7 ms·

What Start-ups Should Know About Hiring a Lawyer

49 points by nlow 14y ago

sixQuarks 14y ago
What kind of startup can afford $350-$800/hour lawyers?
- ido 14y ago
  If it's your first business and you're strapped for cash you can often get free legal advice (in Austria that would be from the Wirtschaftskammer - the ministry of commerce). Worth checking out which small-business programs your local government provide- a lot of them do, especially for "clean industries" like software.
- rayiner 14y ago
  When you're a really tiny startup, you don't really have any legal needs that take a lawyer more than a couple of hours to do. When you're bigger, you still don't have a ton of work in terms of hours. The startup I worked at had a quarter-million in legal fees one year. That was about as much as just one of our hired-gun contractors.
- mansoor-s 14y ago
  I agree with this question. Specifically for bootstrapped start-ups. Will lawyers ever work for equity?
- swampthing 14y ago
  Most of the big Silicon Valley firms will defer fees until your first significant financing.
t413 14y ago
That's incredible how much a lawyer's hourly rate is. A senior partner >$1000/hour? It's amazing how expensive risk reduction services are that, in my mind, equate to a blame shifting strategy.
- joshAg 14y ago
  don't forget that the hourly rate has to also cover office space rent, paralegals, secretaries, utilities and all the other incidental costs of doing business. Though I bet that most of that $1000/hour still goes to the lawyer.
- jacques_chester 14y ago
  In court cases where hundreds of millions or even billions of dollars are on the line, it makes sense to pay the lawyer who is 1% better even if he or she costs %100 more. Anyway. You won't be hiring the $1000/hr lawyer. For almost all the stuff that startups need to get done, a lawyer who charges in the sub-500 range is going to get it done and done well. Don't let sticker shock fool you. Lawyers provide an essential service. It would be nice if we didn't need them. It would also be nice to get free unicorns and backrubs from models. Too bad, that's not the world we live in.
- yen223 14y ago
  Somewhere, some lawyer is probably wondering why it costs $1000/hour to develop what she believes is just a simple website.
  - cookiecaper 14y ago
    Do you actually know a web firm anywhere that will charge $1000/hour? Such a rate is unheard of in software consulting as far as I know. Maybe someone like EDS who has huge public companies in their pockets will charge these rates, but I personally have never encountered it and I don't know anyone who charges it. The most expensive software consulting I've seen in the wild is $350/hr, and that was for a very specific niche. I know other very specific niche service providers who charge $200/hr. As I've said previously, I think the fact that most other professionals max out around the rate that the cheapest and least experienced lawyers start shows there's something perverse with the law industry.
    - mbesto 14y ago
      > Such a rate is unheard of in software consulting as far as I know. $1000 is not unheard of at all. Yes, you're right, the likes of EDS, IBM, Accenture, etc. are easily charging the upwards of $1k/day. But any decently sized firm (50+ employees) is going to charge roughly that amount. You'd be shocked to hear some of the price tags on corporate website development... I think this is the overall point. Go for a small specialist who will treat you like a king/queen. You don't need a corporate law firm. There are too many transaction costs that you simply don't need (assuming you're small) or can risk accept not having.
mitchi 14y ago
Better call Saul
- joshuaheard 14y ago
  LOL
- rdl 14y ago
  IMO, this is true. 1) Saul: "sometimes you need a criminal lawyer". 2) Startups: "sometimes you need an entrepreneur lawyer". I've always heard that the difference between competent and great lawyers is that competent lawyers will tell you what you can do within the law (i.e. how you can handle a financing round, etc.), and great lawyers will help you figure out how to do the best thing for yourself and your business while remaining within the law.
  - swampthing 14y ago
    It's true, but it's also pretty hard to figure out whether you're actually remaining within the law since things are so rarely tested (at least in the startup world).
    - rdl 14y ago
      For really crazy stuff people get no-action letters from SEC in advance of doing crazy things ("private letter rulings").
- RenierZA 14y ago
  http://www.bettercallsaul.com/ http://www.bettercallsaul.com/
jacques_chester 14y ago
