It’s easy to get the impression, particularly when all you read about startups is a handful of publications representing a pocket (albeit a very vocal one) of the broader tech ecosystem, that the legal decisions startup entrepreneurs often face have all been standardized and templatized. But in truth, this is a façade.
Extremely important, and often permanent, decisions are made in the very early days of a company that you’re going to live with for years; around structuring the relationship between founders, early hires, sourcing and structuring investment and strategic commercial relationships, etc. These aren’t decisions you make at Year 5, but sometimes in the very first few months of forming your company.
To make matters even more high-stakes, if you’re a first-time entrepreneur, you’re going to often be making those decisions across the table from players who, quite literally, have 20x the experience that you do; and who know all the subtle, nuanced ways to tilt the playing field in their favor. A VC might do a half a dozen different financings in a given year, while a successful technology company will do around a half a dozen financings in its entire lifespan. A VC has a broad portfolio, while most founders are top performers if they can be a one-hit-wonder and create a single success; creating an enormous imbalance of experience in negotiating startup financing and corporate governance issues.
In fact, at a very high-level, it’s often clever “repeat players” in startup ecosystems who are responsible for marketing the façade that high-stakes decisions founders need to make are already “standardized.” Conveniently, they created the so-called “standard.” You can imagine why it benefits them to suggest that you should just sign and move on, instead of thinking through the implications (and alternatives) with experienced, trustworthy advisors.
Against this backdrop of very high-stakes, complex decisions often involving market players who are way more experienced than you are, tell us which kind of legal advisor you’d prefer to work with:
- Someone who has been doing this for a couple of years, and is relying on a checklist or script in answering your questions; or
- Someone who’s been doing this for nearly a decade or more, and has seen dozens or even hundreds of iterations and variances.
It’s at some level a rhetorical question, because the answer is obvious; and it plays directly into whom you should be talking to in interviewing law firms for your startup.
Some law firms, in order to seem innovative and efficient, have started dramatically diluting the legal services that they offer to early-stage companies. Instead of having entrepreneurs use senior lawyers and partners as their main legal contacts, they push them to paralegals and junior lawyers; and perhaps throw in some half-baked technology platform or automation software to make it look cutting edge. In the professional world, this is called de-skilling, and we’ve seen it get entrepreneurs into enormous problems.
Is some of the legal work that startups do fairly standardized? Sure. Option grants are a good example. Paralegals and software are great for that. You definitely want legal counsel who knows how to lean on templates, software, and junior professionals when it’s in fact warranted. But this represents a tiny fraction of what most serious tech startups actually need in terms of legal services and strategic advisory. You want experienced help in navigating the full complexity you’re going to run into, and that means senior lawyers and partners as your main contacts; not paralegals and junior lawyers with a couple of years under their belt.
Telling you that something is standardized and templatized is a convenient way for a law firm to keep its margins healthy, particularly if they’re charging you a flat fee, because it limits the amount of time that they actually need to spend on advising you. There may be far better ways of doing something in your unique context, even without much extra work, but by limiting your options to A or B, their workflows are streamlined.
The same goes for making a paralegal or junior lawyer your main contact. Those professionals cost the firm less than a senior lawyer or partner, and, if they’re your main contacts, will cost you in terms of lost optionality and flexibility; because they operate on linear checklists. Having you primarily talk to advisors who aren’t senior and experienced is a law firm’s way of saying “You’re small potatoes now. We’ll allocate our real talent to you once you achieve something.” Work with firms that don’t assign you to the B-team from Day 1.
There are ways of keeping legal costs down, and not running up the bill, without cutting startup entrepreneurs off from experienced senior talent that can offer truly strategic and contextualized advice, but law firms differ in which paths they take in structuring their services for startups. In talking to firms, keep the junior v. senior divide in mind.
So the conclusion here is fairly straightforward. Among the many factors to consider in choosing a Startup Law Firm – their knowledge and scalability, their rate structure and resources, see Checklist for Choosing a Startup Lawyer – one of the top factors should be whom your main senior legal contacts are, and how accessible they are. Interview them, and ask them questions to confirm they can deliver the level of advisory that your company needs long-term. If in interviewing a startup law firm, the senior lawyers are hidden behind layers of other staff before you can access them, that’s a major red flag.
Top-tier Startup Law, with companies expecting to scale into 8-10+ figure enterprises, isn’t about who can automate a checklist, design a cute software dashboard, or deliver a template document the fastest. It’s about high-stakes, often permanent choices against a backdrop of significant complexity and flexibility. If in interviewing or working with a firm, you’re finding yourself uncomfortably stuck interacting with people, or even software, who seem far too rigid in offering you scripted advice that doesn’t take into account your specific context and needs, that’s a major problem that you should address quickly before you’re led down a wrong, and potentially permanent, path. Talk to a different firm that is able and willing to allocate experienced senior legal talent to you, and within a cost structure that is accessible for the kind of company you’re building.
Jose Ancer (@ancerj) and Jeremy Raphael (@jraphs) are Emerging Companies Partners at Egan Nelson LLP (E/N), a Lean, World-Class Law Firm delivering top-tier, scalable legal counsel to leading startups, without the unnecessary overhead costs associated with traditional firms.