Hiring a Lawyer for your Startup

28 Jan 2011

Recently I had some questions about how to operate my side business under the intellectual property agreements I’d signed at my full-time job. I needed a lawyer. Having little experience working with attorneys before, I had no idea about the right way to go about finding somebody who could help my business succeed while not also bankrupting me. Here are a few things I’ve learned from going through the process.

The first thing to do is to get a list of possibilities together. I leveraged my personal contacts as much as possible, asking them for recommendations. If you’re on (or know people on) email lists of local entrepreneurs, that’s a great place to ask for suggestions. Hacker News can be a great resource also. Once I got the list together, I narrowed it down to 6-8 that were highly recommended and seemed to be in line with what I was looking for.

Every lawyer will give you an initial consultation to figure out more about your business and sell you on their abilities. This is a great time to talk about what you’re trying to do, as well as specific issues to try to get their opinions. Since you’re not paying for this, you might as well get as much advice as possible! They’re not going to draft anything for you, but if you’ve got conceptual questions, this is a great time to get them answered.

You also want to get some basic information about the lawyer you’ll be working with and their payment practices. Questions to ask during the consultation:

How much of your time is spent on emerging businesses or startups? - Legal recommendations are very different for small businesses versus the Fortune 500. There are so many lawyers out there focusing on startups that there’s very little reason anymore to work with someone who isn’t.

How much of your time is spent on technology businesses? - Someone who knows your subject area will know common practices and be able to give you better advice than someone for whom you have to explain basics. For example, there are ways to structure an apps business that make it easier to sell one of your apps to another company. Someone with experience will know when this is a good idea and be able to proactively suggest this. As above, there are so many attorneys specializing in working with technology companies that you might as well find someone who knows your business.

Are you full service? - Some law firms are “full service”, meaning they have departments specializing in most issues you’ll come across, like intellectual property, M&A, and litigation. That can be helpful, but usually comes at a price. Many startups can do fine (and save money!) with a smaller law firm. Many full service firms have offices in all the major markets, like New York, DC, and Silicon Valley, which can be helpful if you’re thinking about moving to or raising money in another city.

Are you the partner/associate that’s going to be doing my work? - At big law firms, many times the partner you talk to sells clients on the firm and handles high level details, but for day-to-day stuff you’ll be dealing with an associate. If this is the case, make sure you also talk to the associate. They’re going to have a lot bigger impact on your relationship than the partner. If you’re dealing with a one-person or boutique law firm, odds are good you’re talking to the person you’ll be working with, but it’s always good to check.

How much is your hourly rate? - Every lawyer is going to spin this differently, but there is definitely a case to be made for the rate vs efficiency argument. If you’ve got an inexperienced lawyer who’s going to have to do a bunch of research, they might charge you two hours for something that would take an experienced lawyer 15 minutes. This can add up quickly! If rate is a primary concern, a good balance can be found in somebody who worked at a big firm for years, then started their own practice. They’ll have lots of experience, but lower rates.

Is there a retainer required? - If you don’t have a lot of work to be done, putting down $5000 for a retainer makes no sense and can be a real drain on your finances. In many cases, you can work out an agreement where the firm will do work without a retainer as long as there aren’t an unreasonable amount of hours unpaid. When I was first starting, the initial work ended up getting completed in 2-3 hours, so I wasn’t a big payment risk. Obviously if you need hundreds of hours of work, they may evaluate the risk a little differently. This is usually negotiable and if they want your business, they’ll find a way to make it work. If you’re just starting out and don’t have a lot of legal needs, paying a large upfront retainer or a monthly retainer makes no sense.

Do you mainly work with clients who’re raising money? - Some of the big firm lawyers can help you raise VC or angel money through introductions to contacts. In many cases, they’ll float you the incorporation and setup fees in exchange for getting paid when you raise money, since closing a round generates a boatload of legal fees. This can be very helpful if you’re trying to raise money, but result in unwanted pressure if you aren’t. I was starting a lifestyle business, so raising money wasn’t a goal. One of the guys I talked to told me they mainly dealt with people who’re trying to get to a liquidation event, and most of their clients raised money. In that case my interests weren’t aligned with theirs, so we both agreed that working together wasn’t the best idea.

How much will it cost to incorporate my business? - If you’ve already incorporated, ignore this section. I was surprised at the variety of rates I heard for this service. If all you need is a standard business set up, it should be fairly affordable. Most lawyers I spoke to were in the $500-$800 range. Obviously if you have a lot of custom work required, it’s going to cost a lot more, but there’s no way you should be paying $5000 just for a fill-in-the-blanks operating agreement and incorporation papers.

Once you’ve met with everybody on your list, you should be in good position to decide. I’m no expert on the legal realm, so let me know if there are other issues I missed here.