Here's what I learnt in law school: Do you have a legal question? See a lawyer. A few hundred dollars now versus an uncapped downside later? You're basically crazy if you don't. Your lawyer and accountant are to your business what a doctor and a dentist are to your body. You see them regularly, they give you specialist advice and they can save you serious trouble if you take their advice. These individuals see more permutations of business in a week than you will see in a year. So stop double guessing whether your company will need a lawyer. You will. You just might not understand it yet. Lawyers and accountants are part of the cost of being in business. It's not their responsibility to be cheap. It's your responsibility to produce enough value for your customers that a profit gets made somewhere in the mix. Like the article says, shop around. I'm the middle of getting a patent drafted. I picked my lawyer[1] based on the fact that he had a computer science degree and industry experience. You can do the same. Ask. Inquire. And remember, lawyers are like drug dealers: the first taste is usually free. Go meet them. If you don't like them, see someone else. It's business, after all, not your personal life. [1] http://www.ghfip.com.au/ws/principal-attorneys/index.jsp#ThomasHaines http://www.ghfip.com.au/ws/principal-attorneys/index.jsp#Tho...
- sharkweek 14y ago
  I clerked at a law office while I was in college -- the lawyers there were happy to offer free 30 minute consultations because the conversion rate of the people that showed up for those was actually pretty high. It was a great way to build trust right off the bat and to ensure it was a good fit for a longer term partnership
  - jacques_chester 14y ago
    Exactly. And for the same reason my lawyer above is giving me a fixed-price on the work he's doing. (I think he's nuts for quoting fixed-price on anything legal, but I'm hardly going to say no.)
    - grabeh 14y ago
      Surely it depends on the extent to which the time the work will take will change depending on external factors. A fixed fee for a first draft of terms and conditions is very different to a fixed fee for litigating a dispute to trial. I obviously use an exaggerated example to illustrate here but it is fair to say that a fixed fee can simply be a solid estimate of the time a matter will take multiplied by hourly rate (at least that's how we arrived at fixed fee estimates at my old firm).
grabeh 14y ago
I think they chose the wrong lawyer to speak with. From what I can tell, he's a lawyer more versed in dealing with much larger companies and venture capital transactions as opposed to the typical start-up (if such a thing exists). Particularly in the field of web (contrasted with physical products/live events for example), the need to consider compliance is reduced. If you are providing a good service to users, it is unlikely you will run into issues in terms of consumer complaints. I would caveat it by suggesting that intellectual property is (obviously) an important area to consider. However, there are online tools for patent searching which will be able to give you an idea of whether your product could be patentable (no patent search even done by a lawyer or patent attorney would be exhaustive in any event). As to brand protection, trade mark registration in the territory where you are based will be relatively cheap and will give you a degree of leverage if someone else starts up a similarly named service. Although it must be said that the main reason people will copy a name is to piggyback on goodwill which will not be a relevant consideration for most start-ups. Many actual start-up lawyers will be willing to give a few hours of their time for free or at least should be, to talk with you about your business and highlight any initial concerns and make recommendations to help your business. If they do provide recommendations, I suggest that if they haven't done already you request a fixed rate for any one particular piece of work. If they can't provide a fixed rate, I suggest you look elsewhere. There are sufficient good lawyers out there to enable you to find one who will be willing to be more flexible on fees than rigidly sticking to an hourly rate. In terms of tax, I would suggest the above but in relation to an accountant, the basics of corporate taxation are relatively simple and you should be able to find an accountant willing to give you time for free. On a side note, although it is easy to bash lawyers' fees, if you are a large corporate operating in an area where legal compliance is crucial, an hourly rate of $1000 per hour is a drop in the ocean if it saves you many multiples of that in avoiding costs. Blame shifting in ensuring you have someone that you can sue if they make a mistake can be priceless. But that doesn't mean it's appropriate for start-ups particularly considering monies could be spent better elsewhere.
splittist 14y ago
