
How to get your money’s worth from your startup lawyer - samaysharma
https://techcrunch.com/2019/01/10/how-to-get-your-moneys-worth-from-your-startup-lawyer/
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AndrewKemendo
When I first started our company I met a "startup" lawyer at a meetup event
and after a few meetings hired him. He was fine, but was expensive and didn't
know much about high scale tech startups - mostly govt contract startups. So
we fired him and hired Cooley.

Cooley had great parties and networking events. When our lead investor came in
and asked for multiple preferences (no go) I asked the assigned counsel what
they thought and the response was: "Hey this is your first money so it doesn't
really matter." At the time this was my first deal, but I had read a TON on
this issue and it was clear that this was a hard predatory ask for a deal like
ours.

I asked some of my other friends and they suggested a different lawyer, whom I
called and he said "Tell them to eat shit and call me when they call back with
a new term sheet." Cooley was immediately fired and we hired the new guy who
has tons of experience in our space and has been the absolute best.

Moral of the story is, be informed enough so you can call bullshit, but it's
really important to find counsel that 1. you can trust and 2. is experienced
in your particular types of deals so that when you are out of your depth you
know they will be the best counsel.

At the end of the day you're CEO so the buck stops with you. Your lawyers are
counsel not operations, so act accordingly.

~~~
thisisit
> At the time this was my first deal, but I had read a TON on this issue and
> it was clear that this was a hard predatory ask for a deal like ours.

I am curious if you can recommend some materials to read up on this?

~~~
AndrewKemendo
Honestly I couldn't because they were from 2009/2010 and I'd have no idea
where to find them now.

I think I was reading a lot of Mark Suster's stuff back then, so that's a
starting point at least.

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gumby
A few points:

\- The partner matters a lot more than the firm. For example I used Cooley,
but really it was one attorney I wanted. When he moved to another firm my
company went with him.

\- Of course it's the associates, not the partner who will do 99% of the work
-- but that's all you need anyway. The partner however supervises. Ideally you
never get a bill for the partner's time.

\- In almost any case you should hardly use your lawyers at all in the first
year or two. You get standard NDAs (one way and/or mutual) and can fill them
in yourself. If you get one from a partner, ask to use yours or read theirs
and if it looks really close just use it (unless its some massive one from,
say, Intel -- but really, are you going to be able to negotiate that?).
Likewise just use standard job offers and confidentiality/assignment forms. No
need to pay a lawyer for those once get up. But don't wing it with anything
security or debt related!

\- Another reason not to care about the firm: a big firm will have lots of
services but will you need them? For example for patent filing you may want a
boutique firm that specializes in just your area. For HR lawsuits I'd use MoFo
even if I don't use them for corporate law.

\- Make sure your firm understands startups (this expands on what the article
said about "Hire lawyers who have experience with the particular task you are
asking them to perform"). Various big firms have opened offices in the Valley
in order to get that sweet deal flow. But unless they staff up with some local
attorneys with local connections and experience you're not going to get a
lawyer who can help you no matter how good they are. Even the startup scenes
in NY and Boston are different from each other and from the Valley or SF. Not
just network but how people do things.

\- an exception to the "firm doesn't matter" rule: Wilson -- not only have I
only had bad lawyer experiences (mainly huge Billings) when I was involved
with a company that used Wilson, but the only firm that ever asked me to do
something illegal (they were representing our investor...but only for that
transaction as our lawyer was also the investor's lawyer. For subsequent
rounds the investor used someone else, as they were also disgusted with
Wilson). There's a reason this onetime "star startup law firm" has been
shrinking.

~~~
ABCLAW
Select for good people, select against bad firms.

I think you've articulated something key; You need a competent partner to make
sure you're getting decent value, regardless of the firm you're at, but firm
culture itself can make any practitioner play poorly. This just pulled
together a few strings of thought I've had (I have my own internal industry
'bad firm' and 'bad practice group' list in my head), so thanks for this post.

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zekevermillion
The article supports a common fallacy that clients just have to understand
enough to police their service-providers. I would suggest that if you consider
yourself to be a startup founder, you should know MORE THAN your lawyer about
your particular transaction. If you do NOT know more than your lawyer, you
should consume all available info until you do, or else bring in an advisor
(such as a professional seed investor who is not a stakeholder in your
company) to help you. Your lawyer can give you advice only, but you have to
take charge of your own direction and decision-making. Your lawyer can and
should also perform the service of organizing all the paperwork, which is
surprisingly time-consuming yet not very edifying.

