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Ways That Startup Lawyers Overcharge

146 points by audreymelnik 13y ago

If you have a startup and a lawyer this is a must read! Avoid being overcharged!

001sky 13y ago
Although I wouldn't over-think this, if you've never dealt with counsel before this article is worth a couple of minutes to skim through. Just one example is probaly enough to highlight, but it is a classic: Resource double-up. "You’ll have a conference call scheduled and they’ll invite additional attorneys to sit in. And they’ll charge you for it, even though they may not say a word during the meeting. Add a clause to your contract that says, “We agree not to bill you for any more than one attorney on any conference call with you.“
lukev 13y ago
A lot of these strike me as not only sneaky, but unethical and possibly even illegal. For example, as a software consultant I would feel I were committing fraud were I to bill two clients for the same hour of time. Is there a different consensus around the definition of "billable time" in the legal world that makes this not as bad as it sounds?
- fiatmoney 13y ago
  Double billing for travel & work done during travel is definitely ethically verboten, and frequently specifically used by lawyers as an example of unethical behavior.
- cylinder 13y ago
  It actually is against the professional rules that govern attorney conduct. We (lawyers) are trained on this in school in a mandatory course and have to pass a standardized ethics exam to be licensed (separate from the bar exam).
- gamblor956 13y ago
  Some state bars have decided that lawyers can no longer bill travel time to one client if the time is also spent billing work to another client. However, many states still accept this practice, because on its face, it is perfectly reasonable and ethical. For example: if a client is being billed for time spent traveling on behalf of the client, the lawyer could do nothing while traveling and the time would still be billable to that client (as travel time). Even if the lawyer then does work for another client at the same time, the lawyer is still spending time traveling for the first client. (Note that travel time is frequently billed at lower rates or is otherwise discounted compared to normal billable work.) Curiously, however, it is not permissible to bill the same client for travel time and again for time spent working on that same client's case while traveling.
  - ProblemFactory 13y ago
    Billing for idle travel time, but not double-billing travel+work makes sense. The premise is that travel is wasted time by the lawyer - that he could have used for another client or family if he did not have to travel. If they can bill another client during travel, then it wasn't wasted time for them after all.
smalter 13y ago
It's good to know how lawyers overcharge, but it's better to find a trusted lawyer who you don't have to worry about. We work with Yokum Taku and Jesse Chew at Wilson Sonsini, and they've been awesome. Because I'm a former lawyer, I started out our relationship by scrutinizing every bill. I stopped when I realized that we were getting an amazing deal. We have only paid 1 legal bill in 2 years and we haven't been bugged at all about it. Our legal bill is being subsidized by your Airbnbs and the like. That's the luxury of working with a great startup lawyer that works with top startups.
- matthewmcg 13y ago
  Yokum's personal site startupcompanylawyer.com has a ton of useful "self-help" information too. It's a great resource.
- smaili 13y ago
  Problem is that bootstrapped startups can't afford big names like Wilson Sonsini. Any recommendations for cheaper alternatives that still offer similar quality?
  - andrewfong 13y ago
    If it's a routine incorporation and note financing, try Clerky.
- alexdevkar 13y ago
  This is important advice. Spend time finding someone you trust and that you feel comfortable talking to. You won't run into any of the unethical things mentioned in this post with a good attorney. In fact, some of those things are against the rules of professional conduct. Another important point: You can always negotiate your bill. It is very common to pay less than the billed amount. Full disclosure: I'm a former WSGR attorney. Now a WSGR client.
  - larrys 13y ago
    "Spend time finding someone you trust" Sounds very "find a good lawyer". How do you find someone you can trust? Or do you mean someone who appears trustworthy? Also noting that the parent comment says that they stopped checking the bills. There are cases in business where people know this dynamic and once they aren't being checked they tend to take more chances. Hence even the person who relates "he is great and I trust him" may not be aware of what is currently happening with billing (if they are not checking).
tkiley 13y ago
If I were still an IT consultant and a client raised even half these issues with me, I would probably terminate my relationship with that client, because I don't want to be nickel-and-dimed. If I would find this sort of pushback so irritating as an IT consultant, I presume a legal consultant would find it just as irritating. Why would you want to annoy an important consultant in this way?
- jasonlotito 13y ago
  Were you doing this as an IT consultant? Where you double billing for your time? Were you changing rates without warning?
