How To Hire And Work With Lawyers At Your Startup: Advice For Early-Stage Founders From A General Counsel

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  Rebecca Lee WhitingFounder
  Epigram Legal P.C.

How to Hire a Startup Lawyer

Hiring an experienced startup lawyer is one of the first things a founder should do when thinking about starting a company, but this can be a daunting task. The legal market is opaque, and it can be difficult to know how to work with lawyers if you’ve never done so before. Many founders are unsure even when to hire a lawyer, and often struggle to assess which lawyer or law firm is the right match for their needs.

Even as an experienced attorney myself with years of providing legal services to clients, when I became a General Counsel for a startup and thus a consumer of legal services for the first time, I discovered I had a lot to learn about how to hire and work with outside counsel. While every startup and every founder will have their own unique set of concerns, I hope that my key learnings about how to hire and work with lawyers will be useful to early-stage founders navigating these issues.

1. Hire an Experienced Startup Attorney Early to Avoid “Legal Tech Debt”

Founders often ask me when they should hire a lawyer. In my experience, the answer is: The sooner, the better. Ideally, a founder should hire an experienced startup attorney before incorporation, to avoid making unnecessary mistakes that are difficult and expensive to unwind later (if they can be unwound at all)—or what I call “legal tech debt.”

There are several reasons to consider hiring a lawyer before you incorporate:

Reason One: Intellectual property

First, if you’re working for another company while considering founding your own startup, you would almost certainly benefit from legal advice before proceeding. That’s because you probably signed an agreement at the start of your employment that says your current employer owns any ideas that you develop while employed by that company. Potentially a big problem for your new startup! A lawyer can help you take the necessary steps to take to protect your intellectual property (including helping you document that any work you do on your startup before you leave your current job is done only on your personal computer, and not on company time), so that your future startup (and not your current employer) owns your ideas.

Reason Two: Where and How to Incorporate

Second, a lawyer can help you make an informed decision about where to incorporate and in what form. A Delaware C-corp may fit the bill for many startups due to a variety of small-business advantages such as faster filing, streamlined corporate structuring that lets a single person act as officer/director/shareholder simultaneously, and a lack of residency requirements, among others. However, there are other options that you might consider before making your decision. Having an experienced attorney prepare your incorporation documents, ensure that they are filed with the right governmental agencies, issue founder’s stock, and attend to other important foundational considerations could also help you avoid costly fixes down the line.

Reason Three: Additional Tax, Stock, and Copyright Issues

An experienced lawyer will also help you file your 83(b) election if you choose to do so (which must be done within 30 days of founding—no extensions!—and may result in substantial future tax savings for founders). In applicable cases, a veteran lawyer can also help you document your stock’s status as qualified small business stock (“QSBS”), which can be advantageous for holders in terms of capital gains tax, depending on the circumstances. A lawyer can also ensure that the name you pick for your startup is available and trademarkable and that it doesn’t infringe another company’s trademark—I’ve seen founders get their heart set on a name, only to find out it’s already taken.

Reason Four: Setting Founder and Cofounder Roles

In addition, if you’re working with a cofounder or cofounders, an experienced lawyer can advise you during your negotiations over your respective roles, ownership splits, and other issues that arise in the early days of cofounding a startup.

If you’ve already incorporated and don’t have a lawyer yet, don’t fret. It’s still probably a good idea to hire an experienced startup attorney sooner than later so that they can address any issues with your formation docs, filings, and other important legal tasks before they become a bigger headache down the line.

