I'd like to plug George Grellas ( https://news.ycombinator.com/user?id=grellas ) in case you're not aware of him, just reading his comment history should give you a lot of food for thought. He's one of HN's secret assets.
I've seen http://www.ofenbakhlaw.com have a lot of happy clients. A good business attorney does more than just help you draft the contracts that your company will run on. They are active in helping you get your business out there.
Find an attorney that started their own law practice. They built their business from the ground up and have personally dealt with many of the problems you will face.
I would like to know what most startups experiences are with filing with the SEC for SAFE notes and what is a reasonable cost for a very early stage round and seed round.
You can use your term sheet to talk to your firm about fees. Your VC will have a number in the term sheet to address their legal fees. Your should be somewhere in the 1.25-1.5x neighborhood of that number. More if your books aren't organized and your records are all over the place.
$30-$40k is probably right in a lot of cases (if you touch HIPAA, Crowdfunding, Bitcoin, issues you'll need to bump those numbers up).
The list is helpful but the truth is it's hard to believe that someone who says:
"There’s lots of advice on the internet, mostly bad. Our new series, “Tech Law Link Lists” picks out the more useful guidance for startups."
...would agree with everything that is being said in all of those links. And to me that's an irony worth explaining.
Further it says "This first installment is about finding the right lawyer for your startup. "
Installment of what? Curated set of links? Why not, if you are so good, take the time to pick apart and specifically discus what is right and what might be wrong and how your opinion differs. You certainly can't agree with everything that others say, right?
Upfront disclosure: I am one of the founders of LawGives, an online legal marketplace focussed on fixed fee services. I used to work at DLA Piper as a tech / IP lawyer. Opinions are my own.
As part of our work with LawGives we've helped hundreds of entrepreneurs find legal help with business and immigration matters. In my experience, there are basically three ways in which companies go about dealing with their legal work at the startup stage:
1. Do it yourself
Many founders start out using a service like LegalZoom to take care of basic legal needs. The price point is attractive but the process is completely automated.
While DIY solutions may be a good option for some people, there are a couple of caveats to be aware of:
- The actual cost, once you finish going through the automated process, is typically higher than advertised. (For example, a LegalZoom incorporation is marketed at $99, but the actual cost once you are done is usually much higher.)
- Many of the documents are not tailored to the typical startup situation. (For example, typically the number of units / shares authorized in the corporate formation documents is by default set to a low number, which becomes a problem when the company raises money.) This leads to problems down the road, often forcing companies to redo (part of) the incorporation work, at significant cost and at an inconvenient time (when fundraising).
- No lawyer is involved throughout the document automation process. As a result, the founders remain unaware of key risks (often depending on the specific activity the company is engaging in) which would have been easily picked up by a lawyer. Examples include picking a corporate name that is already trademarked, pursuing a business model that has significant implications from a regulatory perspective, and choosing the wrong kind of legal entity type.
2. Use a big law firm
At the other end of the spectrum, there is the option of going with a big law firm. Many of the companies that we have interacted with end up going this route:
- You are dealing with well-trained lawyers who have deep expertise in their practice area. These lawyers will be able to identify key risks easily, and will typically flag them early. We've interacted with lawyers at DLA Piper, Cooley, Fenwick, Wilmer Hale, Dorsey and several of the other big firms out here, and quality is generally high.
- These firms will often offer deferred fees. This means that you do not pay your legal bill until a certain trigger happens, usually raising a certain amount or doing a priced round. This option is attractive for clients who have yet to raise money.
- However, deferment comes at a cost: we've seen big firm legal bills for incorporation and basic documents that range in the 10 to 20k dollar range. This may not matter for companies that raise significant amounts of money following a deferment. Other companies prefer to pay upfront, and often end up paying less than a quarter of the aforementioned price.
- Big law firms will often ask for equity in the company. We’re not fans of this model, as it may affect (or seem to affect) the independence of the firm in relation to the client. In addition, it is costly to give up equity, and there are enough big law firms out there who will proceed (and offer a deferment) without requesting equity. However, it is fairly typical for big law firms to ask for this, so it’s good to be aware of it. You should feel free to push back, if asked.