  - tkiley 13y ago
    Good point. On second thought, I think the more important issue is the one 7Figures2Commas raised: If you have a lawyer who does the worst of this stuff, you have the wrong lawyer. With that said, my blood pressure would definitely climb if a client challenged a 6-minute incremental bill for a phone call that was only 2 minutes.
    - deleted 13y ago
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    - nopassrecover 13y ago
      Isn't it "nickel and diming" to charge for that 2 minute call at all in the first place?
- larrys 13y ago
  "nickel-and-dimed" Exactly. Experienced business people write this off to the "cost of doing business". You look at the total value and make a decision as to whether to continue the relationship. If you didn't know the way attorney's billed then you can be thankful for the lesson that you have learned. Read and understand before signing anything. You are of course free to negotiate the fee down after receiving the bill and many lawyers will discount in order to continue the relationship. From my experience lawyers tend to be willing to accept whatever they can get that is reasonable - they aren't going to pursue an action against a client unless the majority of the bill isn't paid or there is something else causing animosity or problems.
danray 13y ago
Half of these are unethical (i.e., they violate actual, binding rules of professional ethics with actual consequences). The other half should be spelled out in the engagement letter. If you don't like it, tell your lawyer -- we really will negotiate on these issues.
- larrys 13y ago
  "Half of these are unethical" Which ones exactly and why? (Serious question if you are making a general statement please back it up with more information.)
7Figures2Commas 13y ago
I won't say that this post is devoid of useful information, although there are some questionable claims (such as the notion that an attorney is double billing for travel-related work). More importantly, however, I think it misses a more fundamental mistake that startups make: they don't know how to choose a lawyer. If you're working with a firm that has summer associates (referred to as "law students" in the post), and they are being billed out at $200/hour, you are almost certainly working with a large, full-service law firm. And large, full-service law firms are expensive. Working with a large, full-service law firm is overkill for the vast majority of early-stage startups. Even when it comes to securities-related work, you can find reasonably-priced experienced, competent practitioners with BigLaw backgrounds who work solo or at smaller firms.
larrys 13y ago
"So let’s say a lawyer’s fee is $600 per hour (which is $10 per minute). He speaks to you on the phone for 2 minutes. That just cost you $60. Not $20. That’s a $40 rounding charge. Wow. Another way to think of it is a 200% markup." So what we have is that the base cost of a phone call with your lawyer is always going to be $60. I don't have a problem with that other than obviously it would be nice if the cost were zero. As far as $60? A conversation of 2 minutes and a conversation for 10 minutes is still interuptive and takes your attention from whatever you are doing. As anyone who has been in a zone doing work will attest to.
- deleted 13y ago
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- joshuaheard 13y ago
  And, a 2 minute phone call doesn't take just 2 minutes. The lawyer has to pull the file, make notes on the call, set a tickler, then put the file back. Boom, 10 minutes.
larrys 13y ago
"There’s a clause in your agreement that talks about incurring expenses in connection with your representation and they can bill you for these up to a certain amount without prior approval. Tell them you require them to get your approval before incurring such expenses. And list out the expenses you will not pay for. It’s likely they will have a clause detailing the types of third party expenses they can incur on your behalf. Push back on this list and exclude items like mileage, travel, food, phone charges, copying and research expenses such as Lexis-Nexis, storage and data management services." Ridiculous. As a business person that has dealt with lawyers, consultants, accountants (in the bricks and mortar world, not the startup lottery) as well as has clients that I do work for (so I've been on the other side) I would totally steer clear of anyone that comes out saying things like this. Unless I was desperate. It's just not the way to have a professional relationship which involves trust. Get approval on every expense? Even minor ones? Not going to reimburse for something unless on a white list? Get serious. This strikes me as penny wise and pound (and time) foolish. The major cost is the hourly rate and whether you are being billed honestly for that (or not). And that is something you have no control over unless you are watching them all the time. To expect that it matters that you will not approve a minor charge when the attorney can easily jack up his billing on the major charge is a waste of time. Better to question the bills after the fact and if you feel that you shouldn't have to pay for the lunch bill that your attorney had when meeting with someone on your behalf while leaving a large tip by all means bring up the issue. But just like with employees a certain amount of leeway is often necessary.
