For many first-time founders, hiring a lawyer might seem like a necessary evil to navigating financings. The reality is that when you choose right, your lawyer is a true partner, helping you navigate unforeseen challenges. By investing time up front to find the right counsel who will grow with your business, you have an opportunity to mitigate risk and develop a collective shorthand about the business (and as an added bonus, potentially reduce your fees over time).
We sat down with Jeff Engerman, Partner at Gunderson Dettmer, our legal counsel at Pillar VC. Together, we created a guide for founders about how to choose the right startup lawyer.
Choose A Trusted Partner
There’s a reliable stable of people who work on startup financings. Keep in mind that the legal field is a reputation-heavy business. Talk to other founders you know and get referrals, or take a look at our list of seed-stage lawyers in Boston as a starting point. The aim is to feel some degree of connection in your initial conversation—a sign that this could grow into a trusted advisor relationship.
A good VC lawyer will have advised hundreds of companies from first formation to billion-dollar M&A events and IPOs. Their job is to help you spot the legal issues that could get in the way of future financings or an acquisition – and also to tell you what things aren’t worth worrying about yet (or at all). Remember, you’re focusing everything on this one company. Someone who lives in the middle of the cycle of formation -> growth -> exit can add a helpful perspective.
Look For A Lawyer Whose Experience Aligns With Your Needs
While you might be focused on your seed financing right now, the ideal partner will grow with you over time. It’s always good to find someone who has navigated different types of financings. It’s just as important that your lawyer have a high degree of familiarity with your specific business challenges. For example, if you’re dealing with gig economy issues, you may want someone with specific experience in that area, again, so they aren’t coming up to speed while you are.
Initiate An Open Conversation About Priorities and Response Time
Time is a killer of deals—your lawyer should be responsive and at the ready when you need them to chime in. Be direct in asking prospective lawyers whether you’ll have their undivided attention. Many lawyers are juggling a large number of clients; you want an indication that you’ll be regarded as an important client. From the lawyer’s perspective, a good client will separate the time-sensitive and non-time-sensitive work—a strong relationship that enables an open line of communication about timing and business dependencies is crucial.
Once you’ve chosen your final couple, reference check with several founders. Ask each lawyer for references, but also try to do some back-channeling on your own, working your way to other founders with whom they’ve worked with in the past.
Decide Whether to Partner with A Big Firm vs. Small Firm
There’s no right answer when it comes to firm size. The key is finding a partner who is well-versed in working with seed-stage companies. Your lawyer shouldn’t be coming up to speed while you are.
One benefit to working with a big firm is that they have an incentive to maintain certain quality standards associated with the firm’s brand (i.e. to avoid screwing up on your behalf). Another advantage is that every single firm has a set of forms. When you’re working from big firm to big firm, you have a high degree of confidence that the forms will be “check the box”—i.e. your financing may run smoother and faster when working with a known entity.
On the flipside, there are plenty of smaller practitioners who are experienced in navigating seed-stage deals. Consider the scope of your legal needs—small practitioners are often good at financings or a specific practice focus (e.g. IP).
Some founders also choose to work with one of each to moderate the associated costs—a small firm (for simple customer contracts) and a big firm (for financings and corporate work).
Ask About Fees
One of the biggest worries most early-stage founders have when it comes to choosing a lawyer is around fees. Have an open conversation about how you believe the business will progress, and the implications regarding financings and other key business milestones.
Questions for Prospective Lawyers
- What are your billing rates?
- What are your ballpark fees on a per-transaction basis?
- Simple SAFE or convertible note
- Priced Seed and Series A round w/ low complexity around outstanding notes
- When do you expect to get paid?
- Are you open to reducing your rate or deferring payment until we make it through our Series A financing? (It will likely be easier to defer fees than to secure a discount; you’re more likely to have negotiating room if the lawyer believes the company is high-growth.)
Other than commercial and customer contracts, there should be very little overhead between financings, particularly now that companies like Carta have emerged for cap table management.
When it comes to fees, seed financings aren’t paying the rent for big firms—getting connected with the companies with high-growth trajectories early on does. In fact, the reality is that the big law firm business model is typically to cooperate on fees at the earliest stages, with the hope that they are getting in early on a high-growth company with strong future potential.
Here are a few specific tips for keeping your legal fees in check:
- There is a benefit to being incredibly vanilla when you’re very early—it’s typically in a founder’s best interest. Investors often end up trying to clean this up anyway in subsequent financings. Keep your docs. simple to keep your legal fees low.
- Don’t ask, “Is this ok?” You’re asking your lawyer to think about – and take responsibility for – everything that could go wrong. This is much too broad for them to give you an informed answer, and will end up costing you in the back and forth. Instead, try saying, “Tell me what bad things could happen if I agree to this. Will it impact the company’s ability to get future investment or to be acquired?”. You should be guiding your lawyer on what’s important to you – otherwise, they have to assume that everything might be important and edit documents accordingly.
- Make it your responsibility to remind your lawyer about the specifics of your business, so you don’t waste an extra cycle. (See below re: why it can be useful for your lawyer to attend your board meetings.)
Pro Tip: Bring Your Lawyer to Your Board Meeting
Most lawyers don’t charge to attend board meetings—the meeting provides a very concentrated update about what the company is up to, and helps your lawyer stay up to speed on how the business is evolving. (For better or worse, it’s also an opportunity for your lawyer to identify areas in which you may need additional legal support.)
Know When Engage Your Lawyer
Jeff Engerman notes that one of the biggest problems his team experiences is when a company has been out of sync between contract usage and customers. Make sure your paperwork is moving in parallel with your business—you don’t need a fancy contract before you have a customer. The back and forth is what kills you when you’re working with a big firm lawyer. Consider having your lawyer write the forms and think through the strategy, but perhaps not manage every individual customer turn on the contract, or work with a smaller firm in this area.
In the end, everything comes down to economics and governance. A good lawyer will ask you what kinds of things you are concerned about, and will remind you about big picture long-term items (e.g. you love the specific partner you are working with at a venture capital firm, but you have a long-term contract with the firm). As a founder, you’ll likely want to be sure you’re asking about questions related to control of the company—e.g. “What would it take for me to get fired?”
Ready to find the right legal partner for your company? Start with our list of vetted seed-stage lawyers in Boston or reach out to Jeff Engerman at Gunderson Dettmer (email@example.com).