~~~
tschwimmer
Never having done this I defer to your expertise but isn’t the highest
leverage thing a founder can do is delegate specialized tasks? Fundraising and
incorporatation are very important but there’s a reason lawyers went to law
school. Seems like it’s a high bar to know more than your adviser, especially
if it comes at the cost of focusing on building your product.

~~~
zekevermillion
Lawyers do not learn anything about the practice of startup law in law school,
with a few exceptions where there are good clinical programs as at Brooklyn
Law for example. Are you building a business around your product or just a
product? If you're building a business, you need to understand the structure
of your business intimately. Or someone does -- maybe not you, but your
cofounder. Otherwise how are you going to evaluate the advice you get from
your lawyer (and others)?

A good lawyer will have the benefit of breadth -- representing many different
clients in different situations. If the lawyer is wise, this will be conducive
to good advice. It is only advice. On what basis do you decide to follow the
advice?

~~~
EGreg
For the statutory law, I have found after many years of experience that it’s
very worth it to take 8-16 hours and read the actual statutes. Such as the
Securities and Exchange Act, Reg S and the recent JOBS Act changes should be
required reading for startup CEOs raising money. Sure, you won’t get all the
case law nor the later additions, but you’ll understand what the overall
framework is. Then you can discuss specifics with a lawyer. Also if you’re a
startup, some lawyers may take an advisor equity in exchange for 4 hours a
month or so.

What led me to this conclusion is that after years and years of asking random
questions while lawyers set everything up, I kept discovering new things about
the exchange act until I just read it.

There are standard docs these days on docracy and other sites for most things.
The JOBS Act has simplified fundraising quite a bit for startups. Especially
if you use rule 506b for friends and family, you can later choose to go the VC
route OR use rule 506c or Reg CF for access to liquidity using public
solicitation.

EXPERIMENTAL SECTION:

A final note about security tokens. An obscure but very useful fact is that
non-equity securities do not have a limit on how many investors you can have,
before you must become a publicly reporting company. And selling to NON US
investors they may be able to trade your securities after 40 days. However,
their local jurisdiction may have other ideas, and this is one of those areas
where you can either try to abide by all local laws in theory, or in practice
take advantage of the fact that, in early stages, governments of foreign
jurisdictions aren’t going to waste too much political capital on long-arm
actions to go after US corporations because they failed to prevent an overseas
investor from selling their securities early.

I am not a lawyer!!

~~~
zekevermillion
Hey Greg. Securities law is an area where a lot of lawyers have limited focus.
A typical startup lawyer (such as myself, before retiring) may be
knowledgeable about common exemptions for private offerings but less so when
it comes to the larger universe of securities. The SEC's position on p2p
assets is best put in this write-up by the corporate finance head William
Hinman [1]. The SEC is not concerned so much with the details of how a token
works, but rather in how it is offered on a case-by-case basis. Keep in mind
that in the US, we do not focus on the security but on the offering.

Also a token that is offered in a securities offering may later be traded in a
way that is not an offering of securities, for example if the protocol becomes
sufficiently decentralized at a later date.

For myself, I would steer well clear of anything that looks at all like a
securities offering of p2p assets b/c I like to keep my life as simple as
possible. But I realize that is not advice everyone wants to follow.

The SEC is not the biggest threat here -- as you can see with projects such as
Tezos, the bigger threat is the private securities bar which will go after any
token offering that leaves a deep pocket. Even if the SEC and state regulators
aren't concerned with your offering, the private bar will go after anything
that plausibly is an illegal securities offering, provided that the pot of
money is worthwhile target. This is exactly the kind of hazard that p2p
protocols are perfect for avoiding, so why bother making a new p2p protocol
that is vulernable to this kind of risk???

I'm a _retired_ lawyer and this is NOT legal advice for anyone. :))

[1] [https://www.sec.gov/news/speech/speech-
hinman-061418](https://www.sec.gov/news/speech/speech-hinman-061418)

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jacquesm
Can't go wrong with Grellas.

[https://news.ycombinator.com/user?id=grellas](https://news.ycombinator.com/user?id=grellas)

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m0zg
Also: rather than immediately going to UpCounsel or LawTrades, try finding a
local lawyer through e.g. Avvo. For me this resulted in a lower hourly bill
rate. You can compare all three (though if you contacted your lawyer through
UpCounsel or LT first, they won't work with you direct). It seems to me that
lawyers simply bake the third party fees into their rate, so you might as well
skip the middleman.

