
Ask HN: My lawyer has asked for 5% equity. Is that fair? - serialguy
I&#x27;m about to launch our site for my funded startup.<p>I&#x27;ve worked with a senior lawyer on a previous project. Now he&#x27;s asking for 5% and $1k per month retainer. We need some facilitation in negotiating with the investor, shareholder agreement, founder agreement, site terms, site privacy policy, single contract for all suppliers. He&#x27;s also offered to give off the cuff thoughts on matters as they arise. We don&#x27;t need per-supplier or per-client contracts.<p>He&#x27;s indicated he&#x27;s open to a lower %. What&#x27;s fair? What do other startups give and what do they get in return?
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pbiggar
No, this is lunacy. Unless he's also providing a serious discount.

If the lawyer is also going to be an advisor, a typical advisor grant is 0.1%
- 2% (depending on stage of company). Even then it would vest over typically 2
years.

I would find a new lawyer. As in, I wouldn't trust this lawyer, since he asked
for this.

~~~
pbiggar
To reassure yourself that this is true, there's a dollar amount he's asking
for here. If your company has $1m valuation, that amount is $50k. So he's
asking for $50k as a signing bonus, in an arrangement in which he'll give you
maybe 50 hours of advice over the year. In addition to fees. (And your
valuation is likely higher, in which case his "fee" is too).

Run, dont walk, away from this dude.

Also, I heard advice somewhere to never ever give equity to vendors.

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grizzles
He's open to a lower %? How nice for him. I'm open to taking 1-5% too for this
comment. Seriously though, if you don't treat your company's equity as
precious, who else is going to?

As pbiggar said, this is lunacy. Taking a lawyer on as an investor in any
early stage company is extremely risky. You have no idea the trouble they can
stir up as a shareholder if they feel like it. The fact that he wants cash on
top? This guy should be offering you his first born son for you to even
consider it.

Read this (they got off cheap):
[https://battlehardened.wordpress.com/2012/02/07/a-5000-chair...](https://battlehardened.wordpress.com/2012/02/07/a-5000-chair/)

~~~
Nadya
_> Those words “without prejudice” are lawyer speak for “I’m not going to do
anything now, but I retain my right to sue you at any time in the future for
any amount”._

Learn something new everyday.

However, he had given the chair as a gift of his departure by saying they
could keep it. It doesn't sound like he'd be able to sue for the chair. In
fact, under what grounds did Bill have the right to sue at all or ask for any
amount of money or be required to sign papers if he was never officially
signed in to the CEO position?

I feel a lot of information from that story is missing.

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asabjorn
A top law firm took 0.25% pre-funding with no retainer in a previous startup I
launched, and with that they agreed to delay all bills until a funding event
so they took on risk for that price. His ask is way too high and it would in
my opinion be irresponsible for you to commit 5% + 12k/year as a retainer.

~~~
pbiggar
I was under the impression most top law firms would defer all bills for free.

~~~
asabjorn
I am sure that depends on your leverage and the terms. The equity can be used
as leverage to avoid personal liability in the case where your track record is
not strong enough to defer bills for free.

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pm24601
No. Don't do it. He is asking for money - which shortens your runway AND a
significant chunk of equity. In other words, he is extracting money from the
business and asking for equity for the privilege of doing so.

The items you listed are not worth having a lawyer at all.

Look on places like docstoc for standard boilerplate agreements that will work
just fine.

Look at wordpress.com's TOS
[https://en.wordpress.com/tos/](https://en.wordpress.com/tos/) which they have
made available under CC license.

If you really feel like you need a lawyer to draft a document or two. Pay for
it with cash and get it free and clear.

Ask yourself this: Which is more valuable, a lawyer which will not build the
business or a sales person or a marketing person or.. or a developer.

A lawyer is the least valuable profession to bring on board. An accountant
would be better. But a lawyer for standard legal agreements, examples of which
are freely available? No.

But if you feel inclined to pass out money foolishly let me know; I could use
some.

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hippieheadcase
Don't give any equity to your lawyer. If you do, you'll have a shareholder
with a huge conflict, and with the power to self-deal. Remember this is the
person who's going to actually read the stuff you sign. I got burned by this.
Your lawyer is the one person you want to pay in cash. And that's all.