Here are some other early milestones for which I strongly recommend founders get the advice of an experienced attorney:

• Raising capital: It’s especially critical to have experienced startup counsel in your corner (and ideally someone who mostly or exclusively represents startups, see more on that below) if you are raising a fully-priced round with a full set of deal docs, e.g. Series Seed, Series A, and so forth. Even if you are raising via SAFE (i.e. a “Simple Agreement for Future Equity,” typically on the Y Combinator form SAFE), you should still have a lawyer review the proposed SAFE, especially if the investor is proposing any deviation from the YC form SAFE (and even if no revisions are proposed, having a lawyer help you understand the pros and cons of the YC form is a good idea). A lawyer can also help you manage your cap table and handle the issuance of stock to investors at the appropriate time.
• Hiring contractors or employees: Especially in California. Many startups unwittingly open themselves up to the risk of future litigation or arbitration (including the dreaded class action) by misclassifying employees as independent contractors, or by failing to otherwise comply with California’s complex employment laws, which have many potential traps for the unwary. Even if you’re not hiring in California, a good lawyer can advise you on how to structure those agreements, issue stock or options to employees and advisors, and help you ensure that your contractor and employment agreements clearly provide that your company owns the work performed by, and any inventions created by, your contractors and employees in the course of their work, and that they owe you duties of confidentiality, etc. Luckily, getting legal help with hiring doesn’t usually have to be too costly, either; many startup lawyers and law firms already have form agreements that they can customize for you for greater efficiency.
• Negotiating critical contracts: Including major service contracts with customers or suppliers and reviewing any license agreements for software that your company uses. If you have a website or an app, it’s also a good idea to have a lawyer make sure that your terms of service and cookie/privacy policies are compliant with applicable laws (which frequently change) and also protect your company’s rights.

This isn’t an exhaustive list, of course, but these are some of the more-critical issues with which an experienced attorney can make the difference between smooth sailing or unnecessary and costly legal tech debt. An ounce of prevention can be worth a pound of cure.

2. Determine Your Startup’s Core Legal Needs, Then Determine Your Priorities and Budget

Knowing the specific areas for which you need a lawyer’s help is also an essential skill for an early-stage founder—as is knowing how to stack rank the many potential legal issues to address in the early days. For example, in addition to protecting your IP in your incorporation docs, or managing employment agreements and other contracts, you may want to seek counsel on these topics:

• Trademark: It may make sense to hire a trademark attorney to protect your company’s use of its mark in commerce.
• Patents: You may also wish to consult an experienced software patent attorney if you think any of your company’s code or products is potentially patentable.
• Copyright and Trade Secret Management: Intellectual property counsel can also help you understand and manage potential copyright and trade secret issues, if applicable.
• Data Privacy: If your startup will be handling large amounts of personally-identifiable information (i.e. any data that could potentially identify a specific individual, such as names, email addresses, telephone numbers, etc.), you’ll want to hire a lawyer with data privacy experience sooner than later.
• State-Specific Regulation: Other companies may want to consult regulatory counsel to understand their particular state and federal regulatory and registration requirements.

Again, this is not an exhaustive list. And if you’re not sure what you need a lawyer’s help with, ask! Many lawyers will take a free informational call with potential clients, and you should absolutely use those calls to your advantage. Ask prospective lawyers how they would think about addressing and prioritizing your particular company’s legal needs; they may expose an area of legal need or priority you weren’t aware of. You can also ask them what questions you should have asked; their feedback may be useful.

Once you have a sense of what your main legal needs are and have prioritized them based on your startup’s timing and how critical each need is to your business, you should develop a reasonable budget. To gather information to make a budget, interview candidates carefully. Lawyers and law firms should be willing to disclose their current rates, and many will agree to alternative fee arrangements, discounts, and deferred fees for startups. Lawyers should also be willing to give you an estimate of cost for a particular project. You should always feel free to get quotes from multiple lawyers or law firms and compare based on both price and expertise (more on that next).

3. Find the Right Legal Experts for Your Needs at the Right Price

Once you know your priorities, get referrals to expert attorneys with experience in your particular areas of need (e.g. general corporate lawyers for incorporation, or specialists like software patent attorneys, data privacy attorneys, etc.).