3. Use a solo attorney / small law firm
A middle ground between the do it yourself approach and going with a big law firm is to look for a good solo attorney:
- Many big law firm attorneys leave their firms for one reason or another, and start offering their services to clients directly, at rates that are significantly lower then the big law firm rates.
- The client still gets the benefit of big law firm expertise, given that the lawyer was trained there and saw a wide range of legal issues, from the complex to the mundane.
- Solos usually do not have the financial capacity to offer deferred fees, which means that the client pays immediately. This may be a showstopper for some companies. If the company has the capacity to pay, it is generally much cheaper to pay upfront (in our experience, often 25% of the big law firm rate).
- Solos are more amenable to alternative billing models: flat fee services gives a high degree of price certainty, which many clients prefer over the more uncertain hourly billing model. Not all services can be priced like this, but many of the services that you are likely to need at this point can be.
- Solos can also - in a later stage of the business - act as an interface with a big law firm. For example, we've seen many companies work with solos, and engage a big law firm at Series A. At this point, the solo acts almost as an in-house counsel, making sure everything goes smoothly and keeping an eye on the bill.
--
Recap:
- Doing it yourself is tricky; thread carefully.
- Big law is attractive if you can get a deferred fees, but you will end up paying more. Avoid giving up equity.
- A solo or small firm with startup experience is a great way to start building your legal team and keeping cost down.
These are some quick thoughts which I hope are helpful. In case it's useful:
> Big law firms will often ask for equity in the company.
If that should happen to you, simply refuse. That's not worth it no matter what. You're basically asking for having a conflict of interest just when you need your lawyers most, which means you'll have to bring another set of lawyers in.
And nothing will increase the bills faster than two sets of lawyers haggling over different ways to split the same hair.
I agree with all your advice, this is one of those comments that you should print out and nail to the wall over your desk if you plan on incorporating in the near future.
Additionally - there has been a recent push in the legal industry to "unbundle legal services." This means that you can use a wide variety of attorneys for individual tasks, rather than one attorney for everything. In short, unbundled legal services give you choice.
An example of what this choice might look like for a startup founder:
Founders can do commonplace tasks themselves, such as writing an employee handbook, and then use an online platform (such as LawGives) to locate a solo practitioner who can review that handbook for compliance with local/state/federal laws. However, when the founders encounter a more complex transaction (such as a round of financing) they are still free to seek out the highly specialized services of a big firm attorney.
I'm a lawyer and the developer behind a Canadian unbundled legal service site: flatlaw.ca. It can be a great way to get what you want if you know what you need.
If you're fairly knowledgeable about your legal needs then it can be a good way to reduce costs + get better counsel. For example, if you're an employment lawyer who doesn't know any trademark attorneys you can use the site to quickly find local lawyers who might be able to assist your client. Also useful for startups who know their needs (e.g. they need to incorporate and get an independent contractor agreement).
As long as you are mentioning your company it might be a good idea to detail the advantages of why you are a viable option to the 3 choices that you list.
Next let me give you some marketing advice (which is one of my specialties). As long as you took the time to write this detailed paragraph on HN you should also have it on your website (somewhere) and make it the core of your marketing message right on the home page.
As in "LawGives vs. Big Firm" "LawGives vs. LegalZoom" etc.
Does anyone have any recommendations for legal advice for startup employees? Specifically, I've been offered equity in the startup I work for and would like a professional opinion on the stock grant contract they're offering etc.
Any links to blog posts, recommended lawyers, or fixed fee services would be appreciated!
(Throwaway account as my colleagues know my real one)
Thanks for the links! I was meaning more to check over the draft of the contract they've prepared (type of stock units, terms and conditions related to vesting, etc) rather than what's a reasonable equity expectation.
In any case, I just created an account and sent a message through LawGives. If anyone else has any other links they'd be much appreciated.
See also: http://www.grellas.com/faq_business_startup.html