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jmedwards
Unless you are getting into a business that would require constant specialist
legal/compliance consultancy, and assuming it is for regular start-up type
legal advice along the lines of what you've listed, that's absolutely
outrageous - stay clear of the shyster.

A good way to think about may be this: if you were to raise an angel round of
$100,000, how much of a stake would you be selling: is that in proportion to
what the lawyer is asking for?

When answering that question, I would also keep in mind: (1) is the lawyer's
advice going to open up as much opportunity value as the angel coming on board
($1 != $1), and how much of a stake it would indirectly cost you if you were
to simply raise an angel round and pay the lawyer money instead (which
shouldn't be a huge amount; the kind of work you cited sounds like junior
level work not much more than tailoring off the shelf agreements).

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bsaul
Unless the site has deep legal ramifications, the fact that someone just think
about giving equities to a lawyer is a symbol of how rotten to the core the
legal system is in the US.

The whole patents mess plus a huge culture of suing people and companies would
make me want to think twice before creating a business there.

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cactusface
Ask how much he wants per month with no equity. If you give him equity, you
have a strong incentive not fire him. Well, that sucks if down the road you
want to fire him. Also, retainers usually cover billing by the hour and are
not paid as a salary. There's more than one red flag here.

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gesman
5% _AND_ $1k/month?

Doesn't make sense. I also envision if you refused - he'll retaliate with
exhorbitant fee for past, unpaid services to make you "change your mind".

Let him know that you need to think about, clear all bills with him and then
fire him.

Someone needs to go back to school to learn a few lessons.

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fpalmans
If this lawyer is in the south-bay area, I might even know to whom you are
referring. Unlikely though that might be, I wish to repeat the tone in the
many comments you have received and strongly advice you retain different
representation!

All the best with your venture! Frank

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egusa
if you're looking for another data point, when I raised funding for my 1st
startup in the valley I believe the lawyer (this was from a top-tier firm),
offered to defer the first $60,000 in fees (until we raised funding) and they
asked for a 1% equity stake. It seemed like this was the policy for most of
the firms I spoke with.

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bsjolund
It's quite common for a banker to have a % success fee tied to raising a round
of funding. Retainers are also quite common during these proceedings. You have
to way the options of taking him on as a shareholder vs. paying him an up
front % for the success of raising a round with his help (if he's involved
with this).

5% equity does sound like a lot, but then again it might be cheaper in the
long run if you get a solid contract stipulating exactly what services (hours
per month/for how long..) this will include. Beware of the 'I'll help you out
every now and then" type of agreements.

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jbverschoor
Just find a different lawyer. How are you even gonna sell this to the
shareholder?

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pallian
I've never heard to lawyers take equity for their services - is this common?

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codegeek
As many others already said, this is just crazy. Don't do it. Also, Equity
should be like children. Protect them with everything you got and only let
very important people access to it who make a core difference

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justonepost
In negotiating it's always about BNA. Best Negotiable Alternative. Get a
competing offer from 2 more lawyers, pick the best one.

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brador
No skin in the game = no equity. No exceptions.

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onoyoudont
Wilson Sonsini took 1% back in the heyday of the dot-com bubble.

Things might be different now, but it's a Silicon Valley data-point.

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Rainymood
I don't see how all this 'advice' is less than hypocritical.

I keep hearing 'overshoot' your salary range when negotating by X... and then
when this lawyer does it OP should suddenly "run, dont walk, away from this
dude"?

