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.
In the beginning years of my entrepreneurial life, I had a lawyer who was up high in his tower and hard to communicate with. His work was fine but he just wasn't my type of person. He was hard to work with and my interactions with him exhausted me.
A few years later due to a contract dispute I switched to a different lawyer (from a high end expensive firm, i.e. the Cooley example) and working with him has been awesome. In part because we get on really well and we're on the same wavelength. That and his work also is much better than the previous lawyer I had.
I am curious if you can recommend some materials to read up on this?
I think I was reading a lot of Mark Suster's stuff back then, so that's a starting point at least.
- 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.
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.
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?
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.
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!!
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. :))
Edit: turns out GP has a law degree himself. I'm further impressed.
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.
Is there something particular about the US legal system that forces these people to live in the stone age? I mean, photocopies?
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.
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.