- audreymelnik 13y ago
  I would say that it is "penny wise and pound foolish" for a lawyer to nickel and dime by charging for expenses like these. The bigger picture is actually that the lawyer realize that eeking out every little expense from a startup client isn't productive. The aim should be helping that company to get to a stage that they can have a big exit, and charging for things like these is only going to constrain that possibility. Lawyers often seem to pass on charges that in any other industry would be considered a cost of doing business. The aim here is not to accept that from a lawyer. The main cost should be the rate rather than the ancillary services and expenses.
stretchwithme 13y ago
I had mine arguing some obscure issue in some convoluted way just to get past the 20 minute mark so he could bill for another 10 minutes. And then they bill you $35 for sending you automatic reminders about important dates you're already reminding yourself about.
audreymelnik 13y ago
Thanks everyone for your comments. My main point in raising these points was to start a dialog about what is and is not acceptable to charge for and to raise awareness of these items for startups looking to take on a lawyer and I think I've definitely done that! Many (but not all) of the points I raised in this post were sourced from an analysis that my friend performed of a startup's legal bills from two separate silicon valley law firms.
- alexdevkar 13y ago
  If your friend knows of instances where Silicon Valley firms (1) double-billed travel time or (2) billed as you stated in the value billing section, consider reporting those to the CA State Bar. These are ethical violations.
rayiner 13y ago
This is generally good advice, but I'd like to discuss #6 (double billing during travel) and #9 (overbilling on assignments). Both are highly unethical practices. I can't imagine that they're all that common, if only because in this day and age of electronic billing and sophisticated clients, it's so easy to get caught doing something like that. As for #4 and #7, as a client you can probably get concessions given that it's a buyer's market for legal services right now.[1] But generally, I think those practices are legit. The cost of training is baked into the price of every product you buy, and legal services is no different. With regards to #7 specifically, that tends to be a situation where the junior lawyer who doesn't say anything on the call will be the one doing whatever work comes out of the call. It will cost you more money in the long run if he or she isn't on the call and has to get a download after the fact. A better approach is to communicate via e-mail when possible and communicate directly with the associate doing your work unless the partner needs to be involved. This is kind of related to #2 and #10. Where I used to work, mid-level and senior associates would handle the day-to-day communications with the client for securities offerings or credit agreements worth tens of millions of dollars. If you retain a large firm where an associate will be doing most of the work on your matters, then find a team where the partner in charge is good at delegating the day-to-day stuff so you don't have to incur his higher rates for that sort of thing. Alternatively, depending on your needs, you might find a small outfit or even a solo practitioner who will be doing most of the work on your matter himself or herself, and doesn't need to deal with the inherent overhead of delegation. [1] Given that, it might just be easier to skip the nitpicking and ask for a 10% discount on the final bill. PS: What do people here thing about fixed fee arrangements? I'm not sure how they should be structured for a startup, but that would avoid a lot of the silliness inherent in billing. At the end of the day, there is a price to legal services based on supply and demand. Whether you charge for law students or raise the top line fee or give an across-the-board discount is ultimately cosmetic.
- bradleyjg 13y ago
  > This is generally good advice, but I'd like to discuss #6 (double billing during travel) and #9 (overbilling on assignments). Both are highly unethical practices. I think that absent very explicit disclosure and agreement, they'd be grounds for discipline by the bar. Certainly they read like an easy MPRE question.
andrewfong 13y ago
Having been both a founder and now a start-up lawyer at a large firm, I'd toss in a few extra tips: (1) If you're unhappy with your bill, PUSH BACK ON IT. Even if you like the partner that you're working with, a substantial portion of your bill will be generated by paralegals and associates like me. And, as an associate, my marching orders are to account for every last minute of my day, even if I think it was an unreasonable thing to bill for. In theory, the partner is supposed to see these items before they go out and make a judgment call on whether to write it off, but more often than not, the partner will eyeball the total amount without looking too closely at the details. Case in point: When I was a founder, a paralegal at a well-known law firm made a mistake with our cap table and left off a single share. We ended up getting billed $300 to find that single share. When we changed firms a year later, we mentioned this to the partner, who was surprised and had no idea this had happened (despite ostensibly signing off on the bill). (2) Check in with your lawyer regularly -- doesn't have to be a phone call. A quick e-mail will do. Bills often come in monthly intervals, and fees can rack up pretty quickly in that time. As a lawyer, I'll often start work on a new matter only to find out that my work is no longer required after several weeks have passed and I've already billed the item. Regular check-ins can help avoid this. In addition, it'll be easier to draw connections between vague descriptions on your bill ("Attend to cap table") and what actually happened ("find missing share that paralegal left out"). As a side benefit, regular check-ins result in faster turn around, especially if there are multiple matters competing for your layer's attention. (3) Second opinions can be free. If you're unsure about the advice your getting from a lawyer, ask a lawyer at another firm. Those other lawyers will view this as a chance to poach a client and will write their time off as business development. As a side benefit, those lawyers may point out mistakes that your current law firm didn't catch or is reluctant to admit to.
lr 13y ago
All of these are great to watch out for. However, the "Value Billing" one seems a little like, oh, let's see... Software! Programmers do value billing all the time. We write one piece of software and charge n number of customers for it. So, if programmers can do it, so can lawyers.
