Updated: Mar 23
Paying for a lawyer or legal services is something that many startups try to avoid, but it is inevitable. Ensuring that the company’s corporate structure is right for the business, drafting website policies and standard contracts that the business will use every day, and handling legal disputes are just some of the important work that should be left to lawyers. Although budget is always an issue for startups, some should be allocated to hiring external legal counsel, and eventually, in-house counsel.
Based on my own experience as in-house counsel at several startups, here are some qualities a business should focus on when looking for external (or even in-house) counsel:
1. Cost effective
Since the budget is always a concern, it is important that external counsel be cost effective. The days of high hourly rates are slowly coming to an end. A startup can negotiate alternative fee arrangements with law firms, such as:
Flat fee: Agree to a maximum amount for a project. The firm will list in the engagement letter what the fee includes (for example, one draft and two revisions of the contract). Anything beyond that will be charged at an hourly, but reduced, rate than what the firm typically charges.
Reduced hourly rate with a fee cap: If the firm cannot estimate how long a project will take and insists on hourly fees, request discounted fees with a fee cap (the maximum amount to be charged for the project).
Legal counsel for a business needs to find solutions instead of just problems. Traditional lawyers who think within the four corners of the law will not serve the business well. Startups need to scale quickly and find a way to get things done. Instead of “No, you can’t do this”, a business needs to hear, “You cannot do it this way, but if you do this instead, it will work".
3. Understands the specific business model
Lawyers need to understand the business model to counsel the company effectively. For example, if an e-commerce marketplace requires a template for its standard seller agreement, a contract that needs to be negotiated, printed out and signed will not allow the business to grow quickly. In fact, it will slow the company down and the sales team will complain. So instead, having the terms and conditions on the website that sellers agree upon registration may work best. Having a lawyer who knows the business’ needs is key.
By now, it is well established that things move at supersonic speed in startups. A company needs legal counsel who performs well under time constraints, and who can learn new concepts quickly.
This is important for external counsel, but even more so for in-house counsel. Quite often a startup’s priorities change. A business needs a lawyer who can drop everything and focus on the current priority.
6. No ‘fluff’
Find legal counsel who is ‘allergic’ to legalese. Using plain language makes it easier for all parties to review and negotiate contracts. Even legal concepts can, for the most part, be described without using legal terminology. As for legal advice, request that it be provided in a direct and brief manner, with the answer to the inquiry first, then details, as required. Need more legal advice for your startup?
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