New founders often approach service providers, generally—and lawyers in particular—with a degree of caution.
They’re typically aware that they need advice, but they’re concerned that obtaining such advice will come at a cost, which most startups would prefer to avoid given the need to focus as much as possible on product and sales.
So, here’s a look at a few practical tips for founders to consider when working with lawyers. The hope is that it will demystify some aspects of the process and make it easier for founders to have productive conversations early on so as to avoid making costly and time-consuming mistakes.
Seek a Fee Deferral
Early-stage companies trying to conserve cash should ask their lawyers at the outset of the engagement about alternative fee arrangements that the firm may offer to startups, such as deferred collection, discounted hourly rates, or billing caps for common tasks.
Many law firms and even solo attorneys with a startup-focused practice can offer alternative fee arrangements if the engagement is straightforward and is unlikely to trigger hard costs (i.e. fees payable to government entities for licenses or permits, or to address regulatory issues).
Alternative fee arrangements may not be appropriate in all circumstances, but when offered, they can allow startups to address important legal needs prior to raising significant outside funding.
Discuss Costs, and Work, in Advance
Many founders new to the process of creating a company may be reluctant when discussing costs with their attorneys. Don’t be! Good attorneys who do the type of work you need done on a regular basis should be able to give you a quote for their services.
That quote may be, and typically should be, subject to certain caveats or assumptions, but nonetheless it should give the company an ability to better budget for the process. Additionally, it is oftentimes helpful to have early conversations with your attorney regarding certain major events that you anticipate coming up on the horizon.
Whether that be hiring employees, issuing equity or entering strategic transactions, with a little bit of time, a consultation with an attorney can help a company better prepare for a specific event, which can wind up saving costs later.
Embrace the Use of Forms
By their nature, startups, and the founders who lead them, tend to question why existing processes should be followed. They tend to look askance at pre-existing rules, and question the need for “doing things the way they were always done” merely for that reason.
I typically advise startup clients to look at legal work a bit differently and suggest that folks embrace whatever forms are most efficient. For startups seeking to form an entity and raise money, the more that forms can be used, the lower costs will be. The reason? Time.
Lawyers still, by and large, measure themselves, and are measured, by how productive they are for each hour worked. Even in an age when more services are delivered via flat fee arrangements, lawyers are always mindful of the time it takes to complete any given task.
Most tasks that center around early stage companies involve the use of standardized contractual agreements that have appropriately addressed legal issues involved in a transaction. The result is that the main points that need to be squared away can be addressed using a short form questionnaire or term sheet as opposed to a lengthy document requiring customization. The more you can rely on forms, with oversight, the more you can re-deploy resources elsewhere.
This article has been edited and condensed.
Christopher Grogan is an associate in Perkins Coie LLPs‘ Emerging Companies & Venture Capital practice. He practices from the firm’s Los Angeles and San Francisco offices. Chris has experience practicing law and working in technology companies on the East Coast, in the Midwest and in California and has counseled founders, companies and investors on a range of issues related to starting, growing and selling high-growth technology companies. He regularly advises companies on governance matters, securities compliance, and organizational and investment documents necessary to allocate rights and responsibilities across founding management teams and equity holders. Christopher also counsels companies and investors through liquidity events involving the sale or purchase of assets or equity. Connect with @perkinscoiellp on Twitter.
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