Choosing Counsel for Your Startup
Ok, being a lawyer in the high-impact entrepreneur space myself, posting this blog is a bit awkward. But having seen (not only as a lawyer but also as a serial venture-backed entrepreneur myself as well as venture capital and angel investor) so many entrepreneurs squander so much money, energy and time working with the wrong lawyers (and more than a few deals crater as a result). So here goes: my advice to high-impact entrepreneurs on picking a lawyer.
Rule number one: pick a lawyer who spends at least a majority of their time working with high-impact entrepreneurs and investors. These folks may not be any better at what they do than lawyers who spend their time in other areas – for example representing traditional small or large businesses. But just as when you have a problem with your knee, you look for an orthopedic specialist rather than a cardiologist, so when looking for a lawyer for your startup you should look for a lawyer who specializes in that market niche.
If you need some convincing on this, here are some of the things that distinguish counseling high-impact entrepreneurs from counseling other business clients.
Startup lawyers should be comfortable and effective regularly working directly with entrepreneurs and their business and technology teams as well as their investors. That’s something that most lawyers who spend their time with bigger, more established business clients don’t generally have to do.
High impact entrepreneurs and their startups have much higher risk/reward profiles than their small and big business counterparts. As a result, they are best served by lawyers who are comfortable and effective providing legal support for business strategies and tactics that lawyers accustomed to representing traditional small and larger businesses would find too risky. Put differently, while lawyers for traditional small and larger businesses tend to look for reasons to say no to their clients, lawyers for high-impact startups tend to look for ways to say yes.
Angel and venture capital financing, the typical financing vehicles for high-impact startups, are substantially different from the typical financing vehicles for traditional small and big businesses. A high-impact startup with a lawyer who doesn’t regularly represent clients in angel and venture capital transactions will almost certainly find the process more expensive and time-consuming than it should be. Worse, I have seen deals that should have been done founder on inappropriate counseling by otherwise quite competent but out-of-their-niche lawyers, both at the closing of the instant deal and later on, when the company needs follow on capital.
Finally, lawyers who regularly work with startups understand that most startups are, at various times, cash-poor. That does not mean good startup lawyers are cheap (indeed, good startup lawyers are typically more expensive than their colleagues who focus on traditional small businesses). But they are typically more flexible in terms of their billing and collections procedures than most other business lawyers. Beware though, both the too-accommodating startup lawyer (their flexibility might reflect limited demand for their services) and the too rigid startup lawyer (their lack of flexibility might reflect a poor appreciation of the financial realities of the startup world).
Rule number two: Pick a lawyer who has the time, talent, experience and curiosity to understand your vision, your business, your markets and your technology. At a larger, more established company, an in-house General Counsel is usually charged with making sure the advice of the businesses lawyers, whether in-house or outside, reflects a solid understanding and appreciation of the larger business the advice is supposed to serve. Lacking that filter, high-impact startups should make sure their outside counsel can provide that critical General Counsel filter.
Rule number three: Pick a lawyer who can add value to your startup beyond just legal advice. The best startup lawyers I have worked with have all been lawyers who were quite capable of and eager to share their business and sometimes even technology advice with their clients, and beyond that to leverage their own business, technology and financial networks on behalf of their clients.
Now for something to think about, rather than a hard and fast rule. Pick a lawyer, and that usually means a law firm, that can grow with your startup, hopefully to and through a huge exit. My experience includes working with some “small firm” startup lawyers who were quite effective representing their clients in the early stages and were capable at bringing in other firms for particular matters (litigation, patents, regulatory, etc.) as their startup clients grew and their needs evolved. That approach can be fraught with peril in terms of managing multiple relationships and matters across multiple law firms. In my view, absent a compelling reason to work with a solo or small firm startup lawyer, choose a lawyer with a larger full-service firm that has the resources to grow with your startup.
So, is my advice on choosing a lawyer for your startup self-serving? You bet. But you wanted good advice, right?