How and why you should work with a startup lawyer
Ask any attorney what kind of lawyer they are and they’re likely to respond, “the good kind.” Certainly, there are “good” lawyers and there are “bad” lawyers, but aside from avoiding the truly unscrupulous scriveners, much of the issue here is simply making sure you have grabbed the right tool for the job and by selecting counsel knowledgeable in matters pertinent to your situation. That’s ultimately on you.
Beyond that, founders need to understand that there are also “good” clients and “bad” clients — lawyers want the former. It might even be said that good clients on average receive higher quality and more consistent legal services at a lower overall cost than do bad clients; so it is certainly worth the effort to engage with your lawyer thoughtfully. I say this both as an attorney myself and the co-founder of a venture-backed startup that ultimately made it across the finish line, so I can personally appreciate the position of both founders and lawyers here.
That said, this is my roadmap for founders to work with lawyers effectively. It’s part of TechCrunch’s new membership product, Extra Crunch. Along with deep company profiles, events and other features, we’re profiling great lawyers and other outside experts, and providing guide on how to work with them to make your company successful.
The attorney-founder relationship
In the journey of a startup founder, few things are more valuable than a truly excellent startup lawyer. Why is this the case? First, ownership of your company will largely be determined by the legal documents drafted at initial formation and the subsequent terms your lawyer helps to negotiate with investors. Sure, market forces, product development and burn rate provide the context, but lawyers draft the definitive documents, which can be outcome-determinative in many exit scenarios.
Moreover, in the early days, when the founders’ common stock composes perhaps the entire capitalization of the company (often right up until the day funds are wired in your seed round), your startup lawyer is essentially representing the collective interests of the founders as a whole, while also setting up precedent for all subsequent investment rounds. Did you get stuck with a large liquidation preference or “participating preferred” in your seed round? Well, you are likely stuck with those or similar terms in all subsequent rounds, too.