~~~
lmeyerov
Yep, w nit:

1\. Get a corporate lawyer w startup discount for formation , core docs, etc.
Keep using for big stuff like fundraising.

2\. Use carta or whatever for stock

3\. Use upcounsel for anything non-core or boring like office space. You can
get a per-topic specialist for each thing fast and cheap.

4\. For most deals -- nda, sub-100k contract, etc, have papers etc ready so no
legal review.

~~~
yowlingcat
Great overview. Have seen roughly this model used across multiple orgs with
good success.

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skrebbel
> Finally, make sure you understand in advance what costs and expenses the
> firm will pass on to you (e.g. _photocopying_ , _postage_ , _couriers_ ,
> travel)

(emphasis mine)

Is there something particular about the US legal system that forces these
people to live in the stone age? I mean, _photocopies_?

~~~
rayiner
This is funny. I’ve been putting off having my boss sign a contract because a
vendor sent me a stupid e-signing link instead of a PDF I can print out, get
his signature, and scan back. Paper is _easy_ and everyone knows how to use
it, which makes photocopying still a thing.

Also, although most court stuff is electronic these days, courts still insist
on papers courtesy copies (which have to be mailed or couriered over). Reading
on screens sucks, and marking up documents on screens sucks double hard. When
I first started practicing I was like “I’m a millenial, I’ll do everything in
an iPad!” Now I print everything out, mark it up by hand, use colored tabs,
etc. Even a big monitor is incredibly claustrophobic compared to piles of
tabbed printed pages.

~~~
noelwelsh
I had a client that gave explicit instructions to sign, scan, and return. So I
signed digitally (MacOS Preview makes this really easy), rotated the pages a
little, and added a bit of noise. They were happy and I was happy.

------
relaunched
There are many startup related firms that have deferred fees or will give a
good amount of advice for free. When you are really small, that's makes sure
you don't mess up things that affect equity. The whole board member /
investors to startup lawyer relationship is something founders have to be
cognizant of...I could write for days about how perverse incentives work
against the startup / founders.

However, there are tons of issues beyond just startup equity / corp governance
/ incorporating that can kill your company. Discrimination / ERISA (HR issues
broadly), privacy, anti-bribery, IP, commercial contracts...the list goes on
and on.

Most young founders don't even know what they don't know and silicon valley
culture tends to err on the side of, "just get the the exit...that's bigCo
stuff you don't need to get lawyers involved, just do this."

If you truly want to build a great company, hire a well rounded lawyer as an
FTE much earlier than you think. They don't need to be a first 10 hire.
However, if you are growing and want to build a high-quality company, you
should think about hiring a well rounded lawyer somewhere between hire 25-50.

------
dctoedt
I'm going to add this link (and a link to this HN discussion) to the "Startup
Law 101" page that I've been maintaining [0] in lieu of providing copies of
the slides I use in guest-lecturing on the subject.

[0] [https://www.oncontracts.com/startup-
law/](https://www.oncontracts.com/startup-law/)