For a non-Valley, non-VC, non-swing-for-the-fences (Sand Hill Road cookie cutter) startup, think about where your risks really lie (who is going to sue you; when; why; and for how much). If you have partners, then having someone walk you through all the 'what if things go wrong' stuff may be useful. If it's just you, then you can even postpone incorporation. As for tax - that's a nice problem to have, but it's not one that's going to loom large on day one (or even year one). I would be amazed if it made sense for the median startup to register any trademarks. And if you "need" patents, really drill down on what that "need" is (if it's just a tick-the-box exercise for eventual VC's, then one jurisdiction might be enough; if you need a global patent protection strategy to secure your fundamental business value, you're doing it wrong). When you do hire a lawyer, get an estimate up front, make clear that you want to know in advance if the bill is getting anywhere near the estimate, and require monthly interim billing if there is something ongoing. If you can fit in some scornful laughter at the idea of billing for photocopying and phone calls, that would be good, too. Many lawyers pay lip-service to the idea of fixed fees for defined projects: think about calling their bluff. And ask about other value-added services they might provide, such as introductions to other clients who might be interesting to know. This will be like pulling teeth, because lawyers are pretty terrible at everything in business except (if you are lucky) the legal stuff. But they probably do know the legal stuff better than you, so don't try to impose irrelevant constraints, like "I want a one-pager for this".
- bigiain 14y ago
  I'm not so sure about the trademark thing. I've just started that process with my partners non-tech new business. Here (in Australia) you can do a bunch of searches online, and enter a trademark application on a government website for $120, and if it;s approved you pay $300 for 10 years trademark protection. Once you've got all your domain name / twitter handle / social media accounts and pages lined up, a few hundred bucks for trademark protection in your area of business seems like money well spent to me, even if all it does is discourage someone from making a claim they've got more rights to a domain name or social media account name than you. Of course that adice mostly applies to trademarking names which clearly have no existing claimants (or at least none in your area of business) which would complicate things enough to require law firm time to resolve...
nirrrrrr 14y ago
the most important skill is DEAL MAKER. A lawyer that will guard your interests while aware of the other side needs. There are so many lawyers that guard their client while totally alienating the other side.
meriksson 14y ago
TL;DR: Since dealing with high-end lawyers is often tough, contract someone to do it for you. At my company we went through a handful of lawyers, mostly from big firms. We were extremely unhappy with the experience, especially since we did not seem to get reasonable value for our money, ours being a very small account for any established law firm. Eventually we found a solution that was perfect for us. We now work with a freelancing lawyer who caters to startups and is an absolute joy to work with. He does all kinds of stuff on his own, kind of like our own part-time in-house legal council, but the big thing for me is that he can decide when we need some more muscle (i.e. big law firm, specialist in some type of law), and then we pay him to find, subcontract and manage all contacts with other lawyers. I can not extract anywhere near maximum value from an expensive lawyer - this guy has a much better shot at it. As the CEO, I save a lot of time and anguish by only ever speaking to one lawyer, and the most pleasant one I've met at that. If you want to get in touch with my legal guy - based in Stockholm, Sweden - ping me and I'll send you his contact information.
- veidr 14y ago
  This is such awesome advice. Find and hire one good lawyer, who the deals with all your other lawyers. It might not apply if your investors have their own legal muscle that they can introduce. But, if you are <10 employees, it is insanely expensive (manpower-wise) to deal with finding, retaining, and managing decent legal counsel (to say nothing of replacing them due to a sudden conflict of interest, when you unexpectedly find yourself facing a huge firm like Apple/J&J/Halliburton/etc, who seemingly contract 99% of all law firms).
  - oregonspanish 14y ago
    Do you think that other startups would be interested in this type of in-house counsel-as-a-service? This would give teams the benefit of having single source that knows all your issues and goals, but could also negotiate effective rates with specialists.
carbocation 14y ago
Not sure how George Grellas hasn't been mentioned yet (HN's "grellas"), but if you're a US startup, I recommend his firm.
DoubleMalt 14y ago
Interestingly the red flags section would apply to programmers with only minor changes. Probably to any profession, but programming is the one I know about ;)

