Picking a Lawyer for Your Startup

An expert corporate attorney is a critical asset for a high potential startup.  But what factors should you consider to find the right one?

First-time entrepreneur-CEOs often ask me about picking a corporate lawyer. Let me share my hard-won recommendations. Before we begin, please note that I am focusing on choosing a corporate attorney for a high-potential startup that plans to raise venture funding.  

When I started founding startups nearly 20 years ago, I did not realize how important finding the right corporate attorney was.  As a result of my choices:

• I almost lost one of my companies due to a strategic incorporation error that nearly cost me an initial VC round. I had to spend $80K to correct it (more on that in a future post). 
• I faced an intense negotiation with a pair of East Coast venture capitalists and their expert attorneys with the sickening feeling of being distinctly outgunned in the lawyer representation department. 
• I learned that a lower hourly rate does not save money when you are paying for someone’s learning curve.

What does a great corporate attorney do for you?

To handle corporate matters, startup CEOs establish a partnership with a law firm and specific corporate attorney. They will help your startup incorporate, establish bylaws, develop co-founder operating agreements, negotiate the legal documents for fundraising rounds, do good governance, handle equity compensation, and assist with mergers and acquisitions.  A great corporate attorney:

• Gives you insights into the current trends in the fundraising marketplace
• Helps you identify what is important – and what isn’t – in a term sheet
• Drafts a tight and clean set of corporate legal documents that make legal due diligence go much smoother when you are fundraising
• Gives perspective on the goals of the other side in a negotiation
• Helps you understand your risks and what is at stake
• Counsels you and your Board of Directors on your fiduciary responsibilities
• Ensures you comply with sometimes obscure registration laws
• Explains the legal aspects of complex corporate transactions
• Delivers lots of value for a manageable legal budget

Most corporate law firms are eager to get involved in the early stages of high potential companies because such startups are likely to need significant legal services over their lifetimes. For example, legal fees for a venture capital round can easily run in the tens of thousands of dollars, and, if you are fortunate enough to have a successful exit, those legal fees can be six figures. To get you started, law firms will often offer low-cost company formation and registration.

What is NOT important in choosing a lawyer for your startup?

• Proximity. I have never physically met my attorney for the past dozen years across two startups.  And it does not matter. Part of a global law firm, he is always available when I need him, is incredibly efficient, and handles a high volume of transactions for venture-backed, high-tech companies like mine. It is far more critical that he is in New York where the deal flow volume is so much higher than in Michigan. There is no need for me to run across him at local networking events around town.
• Hourly rate. Twice I have hired high volume East Coast attorneys specializing in my space.  Although their hourly rates are high, they are so experienced that they become highly efficient and effective.  To illustrate the point, my current attorney has done venture-backed deals so often that he actually has the National Venture Capital Association model documents memorized. His legal fees for my angel rounds have been half the cost of more local attorneys I have used.  When I need something, he often has a template that he can adapt and share in 15 minutes. He can get the deal right on a single pass because he knows how to navigate the negotiation, resulting in lower legal costs overall.

What is important in choosing a lawyer for your startup?

• Experience/Expertise. The most important factor is finding someone who does a high volume of work for many similar clients in your space.  By high volume, I mean they have hundreds of transactions under their belt. By similar clients, I mean if you are planning to raise venture capital, then your attorney should be doing dozens of venture deals on both VC and client sides. It is hard to achieve that type of volume outside the traditional VC hubs, and the value of that volume to you is that your attorney knows what market terms are at any given time. Industry domain knowledge can also help with both familiarity with industry-specific nuances and introductions to relevant potential partners.
• Legal Resources. My corporate attorney is the quarterback of my legal team. Because he is part of one of the largest law firms on the planet, he has access to effectively endless resources for every conceivable problem. An excellent attorney proactively keeps us in mind and alerts us to the relevant stuff. My attorney sits in on my Board meetings to stay connected to what is happening for our company and does not charge me for the time.
• Responsiveness. Even when your attorney is part of a big firm, you need them to be available to you. My attorney routinely responds within a day and often within minutes. 
• Strong Communication Skills. I appreciate excellent communication skills.  It makes everything about completing stressful transactions much more manageable.

Conclusion

When I started my career as a startup CEO, I never expected I would hire the world’s largest law firm for a tiny startup company. But I did. And then I hired him again for my next startup. He is not the only great one out there.  I found another great one before that, and he did great work for me as well.  My recommendation is that you make sure that the corporate attorney you hire does a high volume of complex corporate transactions like you expect to be doing as you build your future venture-backed startup. Those are the attorneys who can be a tremendous asset to your team.