4 ms·

A good post. Especially this point: "Get a lawyer that understands startups. It's important to find someone with experience. Not only can a good lawyer explain

by nkw 11y ago

A good post. Especially this point: "Get a lawyer that understands startups. It's important to find someone with experience. Not only can a good lawyer explain what's going on with terms of your agreement, he/she can tell you if those terms are standard." I would also add parties need their own lawyer. Founders, investors, and the company are all different entities with different interests. If you have multiple founders, it is wise for each to have separate counsel. I've seen too many instances where there is a law firm for the company/one founder, and a law firm for investors, but the other founders just kind of "go along" because they think their interests are aligned with founder #1, when that may or may not be the case.

jacquesm 11y ago
Or even worse, where they use the legal services provided by the VC or the accelerator. Bad move, bring your own lawyer and pay for that lawyer so that you know who they work for. And don't ever sign anything that you don't understand.
ryporter 11y ago
Absolutely. There are several good points in that quote. I've seen the cap tables of startups that used lawyers who clearly hadn't worked with startups before. It was not pretty, and once it was a key factor in deciding not to invest, since the required cleanup would have been extensive. Another great point is about recognizing whether the terms are standard. One thing people consistently forget to do is check for the "dog that didn't bark." It's not uncommon for investors (or entrepreneurs) to propose a term sheet that completely omits a standard section. If they had instead proposed something in their favor on that subject, then the other side would have certainly objected. However, if the other side is inexperienced, then they don't see anything objectionable!
cookiecaper 11y ago
Yes, I'm sure every founder will be able to retain his own effective and experienced legal counsel, considering that good specialized lawyers generally charge at least $500/hr. Piece of cake for the founder who needs to pitch investors for seed money. I know from experience that even if you do scrape together enough for a small retainer with such a lawyer, you're just naturally going to be last priority. The attorney knows that you aren't good for any more and any real work is going to take more time than you have on retainer, so they'll be working for free for a substantial amount of time, and that prospect doesn't excite anybody.
Goronmon 11y ago
I apologize if this comes off a bit glib, but sometimes this sort of advice makes me think the steps to founding a startup begin with: 1) Be wealthy 2) Don't be not wealthy
- frisco 11y ago
  Most good Valley firms will defer fees for startups given a good referral. As for getting that referral, spend two years working in Silicon Valley and you won't have a problem.
- tinalumfoil 11y ago
  Being a founder (or co-founder or startup employee) means taking a decade out of your life for low pay and financial instability for the chance of having stake in a successful company. If you're not wealthy you're not in a position to be a founder in the first place.
  - cookiecaper 11y ago
    Someone should really inform the college kids who keep applying to incubators like YC...
    - Swizec 11y ago
      There's a big difference in the safety net of someone who went to a high level US college, and someone who had to get a job during high school to help pay the bills.
    - nostrademons 11y ago
      Most of them know it, but when you are in college or newly out of it, all of your friends are suffering from low pay and financial instability too. IMHO your 20s are a very good time to do a startup because the opportunity cost is low: you're probably not going to be making a whole lot of money anyway, so your choices are guaranteed poverty or likely poverty with the chance of a huge windfall.
    - 11y ago
dmor 11y ago
I so deeply agree with this, and I was surprised to discover just how much startup-specific stuff these specialized lawyers can do. Model your cap table in various scenarios (since most of us don't have a finance person early on this is HUGELY helpful) and also give you the due-diligence checklist for pretty much any counter-party, since they've sat opposing them all. They're also working on lots of deals, so they can give helpful answers to, "is this normal?" or "what are you seeing in the market?" that can help inform how hard to negotiate. If you have a distaste for lawyers, as a lot of people do in our culture, and try to put off deeply engaging and instead do it yourself you are going to get burned. It is better to pay someone their hefty fees and then ask TONS of questions, so that you will truly learn from everything you have them do. This is the unsexy part of running a startup that I wish I could tell every founder. You just have to embrace it, might as well get good at it.

by nkw 11y ago

jacquesm 11y ago

Or even worse, where they use the legal services provided by the VC or the accelerator. Bad move, bring your own lawyer and pay for that lawyer so that you know who they work for. And don't ever sign anything that you don't understand.

ryporter 11y ago

Absolutely. There are several good points in that quote. I've seen the cap tables of startups that used lawyers who clearly hadn't worked with startups before. It was not pretty, and once it was a key factor in deciding not to invest, since the required cleanup would have been extensive. Another great point is about recognizing whether the terms are standard. One thing people consistently forget to do is check for the "dog that didn't bark." It's not uncommon for investors (or entrepreneurs) to propose a term sheet that completely omits a standard section. If they had instead proposed something in their favor on that subject, then the other side would have certainly objected. However, if the other side is inexperienced, then they don't see anything objectionable!

cookiecaper 11y ago

Yes, I'm sure every founder will be able to retain his own effective and experienced legal counsel, considering that good specialized lawyers generally charge at least $500/hr. Piece of cake for the founder who needs to pitch investors for seed money. I know from experience that even if you do scrape together enough for a small retainer with such a lawyer, you're just naturally going to be last priority. The attorney knows that you aren't good for any more and any real work is going to take more time than you have on retainer, so they'll be working for free for a substantial amount of time, and that prospect doesn't excite anybody.

Goronmon 11y ago

I apologize if this comes off a bit glib, but sometimes this sort of advice makes me think the steps to founding a startup begin with: 1) Be wealthy 2) Don't be not wealthy

frisco 11y ago
Most good Valley firms will defer fees for startups given a good referral. As for getting that referral, spend two years working in Silicon Valley and you won't have a problem.
tinalumfoil 11y ago
Being a founder (or co-founder or startup employee) means taking a decade out of your life for low pay and financial instability for the chance of having stake in a successful company. If you're not wealthy you're not in a position to be a founder in the first place.
- cookiecaper 11y ago
  Someone should really inform the college kids who keep applying to incubators like YC...
  - Swizec 11y ago
    There's a big difference in the safety net of someone who went to a high level US college, and someone who had to get a job during high school to help pay the bills.
  - nostrademons 11y ago
    Most of them know it, but when you are in college or newly out of it, all of your friends are suffering from low pay and financial instability too. IMHO your 20s are a very good time to do a startup because the opportunity cost is low: you're probably not going to be making a whole lot of money anyway, so your choices are guaranteed poverty or likely poverty with the chance of a huge windfall.
  - 11y ago

dmor 11y ago

I so deeply agree with this, and I was surprised to discover just how much startup-specific stuff these specialized lawyers can do. Model your cap table in various scenarios (since most of us don't have a finance person early on this is HUGELY helpful) and also give you the due-diligence checklist for pretty much any counter-party, since they've sat opposing them all. They're also working on lots of deals, so they can give helpful answers to, "is this normal?" or "what are you seeing in the market?" that can help inform how hard to negotiate. If you have a distaste for lawyers, as a lot of people do in our culture, and try to put off deeply engaging and instead do it yourself you are going to get burned. It is better to pay someone their hefty fees and then ask TONS of questions, so that you will truly learn from everything you have them do. This is the unsexy part of running a startup that I wish I could tell every founder. You just have to embrace it, might as well get good at it.