49 points by nlow 14y ago

sixQuarks 14y ago

What kind of startup can afford $350-$800/hour lawyers?

ido 14y ago
If it's your first business and you're strapped for cash you can often get free legal advice (in Austria that would be from the Wirtschaftskammer - the ministry of commerce). Worth checking out which small-business programs your local government provide- a lot of them do, especially for "clean industries" like software.
rayiner 14y ago
When you're a really tiny startup, you don't really have any legal needs that take a lawyer more than a couple of hours to do. When you're bigger, you still don't have a ton of work in terms of hours. The startup I worked at had a quarter-million in legal fees one year. That was about as much as just one of our hired-gun contractors.
mansoor-s 14y ago
I agree with this question. Specifically for bootstrapped start-ups. Will lawyers ever work for equity?
swampthing 14y ago
Most of the big Silicon Valley firms will defer fees until your first significant financing.

t413 14y ago

That's incredible how much a lawyer's hourly rate is. A senior partner >$1000/hour? It's amazing how expensive risk reduction services are that, in my mind, equate to a blame shifting strategy.

joshAg 14y ago
don't forget that the hourly rate has to also cover office space rent, paralegals, secretaries, utilities and all the other incidental costs of doing business. Though I bet that most of that $1000/hour still goes to the lawyer.
jacques_chester 14y ago
In court cases where hundreds of millions or even billions of dollars are on the line, it makes sense to pay the lawyer who is 1% better even if he or she costs %100 more. Anyway. You won't be hiring the $1000/hr lawyer. For almost all the stuff that startups need to get done, a lawyer who charges in the sub-500 range is going to get it done and done well. Don't let sticker shock fool you. Lawyers provide an essential service. It would be nice if we didn't need them. It would also be nice to get free unicorns and backrubs from models. Too bad, that's not the world we live in.
yen223 14y ago
Somewhere, some lawyer is probably wondering why it costs $1000/hour to develop what she believes is just a simple website.
- cookiecaper 14y ago
  Do you actually know a web firm anywhere that will charge $1000/hour? Such a rate is unheard of in software consulting as far as I know. Maybe someone like EDS who has huge public companies in their pockets will charge these rates, but I personally have never encountered it and I don't know anyone who charges it. The most expensive software consulting I've seen in the wild is $350/hr, and that was for a very specific niche. I know other very specific niche service providers who charge $200/hr. As I've said previously, I think the fact that most other professionals max out around the rate that the cheapest and least experienced lawyers start shows there's something perverse with the law industry.
  - mbesto 14y ago
    > Such a rate is unheard of in software consulting as far as I know. $1000 is not unheard of at all. Yes, you're right, the likes of EDS, IBM, Accenture, etc. are easily charging the upwards of $1k/day. But any decently sized firm (50+ employees) is going to charge roughly that amount. You'd be shocked to hear some of the price tags on corporate website development... I think this is the overall point. Go for a small specialist who will treat you like a king/queen. You don't need a corporate law firm. There are too many transaction costs that you simply don't need (assuming you're small) or can risk accept not having.

mitchi 14y ago

Better call Saul

joshuaheard 14y ago
LOL
rdl 14y ago
IMO, this is true. 1) Saul: "sometimes you need a criminal lawyer". 2) Startups: "sometimes you need an entrepreneur lawyer". I've always heard that the difference between competent and great lawyers is that competent lawyers will tell you what you can do within the law (i.e. how you can handle a financing round, etc.), and great lawyers will help you figure out how to do the best thing for yourself and your business while remaining within the law.
- swampthing 14y ago
  It's true, but it's also pretty hard to figure out whether you're actually remaining within the law since things are so rarely tested (at least in the startup world).
  - rdl 14y ago
    For really crazy stuff people get no-action letters from SEC in advance of doing crazy things ("private letter rulings").
RenierZA 14y ago
http://www.bettercallsaul.com/ http://www.bettercallsaul.com/