Where to Find Your First Lawyer

For your first lawyer, i.e. the general corporate expert who will help you incorporate, I recommend asking other founders in your network for referrals, and interviewing several candidates for both expertise and cultural fit. Many startups choose to work with general corporate lawyers referred by their first investor, which I do not always recommend. Of course, while there are many talented lawyers at each of the top Silicon Valley firms favored by VCs, my personal opinion is that it can be challenging for a lawyer to wear both hats. The challenge is to zealously represent both VCs and founders, whose interests are not always aligned. I tend to think that founders may be better served by working with an experienced solo practitioner or a smaller firm that only represents startups for that reason, and exploring other options may also result in cost savings.

Finding Specialists: Choosing Between A Single Firm or Multiple Attorneys

After you’ve hired your first lawyer, if you’re happy with their work, they can often refer you to the right subject-matter experts for other, more-specialized needs. A larger firm will also usually have many specialist attorneys to whom they can refer you.

However, you don’t necessarily need to one-stop shop. There can be efficiency advantages to keeping all work with one firm, but in my opinion, it’s more important to have the best experts for the right price than to have everyone on the same letterhead.

Work your network for referrals to legal specialists, too: good references from other founders—especially from startups in the same industry or with similar legal challenges—go a long way.

Finding the Right Lawyer for Your Startup

When interviewing a lawyer, it’s important to ask about their experience with similar matters, and they should be able to describe in general terms similar work they’ve performed for other clients. Hiring a lawyer, particularly a specialist, can be like hiring a surgeon: Ideally, you want to hire someone who’s done this many, many times before.

You should also look for fit. This will be an ongoing, advice-based relationship, so you want someone with whom you can build a rapport and who understands your business and its needs. If you are having a hard time connecting with or understanding a candidate in the interview, they’re probably not the right fit for your startup.

Discussing Rates and Fees

Again, you’ll want to ask also about billing rates and discounts and whether the lawyer or firm ever agrees to capped fees or alternative fee arrangements (outside of the typical hourly billing model). If you’re considering hiring a firm, you should also ask how they staff cases and how they right-size the work to your stage of startup. In my experience, lawyers who are used to working mostly with later-stage or public companies are usually not the right choice for a startup, because they have a tendency to overstaff or overwork a problem. So ideally, you want to work with lawyers who are used to serving early-stage startups.

4. If You Work with BigLaw, Learn How to Get the Best Service as a Small Fish in a Big Pond

As a solo practitioner and former small-firm attorney myself, I am obviously biased in favor of working with solos and smaller or mid-size firms. In my experience, there are many lawyers in solo practice and at smaller firms who are just as talented and pedigreed as you will find in “BigLaw,” and they often come at substantial cost savings.

That said, I also have many terrific colleagues in BigLaw that I continue to work with as a fractional general counsel (GC), and there are many reasons why a startup founder might end up working with at least one BigLaw firm.

Advantages of Working with Larger Law Firms

• Name-Branding and Experience: On the pro side, BigLaw lawyers have the brand names, fancy letterhead, and regular experience dealing with VCs and their lawyers, all of which can be valuable in potentially contentious fundraising negotiations.
• Expertise, Hopefully: In addition, individual BigLaw lawyers often (but not always) have substantial relevant expertise, and may in some cases be the best experts for your particular needs.
• Larger Teams to Deploy: BigLaw firms also have a deep bench of associates, meaning lots of bodies they can throw at your problem in an emergency.
• Some Fee Flexibility: Most BigLaw firms are willing to agree to fee deferrals for startups, and often offer a standard discount for early-stage startups (10% is typical). (Note: make sure you memorialize any fee deferral or discount in an engagement letter—and always get an engagement letter from a lawyer. If they don’t offer one, I tend to take that as a negative signal).
• All-in-One: Finally, a BigLaw firm, because it has so many lawyers, can sometimes be a decent one-stop shop, with all the legal experts you need (though not always, as mentioned above).
  

