In the very early days, many startup founders get legal help from a relative or college friend that also happens to be an attorney. But if they aren’t a corporate attorney, it’s totally possible they made some simple mistakes or left out some important things. Sooner or later (sooner is better), startups should form a relationship with an experienced corporate attorney so that important aspects of the business are protected and a future acquisition exit doesn’t go bust due to early mistakes and omissions. This article describes several best practices for selecting the right attorney for your startup.
To gain an appreciation for the things that are most important to do by-the-book, read my article titled “Accumulated By-the-Book Debt will Eventually Come Due“. It includes an online assessment to help you determine if you’re already in trouble, but didn’t know it.
I realize the word “corporate” in the context of describing an attorney might not sound like something a startup needs, but that’s because the word doesn’t mean large corporation but rather matters related to incorporation, capitalization, fundraising, equity/securities, corporate governance, and more – the disciplines of corporate law.
Measure Twice, Cut Once
Instead of working with the first corporate attorney you come across, interview two or more. I often describe it like selecting a surgeon for your knee surgery. There might be 10 or more in your local community that are certified to perform the procedure, and a majority of them are probably very highly experienced at the procedure. But you might select a different one that me due to personal and behavioral differences.
In the medical arena, it’s referred to as “bedside manner” and the same thing exists with just about any important service professional. Pay close attention to these softer aspects of your attorney interviews. You’ll work with your attorney for many years as you build a great company. If you later determine you hate the way they interact with you, you’ll need to fire them and start the selection process over. That’s both stressful and disruptive.
Startup Experience and Right-Sizing
You need an attorney that understands and appreciates the world of startups. You don’t have the legal budget to pay the same amount for a given project as a large corporation. In fact, you might be looking at a cash fume date that is only a few months into the future. Startup attorneys understand your budget is extremely limited and precious. They’ll find the right balance of protecting you and doing things the right way, but while keeping your budget in mind.
Ask your prospective attorney how many other startups they work with (or have worked with). Also ask why they like working with startups, given their elevated risk profile and near-allergic reaction to spending money on anything not directly related to building the product and acquiring customers.
To get a sense for the various ways you can keep your legal expenses under control, read my article titled “10 Tips for Controlling Legal Costs“. It will also give you some ideas for how to determine if your prospective attorney will contribute to this in a positive way. Below are a few questions from the article that you can add to your interview list:
- What sort of things are you able to do for your clients to help stretch their budget?
- Sharing work with paralegals and junior attorneys can help
- Using online services for cap table management, stock option issuance, signatures, etc. can help
- Do you provide a set of templates for various common matters so that I can use them without having to engage you?
- Do you charge to attend board meetings and record the minutes?
- Is it OK if I ask for budget estimates for various legal projects that need your attention?
Everything is a Business Decision
There is no such thing as a legal decision in context of your day-to-day operations. Instead, there are lots of business decisions that are decided partially, or greatly, with legal guidance, insights, education and recommendations. Your attorney must understand that you are the ultimate decider on everything related to your company. Only you are accountable to your employees, board directors, investors, customers and business partners.
This doesn’t mean you shouldn’t listen extremely carefully to your attorney’s recommendations, especially when you don’t agree or don’t like what they’re telling you. Those are the most important times to listen carefully and learn. But, after doing that, the ultimate decision on all matters is yours. During your interview with attorney candidates and your reference check on your favorite one, try to confirm their understanding and appreciation for this important nuance.
Access to Additional Resources
There are numerous matters that all experienced corporate attorneys can assist you with. But during your tenure as a startup founder and executive, you will encounter other matters that are outside of the core expertise of a corporate attorney. The most common examples include employment, commercial transactions, and intellectual property. Your corporate attorney might be able to help with the basics in each of those categories, but anything really important, involved or controversial, requires the attention of an expert – just like how your family doctor knows a lot about your knees but wouldn’t even think about performing knee surgery.
Ask your prospective attorney what they do when these other matters need attention. You’ll probably either learn that their firm is large enough to have such specialists in-house or they have some favorite freelance attorneys or boutique specialty firms they will being in for those matters.
Side Note: I don’t have a strong opinion about selecting a freelance attorney versus one that works for a small firm, mid-sized firm, or nationwide firm. I think the skills, experience and personality of the actual attorney you’ll work with is more important than the size of their firm. The various best practices in this article should serve as your guide versus the size of the law firm.
After following the best practices in this article, if you think you’ve found a really good candidate, ask them to provide one or two references that you can talk to. Of course, you want to talk to other startups that are like you, or were like you when they first started working with the attorney. “Like you” means things like size, stage of evolution, business model, and the like.
Below are some questions to consider for your reference call:
- How would you describe (name of attorney)?
- How would you describe your working relationship with (name of attorney)?
- How does (name of attorney) react when you disagree with his/her recommendation on a particular matter? (ask for an example)
- Does (name of attorney) do things to help work within your budget, and are they generally cost conscious?
- What is the quality of the other attorneys that (name of attorney) engages for matters not related to corporate law?
- If you were just starting out again, would you select (name of attorney) as your attorney or would you interview some others?
It is hard to explain how valuable it is to have a really good corporate attorney as part of your very small team of advisors and service providers, especially during the first few years of your startup venture. They are actually valuable all the way to an acquisition or IPO exit, but if things aren’t done right in the early days, your acquisition or IPO exit could easily crash and burn or take significant effort and cost to remedy. So if you’re still using your Uncle Fred or Sorority Sister Sally for all of your legal matters, tell them you love them very much but need to start using an experienced corporate attorney going forward.