How Startups Can Make the Best Use of Lawyers
If you’re spending a ton of time and money on legal management, that’s probably too much. But little to no time or money at all is probably not enough.
In this post I’ll lay out a simple tried-and-true framework startup CEOs and founders can use to help you decide what kind of legal advice and support you need to keep your legal house in order and avoid pitfalls that will slow the company down.
The typical startup requires responsive and informed legal advice and a flexible and lean framework for getting it. I won’t dwell on the first two points. This is not the time to have your uncle who does real estate law draft and negotiate your $8 million Seed-round financing documents. And you’ll go mad waiting to hear back from a sloth-like advisor when the business is not yet breaking even and every second counts. Enough said.
At my prior employer Axiom (a venture-backed innovator in the legal space), we collaborated with the General Counsel of Fortune 500 companies to restructure and reorganize the work of their legal departments. The same basic principles offer an excellent framework for startups that can evolve as the business grows, from the early days through Seed and Series A financings and beyond.
Check out the three-step approach and an example of how you might organize your legal operations.
But first, legal AI is captured in the model under “Alternative Model Providers.” This category captures any alternative to traditional law. Watch this space. There’s no doubt in my mind that legal AI specifically will be moving from the Efficiency category to the Experience category over time. It’s just a question of how fast.
Additional factors to consider:
Account for the complexity and costs of coordinating these legal activities. Theoretically, it might be more effective to split up projects among three tiers of providers, but if that’s going to add a ton of overhead to your operations, you might want to keep it to two.
A single project can be split across multiple categories. For example, you need an immigration visa for a new team member. Your Chief Financial Officer or Chief Operations Officer is comfortable navigating complex regulatory schemes. One of them might prepare the visa application, and then you could have an immigration lawyer review it to make corrections and suggestions.
There are functional and emotional elements to the decisions you make in building your framework. Let’s say you’re the CEO of a post-Series A company. You have several top-tier VCs in your cap table and have blown past the $10M revenue mark. For your bet-the-company matters, you may want to select an AmLaw 100 law firm with startup credentials not only to benefit from their expertise and infrastructure. You may also choose them to benefit from their brand and the imprimatur the firm brings with its counsel and work product.
From the beginning of your company’s life, pay particular attention to company formation, founders’ agreements and equity matters generally; intellectual property (IP); and fundamental regulatory and compliance issues. To take one specific example, having people sign confidentiality and IP assignment agreements is critical. If you neglect ongoing corporate formalities, you might be able to fix that up later, but it will be a nuisance, and it could lead to problems—if you were to issue more equity than you have authorized, for instance. Commercial agreements might fall in any tier of the framework above, depending on your business and the individual transactions, and should be treated accordingly.
There’s always a chance a legal issue can arise that knocks your startup journey off track. Still, a proactive and reasoned approach to handling legal services can optimize the quality and cost of the advice you receive--improving the odds of long-term startup success. Use the illustration above and consult your trusted legal advisor(s) to devise a legal management strategy specific to your company and its lifecycle stage.
Nothing in this blog is intended to be a substitute for legal advice from an attorney knowledgeable about your unique situation.