Disadvantages of Working with BigLaw

There are also some potential cons to working with BigLaw, however. For example:

• Pro-VC Bias: As previously discussed, many BigLaw firms also represent VCs, sometimes more frequently than they represent startups, which naturally changes how they think about this work. In my opinion, unfortunately, many BigLaw firms can fairly be criticized for having a [probably subconscious and difficult to address] pro-VC bias in their work.
• Potentially Less Coverage Due to Multiple Clients: In addition, BigLaw lawyers often have more clients and more work than any sane person should have (many BigLaw attorneys live by the adage that if their workload doesn’t feel like they’re trying to drink out of a firehose, then they’re not busy enough). And many of those clients are far wealthier and have far more business to offer than your startup. Despite those lawyers’ best efforts, then, it can be challenging for them to give you the time, attention, and priority you deserve.
• Team Churn with Junior Counsel: BigLaw also tends to have a lot of associate churn, meaning that you may have a new junior attorney staffed on your matter a couple times a year. Since the junior attorney does most of the work, it can be a bit of a pain to switch so often.
• Significant Cost Differences: However, the biggest con by far, in my opinion, is cost: BigLaw attorneys’ fees are almost always substantially more expensive than those of a small or medium-size firm or a solo practitioner. Someone’s gotta pay for that fancy corner office, after all.
  

If you do work with BigLaw, here are my tips to get the best service for your budget (and really, this advice applies not just to BigLaw but to working with any lawyer):

• Ask for Estimates and Monitor Costs: If you are cash-conscious, always ask for an estimate, and consider alternative fee arrangements. Firms should agree to give you an estimate for each project, and may be willing to agree to a cap for a project; at minimum, they should be willing to let you know if they are approaching the agreed-on estimate and wait for further instruction before proceeding.
• Seek Alternative Billing Arrangements: If you are sending a lot of work to the firm, consider negotiating a flat monthly rate instead of hourly, or explore other alternative billing arrangements to control costs.
• Right-Size the Work at the Outset: Unless you’re betting the company, you’ll probably want the “used Prius answer” to a lot of your legal questions, not the “Cadillac answer.” If your firm can’t right-size the work to your stage and isn’t cost-effective, don’t be afraid to switch firms instead of continuing to throw good money after bad. This is another reason why it can be a good idea to avoid one-stop shopping: If a firm knows you have hired other lawyers for other needs, they are appropriately incentivized to keep pricing competitive to keep your business.
• Review Bills Carefully: You should also review all bills rigorously to ensure your firm is honoring time estimates (or if not, that your firm communicated expectations first), and to make sure that the hours make sense to you and are not excessive. If some part of a bill doesn’t make sense to you, ask your lawyer to walk you through it. You should also make sure that you haven’t been billed for the wrong client’s work—it’s rare, but I’ve seen it happen, even though it’s usually an honest mistake.
• Agree to Reasonable Deadlines and Check in Regularly (but Politely): As a GC, I live by the motto that the squeaky wheel gets the grease. Remember, BigLaw lawyers are [often] underwater with work and under pressure to service the big fish clients first. If you are a persistent small fish, you may get faster service—which you deserve! And if your lawyer is consistently failing to meet deadlines or not communicating well, again, don’t be afraid to switch. To that same end, don’t be afraid to build your relationship with your lawyers. We’re people too, and we like working with clients that we get to know and connect with as people (which we should always do off the clock).

Final Thoughts and Additional Resources

Again, these are just my learnings from my own experience as a startup GC, and no article could possibly cover all the different considerations that might arise as you hire legal counsel for your startup. Still, I hope this information gives early-stage founders confidence that they will be able to find the right legal experts for their needs, and that they can learn how to work with lawyers for success in their startup.

The information in this article is provided for general informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute an attorney-client relationship. Readers should consult with an attorney licensed to practice in their jurisdiction before relying on any information contained in this article.

Rebecca Lee Whiting, Esq. is the founder of Epigram Legal P.C., a fractional GC for startups, and is General Counsel & Corporate Secretary at Journey Colab Corp.

More Resources

• LegalZoom: Advantages of a Delaware C-Corp
• Investopedia: When and Why to File Form 83(b)
• Investopedia: Definition and Benefits of QSBS