Strange crowd ...

~~~
danbower
There's overshooting and there's asking over an order of magnitude the going
rate. That suggests a lack of moral fibre to me.

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madaxe_again
0 is fair. Pay him with money.

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esquivalience
If you do go this way, don't forget registering your trade mark and employment
contracts.

If he will be available for a certain number of hours per month during the
time that he is a shareholder, that could be quite valuable.

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interesting_att
These terms seem absurd to me. 1k/month retainer for a startup alone seems
awfully high. 5% equity is absurd. Get a new lawyer. If in SF, there are some
great tech lawyers who won't rip you off.

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meric
Are you starting a patent troll company and need a lot of lawyering? If not,
then that's too much lawyer you're paying for.

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bsbechtel
What's his name? I feel like he should be outed to the HN community so no one
else uses him. I can recommend my lawyer if you need one, though he's based in
the midwest, not SF.

A deal like this would up your risk by an order of magnitude compared to
whatever legal services he can offer to lower your risks. The reason being was
stated by others here that he'll shorten your runway and also have say over
what you do as a company owner because he's a shareholder.

Keep in mind that legal agreements and compliance are just formalized ways of
humans coming to an agreement to manage risks. Risks are not things that are
actually going to happen, but most often have a very small chance of
happening. Of those things that have a chance of happening, most won't
actually kill your start up (though they could be expensive). If you haven't
launched yet, your biggest risk is finding product-market fit, not legal
compliance.

While I'm not at all advocating to break the law or be reckless in the area of
legal requirements for your start up, keep in mind that what's more important
is the quality (read: character) of the people you choose to work with, not
the formality of legal agreements. This is most important with your first
investor. If you need a lawyer to negotiate with your investor, this may not
be the right partner, but I may be reading too much into that.

Your lawyer though sounds like a real piece of work...he's asking for 5%
equity and a $1K/month retainer for legal services. The problem here is first,
he's proven his 'off the cuff' business advice is useless because his
$1K/month retainer is going to drain cash from your start up lowering the odds
of long-term success, but he's asking for a 5% equity cut hoping to cash in on
the long-term success of your company. Sorry, but this guy is a f __in idiot.

The second problem is lawyers are hired to offer legal counsel, not business
advice. I don't know what the laws are in this area, and I know many lawyers
offer 'business advice' as an extra selling point to win clients, but offering
business advice to a client who is paying you for legal advice and not clearly
defining which is which seems like a good way to get yourself sued for
malpractice. The odds of this actually happening may be small because most
people who take bad business advice from lawyers would go out of business and
then not have money to sue, but I can't see malpractice insurance companies
liking the fact that lawyers do this. Maybe it's legal to do this, but it sure
seems like the practice is muddying boundaries in a domain that specializes in
setting limitations and boundaries, clarifying expectations, and crystalizing
the unclear.

If your lawyer is mixing legal and business advice, I would take it as a sign
that he's a bad lawyer as well. In my experience, this has proven to play
itself out in real life many times.

I know I had a hard time figuring out what makes a good lawyer when I was
first getting started, but here are a few things I figured out along the way:
-Obviously recommendations and awards for the firm, but only as one data
point. -He/she can offer up templates for just about every contract you listed
above. If his firm doesn't have a standard one on hand, he can reach out to
his network or recommend someone for you instead of charging you to write a
new one. Obviously this is cheaper and will save you money. -He/she refers you
to others for knowledge outside of their area of expertise. -The standard
contracts the firm has on file have been proven to stand up in court. Also,
the lawyer knows how the local courts will rule on situations not covered in
their standard contracts. -The lawyer is straight forward in his answers and
doesn't pontificate on legal theory. This is a waste of your time and his, and
what matters is if a judge is going to rule you owe someone $100,000, not
legal theories. -The lawyer doesn't try to sell you on extra services, most
especially 'business advice' bs. -The lawyer is more interested in building
long term relationships, and shows it by undercharging you for the first few
bills you receive from him. In the early stages of trying out any lawyer, keep
a very close eye on the time he spends with you and audit his bills. I had one
accountant try to charge me triple the time we actually spent with him. This
holds true for any professional consultant you hire.

Good luck!

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scottydelta
5% equity is high and unusual for a lawyer.

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nakedrobot2
F __* this scumbag and run away fast.

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Lightningbear
Depends What are you getting out of it?

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kzhahou
What would be appropriate for taking care of incorporation, pre-funding?

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mdekkers
No this isn't fair. Get a professional.

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nmbdesign
I wouldn't give more than 2% personally

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tddfuckwitz
Can't blame him for asking. He has obviously sized you up correctly, given you
didn't say no to him straight off the bat. Unless you expect lawyer cannons to
be fired broadside at your startup on an hourly basis, how much involvement
would you really need? There is your answer. Now, about my ten percent equity
for the above advice...

