Four Items Every Startup Should Consider When Engaging a Startup Lawyer
A few of the exciting, yet unfortunate, realities of every startup are that the company does not know if it will succeed, the startup is typically built on an innovative but unproven idea or product that needs to be cultivated and ultimately brought to market, which can take years, and the founders usually bootstrap operations until receiving outside funding. With that comes the desire to keep costs low, minimize expenses and operate lean until funding is imminent, which often results in a startup not engaging an attorney for months or even years. However, it is critical to ensure that you have everything in order from a legal perspective from the outset to avoid potentially costly and destructive issues that could have been avoided with proper legal guidance.
Here are four items to consider when engaging a startup lawyer.
· Understand the Relationship
Perhaps the single most important point to understand is that your startup is partnering with this lawyer (and typically his or her “team” of lawyers) as a trusted advisor that will help you navigate the successes and, more often than not, failures experienced during your company’s evolutionary path. You need to trust this lawyer just as you will need to trust your business, financial or other advisors. You are not hiring someone to simply plug numbers, names and details into form documents; you are engaging someone that will need to understand your business, your needs and even your company’s shortcomings.
You should ask yourself whether you feel comfortable conversing with this lawyer and whether you trust that they have your company’s best interests at heart. These are not questions you can have answered by looking at a firm’s website or reading an online bio; rather, you should meet (preferably in person) with a prospective attorney to ask questions, have a candid discussion and simply put, to see if you get along with the attorney as you will likely spend countless hours emailing, speaking and meeting with him or her over the course of your company’s lifecycle. Referrals are often a great resource to get names of potential attorneys, but every startup’s needs and personalities are different, so it is important that you find the right fit for your needs, rather than just hiring an attorney because a friend or colleague endorses him or her. Shop around, be smart, and then make an informed business decision on engaging the appropriate attorney.
· Do They Have True “Startup” Experience
As an entrepreneur you understand that there is a difference between a startup and a successfully funded venture backed company. An important item to flesh out is if the prospective attorney truly does have experience representing startups. Three of the many reasons that this is important are: (1) cost, (2) efficiency, but expertise, and (3) understanding the dynamics of a startup.
Cost: Any startup attorney understands the importance of keepings costs down and is often willing to entertain a startup fee arrangement with a client. You should ask a potential attorney to explain how their fees work and whether or not they offer startup fee arrangements. A true startup attorney will know these off the top of his or her head without having to check with accounting.
Efficiency, but Expertise: A true startup attorney also understands that while it is important to keep costs down and work with the client on fees, ensuring that everything is done properly from a legal perspective is the single most important item for a startup. Otherwise, engaging a startup attorney would do more harm than good. At the end of the day, an attorney is engaged to represent you and protect your interests, not to cut corners to keep costs down. However, this does not mean a startup attorney should “over-lawyer” every task, it means that you should get comfort from discussions with the prospective attorney and referrals that this attorney is “efficient”. Efficiency comes in many different forms, including (i) not “over-lawyering” a deal or a single document and (ii) confirming a plan of attack and scope of work with client before spending unnecessary billable hours on a project.
Dynamics: Startup attorneys appreciate the dynamics of co-founders, disgruntled team members and all of the other issues that arise during the early evolutionary path of a startup—the reality is that we advise clients on these issues daily. Yes, every startup is unique, but at the same time, the same (or eerily similar) co-founder and other issues arise in any startup at some point. While these are certainly similar to issues that may arise with farther along venture backed companies, the startup issues often need to be handled delicately and with more attention to detail of the early-startup dynamics that are not present in farther-along companies.
(As an aside, you should also confirm that this prospective attorney represents venture-backed clients as well. You do not want to “outgrow” your attorney (or law firm), you want to have the same attorney and law firm represent your company from inception to exit for continuity and institutional knowledge.)
· Do They Have Relevant Industry Experience
Every startup is unique. Whether you’re in tech, hardware, A.I., gaming, or retail, there is an attorney that fits your needs. Do not be timid from asking prospective attorneys about their experience in your industry, whether they represent similar clients (in size, stage of growth and/or industry), and then frankly asking how he or she differentiates themselves from other lawyers and other law firms. You know your company’s needs and the type of attorney you want to engage. Are you an IP-driven company? If so, ensure that the attorney (or law firm) has relevant IP expertise. Are you in a heavily-regulated industry? If so, ensure that the attorney (or law firm) has the relevant industry experience. These are just some of the questions that should be asked when interviewing prospective attorneys. At the end of the day, you want to know that your attorney is able to competently and efficiently represent your company without scrambling to find the appropriate resources or even worse, faking it.
· Focus on the Person and Trust your Instincts
There’s a reason you are an entrepreneur and starting a company. You have business acumen that many do not, you are willing to take calculated risks, and you are able to honestly (sometimes boldly) assess the chances of success versus the chances of failure. You should use all of these skills when selecting your attorney; focus on the person and whether you can see him or her as a trusted advisor to your company from the early bootstrapping days until your ultimate exit.
 These issues will be addressed in a subsequent blog post by Tim.