Lawyering Up: 5 Tips for Entrepreneurs
Having appropriate legal guidance is critical for helping entrepreneurs navigate the many relationships and strategies involved in running a successful business. Knowing when to engage an attorney and how to find a lawyer who fits your needs, wants, and budget can be challenging. There are a lot of great attorneys who want to do good by helping entrepreneurs and startups succeed. But, caveat emptor, there are also plenty of lawyers who are driven more by their billing than your success. In this blog post, we offer a few tips we wish we knew in our early years of building startups.
Tip 1: Budget for legal fees from the start.
This is not a place to cut corners. In the long run, tripping up on corporate governance, intellectual property, customer contracts, fundraising, real estate leases and purchases, licensing, and human resources can be significantly more costly than having paid for a good attorney and getting it done right in the first place.
Tip 2: In matters of corporate governance, include a lawyer in the conversation.
For many entrepreneurs, trying to do it all themselves is just part of their DNA. Here in Utah, the online services available at Utah.gov make it easy and economical to create a new entity without the help of an attorney. But, if expectations between partners are not aligned, the DIY route can turn out to be a lot more expensive down the road. I have many stories (unfortunately, some include me) of companies failing because one or more founders did not feel their partners met their responsibilities and the equity distribution or management control was unfair. If you are starting a new business, talk with your partners and set clear expectations and goals. Talk about the worst-case scenario. What if things do not work out and someone wants out of the business? What if someone underperforms or over performs? Once the details of corporate governance have been agreed upon, have a lawyer put them in writing. It may even be useful to ask an attorney to moderate the discussions, as they will more insight into the potential pitfalls business partners may encounter during their entrepreneurial journey. For great examples of this, and excellent advice on many of these interpersonal decisions that can disrupt and even destroy a startup, check out The Founders Dilemma, by Noam Wasserman.
Tip 3: Do not judge a lawyer by their hourly rate.
Judge them by their experience and culture. In the long run, the $600-$700 per hour lawyer might be the most efficient, least expensive solution.
Take it one step further and negotiate on rates. If you find an experienced firm or attorney that believes in you and your idea, they may be willing to do upfront work at a steep discount with the understanding that they will be your go-to firm as the company grows.
Tip 4: Get professional help for your patents
Unless you’re also an IP attorney on the side, do not file your provisional patent or other IP alone. A misstep here may hurt future chances to protect your ideas. If your business is built on a brand, unique invention, or process, find an industry-experienced IP attorney that you can partner with for years to come.
On a separate, but related note, even after your patent(s) are filed and pending, be careful not to share them with just anyone. Some companies may ask to see the details of your patents pending under the guise of a potential acquisition or investment when in fact they are merely doing competitive research. Keep your patents close to the vest until the suitor shows a commitment to move forward by means of a term sheet. This approach will weed out the insincere.
Tip 5: Make the most of the free consultation.
It’s easy to preach the importance of consulting with experienced legal resources and not skimping on things like corporate governance and patents. The reality is that, for startups and early growth companies, the demand on cash is nearly always more than the budget allows. At the very least, take advantage of free consultations. Meet with an experienced attorney to discuss your needs and budgets. You may find you can afford more than you assumed. Even if you can’t afford to pull the trigger on legal fees right now, you will know how much you do need to budget for and I’m sure you will walk out of the meeting having learned something useful. And, maybe if your business and vision resonates with them, they will find creative ways to help you get through the early stages.
· There are many good choices and capable securities firms out there. My go-to firm for most of our securities and M&A work is Lou Lombardo from Meister Seelig and Fein out of New York City.
· For those based in Utah and looking for someone local, I recommend Jordan Toone from Parr Brown. He is very experienced and is more affordable than a NYC firm.
· If you are working on a project or company that is based in a Qualified Opportunity Zone, David Angerbauer from Dentons Durham Jones and Pinegar is your guy.
· For IP-related needs, we are proud to work with Pete Malen at Workman Nydegger and Whit Johnson at Stoel Rives. In my experience, these firms want to see you succeed and have shown a willingness earn the business of early-stage companies with cash constraints.
Written by Ron Heffernan