jacques_chester 14y ago

Here's what I learnt in law school: Do you have a legal question? See a lawyer. A few hundred dollars now versus an uncapped downside later? You're basically crazy if you don't. Your lawyer and accountant are to your business what a doctor and a dentist are to your body. You see them regularly, they give you specialist advice and they can save you serious trouble if you take their advice. These individuals see more permutations of business in a week than you will see in a year. So stop double guessing whether your company will need a lawyer. You will. You just might not understand it yet. Lawyers and accountants are part of the cost of being in business. It's not their responsibility to be cheap. It's your responsibility to produce enough value for your customers that a profit gets made somewhere in the mix. Like the article says, shop around. I'm the middle of getting a patent drafted. I picked my lawyer[1] based on the fact that he had a computer science degree and industry experience. You can do the same. Ask. Inquire. And remember, lawyers are like drug dealers: the first taste is usually free. Go meet them. If you don't like them, see someone else. It's business, after all, not your personal life. [1] http://www.ghfip.com.au/ws/principal-attorneys/index.jsp#ThomasHaines http://www.ghfip.com.au/ws/principal-attorneys/index.jsp#Tho...

sharkweek 14y ago
I clerked at a law office while I was in college -- the lawyers there were happy to offer free 30 minute consultations because the conversion rate of the people that showed up for those was actually pretty high. It was a great way to build trust right off the bat and to ensure it was a good fit for a longer term partnership
- jacques_chester 14y ago
  Exactly. And for the same reason my lawyer above is giving me a fixed-price on the work he's doing. (I think he's nuts for quoting fixed-price on anything legal, but I'm hardly going to say no.)
  - grabeh 14y ago
    Surely it depends on the extent to which the time the work will take will change depending on external factors. A fixed fee for a first draft of terms and conditions is very different to a fixed fee for litigating a dispute to trial. I obviously use an exaggerated example to illustrate here but it is fair to say that a fixed fee can simply be a solid estimate of the time a matter will take multiplied by hourly rate (at least that's how we arrived at fixed fee estimates at my old firm).

grabeh 14y ago

I think they chose the wrong lawyer to speak with. From what I can tell, he's a lawyer more versed in dealing with much larger companies and venture capital transactions as opposed to the typical start-up (if such a thing exists). Particularly in the field of web (contrasted with physical products/live events for example), the need to consider compliance is reduced. If you are providing a good service to users, it is unlikely you will run into issues in terms of consumer complaints. I would caveat it by suggesting that intellectual property is (obviously) an important area to consider. However, there are online tools for patent searching which will be able to give you an idea of whether your product could be patentable (no patent search even done by a lawyer or patent attorney would be exhaustive in any event). As to brand protection, trade mark registration in the territory where you are based will be relatively cheap and will give you a degree of leverage if someone else starts up a similarly named service. Although it must be said that the main reason people will copy a name is to piggyback on goodwill which will not be a relevant consideration for most start-ups. Many actual start-up lawyers will be willing to give a few hours of their time for free or at least should be, to talk with you about your business and highlight any initial concerns and make recommendations to help your business. If they do provide recommendations, I suggest that if they haven't done already you request a fixed rate for any one particular piece of work. If they can't provide a fixed rate, I suggest you look elsewhere. There are sufficient good lawyers out there to enable you to find one who will be willing to be more flexible on fees than rigidly sticking to an hourly rate. In terms of tax, I would suggest the above but in relation to an accountant, the basics of corporate taxation are relatively simple and you should be able to find an accountant willing to give you time for free. On a side note, although it is easy to bash lawyers' fees, if you are a large corporate operating in an area where legal compliance is crucial, an hourly rate of $1000 per hour is a drop in the ocean if it saves you many multiples of that in avoiding costs. Blame shifting in ensuring you have someone that you can sue if they make a mistake can be priceless. But that doesn't mean it's appropriate for start-ups particularly considering monies could be spent better elsewhere.

