additional suggested reading: Lies about Startup Legal Fees

By Jeremy Raphael

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