Choosing a lawyer for your startup is a decision to consider carefully. Your options include solo practitioners, small boutique or regional firms, large multi-national firms and everything in between. If your short-term legal need is limited to incorporating, you might even consider delaying engagement of a lawyer and instead use a publicly available incorporation package (such as the ones available in Cooley GO’s document generator for US companies).
Having good legal counsel familiar with startups and fundraising becomes increasingly important as your startup grows. Initial incorporation is often relatively straightforward, but over time, you’ll likely require advice on matters like equity compensation strategies, contracts, term sheet negotiation, licensing and IP strategy, regulatory matters, international considerations, and more. If you plan to raise venture capital, your investors will expect you to be represented by counsel knowledgeable in venture financings.
I encourage startup founders to speak with several law firms about legal representation. There are many good startup lawyers to choose from, but after a few conversations, one will emerge as the best fit for you and your startup. The lawyer will also be assessing the fit with you and your startup from their perspective. It’s a 2-way street.
As you select legal counsel, think about: (1) experience with startups, (2) what your day-to-day experience will be, (3) the law firm’s culture, (4) connections to capital, (5) cost and (6) chemistry.
Experience with startups
Choose a lawyer who is experienced in working with startups in your industry and building those startups into successful companies. If the lawyer is part of a large firm that has a startup or ‘emerging companies’ practice, you may have a ‘1-stop-shop’ benefit that includes the various specialty areas startups will eventually need as they grow. In addition to general corporate representation, these areas may include intellectual property (IP), contracts, licensing, employment, compensation and benefits, regulatory, tax, international, litigation and more.
Be wary of a firm where startup representation is not a primary focus as their lawyers may not be accustomed to dealing with the problems – and cost constraints – that startups face. Many firms like to dabble in this area, but it’s best that they are not learning the ropes on your time.
- Does the firm have a startup or ‘emerging companies’ practice?
- How many startup clients does the lawyer and firm represent?
- What type of legal work does the lawyer/firm do for these clients?
- How many startup financings has the lawyer and firm handled in the past year or two?
- Does the lawyer have knowledge of your company’s industry? Ask for examples.
- Why is representing startups important to the firm?
- How is the firm positioned to support your company through the full lifecycle? At any point, will your company outgrow the law firm?
- If you encounter a problem down the road, how do you get access to specialists at the firm who can help you? How will you know who to contact?
Law firms are made up of attorneys with various levels of experience and billable rates – from partners to junior associate lawyers. You should know what the day to day (or month to month) communication with the legal team will look and feel like.
- Who will your primary point of contact be?
- How can you be assured that your questions/issues are being addressed by the right lawyer on the team?
- How do you engage a specialist (e.g. patent, regulatory, licensing) when you need them?
Law firm culture
A law firm’s culture can be very relevant to its clients. In firms with a collaborative or ‘team’ culture, your lawyer is better able to leverage the collective knowledge of his or her colleagues to offer more effective and efficient legal counsel, quicker responses and business-friendly answers.
Culture is not an easy area for an outsider to assess, but ask the lawyer to describe the firm’s culture and how the culture benefits their clients (get specific examples).
Connections to capital
Don’t underestimate the ‘non-legal’ services that your lawyer can provide. In addition to representing startups, some firms also have a venture capital practice where they represent VCs in their fund formation and investment activities. A firm with a strong VC practice has deep relationships with investors that can be helpful to startup founders as they fundraise, and your lawyer should be willing to introduce your company to investors when the time is right. Investors may include individuals (angels), VC firms, and corporate/strategic partners.
- Does the firm have a venture capital practice? If so, how many venture funds have they formed? Do these funds invest in your industry?
- What are the firm’s relationships with angel and seed-stage investors? Does the firm know angel groups well?
- If applicable to you, what is the firm’s relationship with corporate and strategic partners?
If you already have a list of investors you are interested in approaching, share these with the lawyer. Does the lawyer/firm know them? Can they recommend others you haven’t thought of?
Early-stage startups are often cash constrained and attorney billable hourly rates are high. A good startup lawyer is sensitive to this and may be willing to offer a flexible fee arrangement to unfunded startups. These arrangements can take many forms, and a good startup lawyer will be happy to discuss options with you. Realize that law firms are investing their time and taking a risk by offering flexible fee arrangements, and in turn select their clients very carefully.
- Does the lawyer offer any special fee arrangements to unfunded startups? What could that fee arrangement look like?
- What services does the firm provide that are not billed to the client?
- What does the firm do to create efficiencies in the client relationship?
A great legal advisor is important as you launch and grow your company. Choose a lawyer who is smart, accessible, interested in you and your company, easy to talk to, and is someone you can count on to be available and honest with you. You’ll be working with your lawyer through exciting and occasionally difficult times – choose wisely!