splittist 14y ago

For a non-Valley, non-VC, non-swing-for-the-fences (Sand Hill Road cookie cutter) startup, think about where your risks really lie (who is going to sue you; when; why; and for how much). If you have partners, then having someone walk you through all the 'what if things go wrong' stuff may be useful. If it's just you, then you can even postpone incorporation. As for tax - that's a nice problem to have, but it's not one that's going to loom large on day one (or even year one). I would be amazed if it made sense for the median startup to register any trademarks. And if you "need" patents, really drill down on what that "need" is (if it's just a tick-the-box exercise for eventual VC's, then one jurisdiction might be enough; if you need a global patent protection strategy to secure your fundamental business value, you're doing it wrong). When you do hire a lawyer, get an estimate up front, make clear that you want to know in advance if the bill is getting anywhere near the estimate, and require monthly interim billing if there is something ongoing. If you can fit in some scornful laughter at the idea of billing for photocopying and phone calls, that would be good, too. Many lawyers pay lip-service to the idea of fixed fees for defined projects: think about calling their bluff. And ask about other value-added services they might provide, such as introductions to other clients who might be interesting to know. This will be like pulling teeth, because lawyers are pretty terrible at everything in business except (if you are lucky) the legal stuff. But they probably do know the legal stuff better than you, so don't try to impose irrelevant constraints, like "I want a one-pager for this".

bigiain 14y ago
I'm not so sure about the trademark thing. I've just started that process with my partners non-tech new business. Here (in Australia) you can do a bunch of searches online, and enter a trademark application on a government website for $120, and if it;s approved you pay $300 for 10 years trademark protection. Once you've got all your domain name / twitter handle / social media accounts and pages lined up, a few hundred bucks for trademark protection in your area of business seems like money well spent to me, even if all it does is discourage someone from making a claim they've got more rights to a domain name or social media account name than you. Of course that adice mostly applies to trademarking names which clearly have no existing claimants (or at least none in your area of business) which would complicate things enough to require law firm time to resolve...

nirrrrrr 14y ago

the most important skill is DEAL MAKER. A lawyer that will guard your interests while aware of the other side needs. There are so many lawyers that guard their client while totally alienating the other side.

meriksson 14y ago

TL;DR: Since dealing with high-end lawyers is often tough, contract someone to do it for you. At my company we went through a handful of lawyers, mostly from big firms. We were extremely unhappy with the experience, especially since we did not seem to get reasonable value for our money, ours being a very small account for any established law firm. Eventually we found a solution that was perfect for us. We now work with a freelancing lawyer who caters to startups and is an absolute joy to work with. He does all kinds of stuff on his own, kind of like our own part-time in-house legal council, but the big thing for me is that he can decide when we need some more muscle (i.e. big law firm, specialist in some type of law), and then we pay him to find, subcontract and manage all contacts with other lawyers. I can not extract anywhere near maximum value from an expensive lawyer - this guy has a much better shot at it. As the CEO, I save a lot of time and anguish by only ever speaking to one lawyer, and the most pleasant one I've met at that. If you want to get in touch with my legal guy - based in Stockholm, Sweden - ping me and I'll send you his contact information.

veidr 14y ago
This is such awesome advice. Find and hire one good lawyer, who the deals with all your other lawyers. It might not apply if your investors have their own legal muscle that they can introduce. But, if you are <10 employees, it is insanely expensive (manpower-wise) to deal with finding, retaining, and managing decent legal counsel (to say nothing of replacing them due to a sudden conflict of interest, when you unexpectedly find yourself facing a huge firm like Apple/J&J/Halliburton/etc, who seemingly contract 99% of all law firms).
- oregonspanish 14y ago
  Do you think that other startups would be interested in this type of in-house counsel-as-a-service? This would give teams the benefit of having single source that knows all your issues and goals, but could also negotiate effective rates with specialists.

carbocation 14y ago

Not sure how George Grellas hasn't been mentioned yet (HN's "grellas"), but if you're a US startup, I recommend his firm.

DoubleMalt 14y ago

Interestingly the red flags section would apply to programmers with only minor changes. Probably to any profession, but programming is the one I know about ;)