- nknighthb 13y ago
  If you've been contracting with customers to provide them your time as a programmer and charging them in this way, your customers need to sue you. Legal services are not a packaged product, they are time, and that time is what is being paid for.
  - papasmrf 13y ago
    This comment really illustrates the major flaw in hourly billing. People begin to believe that all they are paying for is time. But they really are not just paying for time. They are paying for an attorney's expertise in getting the job done. This is why I try to stay away from hourly billing as much as possible. The billable hour is a scourge to the profession imho.
    - nknighthb 13y ago
      They are paying for time. The time of the attorney being engaged. Time from an attorney with significant expertise will, of course, cost more than time from someone who just passed the bar. If you want to bill on some other basis, fine, but you are not entitled to tell your clients you're billing them an hourly rate and then make up the hours based on the value you think is being provided. That's fraud.
      - papasmrf 13y ago
        I agree with you. My point was just that I do not want my value being reduced to nothing but time, and that is exactly what hourly billing does. So I tend not to do use hourly billing. Having done it working for other attorneys, I'll tell you it is a crappy way to spend your day keeping track of minutes.
deleted 13y ago
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kylered 13y ago
Seriously, if you have a lawyer that needs to scam you out of your cash, then you have the wrong lawyer. Go hire a professional. Good lawyers are really busy and don't need to lie to you to make money.
adamzerner 13y ago
It really seems like the law industry does this type of stuff all the time, which is bs. The law industry is a service business. You pay them for their services. The service you get is much less than what you pay for. This mismatch = an opportunity to do better and make a lot of money.
grellas 13y ago
If your startup lawyer deals straight with you, gives you honest estimates, bills for time actually spent, uses good judgment in managing the legal time spent on your matter, avoids duplicative billing, is willing to deal fairly with situations when you question a billing item and have reasonable reasons for doing so, and, of course, does the job right and is a good lawyer to work with, then be thankful and do not quibble around the edges about things such .1 billing increments, small expense items advanced and expected to be reimbursed, and the like. Remember that lawyers are in business too and want to devote their efforts where they will be most rewarded and appreciated. While that certainly doesn't mean cheating a client, it does mean dealing with clients who see the lawyer as a trusted ally and not as an adversary and who will not be nibbling at the ankles with every step a lawyer takes. In dealing with any lawyer, watch out for padded bills that have vague descriptions of what was done, beware getting billed for substantial amounts of lawyer learning time, scrutinize all cases where double billing might be involved, make sure billing rates match your needs as a company (big firm vs. small firm), try always to get estimates in advance, negotiate fixed fees or caps where appropriate, get timely bills sent to you, review the bills carefully, and question billing items that don't look right. As concerns lawyer billing, those are the big items. If you pay attention to those, you will maximize your chances of getting good value from the firm and minimize the risk of abuses. Beyond that, you normally can ignore the small or trivial points. Remember that it is a professional relationship and mutual trust should be the order of the day. If it is not, then maybe it should not be maintained as a continuing relationship.
- deleted 13y ago
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- SilasX 13y ago
  That's a lot to expect. Any lawyer diligent and conscientious enough to do all the stuff you've listed will also be really high in demand and only deal with the most deep pocketed clients in the first place.
Riseed 13y ago
If you're trying to be penny wise about legitimate third-party expenses like mileage and legal research, why pay $49 fee to a third party (in addition to state fees) to change your company’s name? You could have saved that third-party fee if you'd done it yourself through the Secretary of State's website. As an additional tip, you may be able to save some money by doing some of the legal research yourself. Google works surprisingly well for some things, as does the local public library, which may have a subscription to Lexis Nexis or Westlaw. Facebook is a great resource for family law issues. There are also free law-specific resources like nolo.com (e.g. http://www.nolo.com/legal-encyclopedia/small-business http://www.nolo.com/legal-encyclopedia/small-business) or avvo.com.
papasmrf 13y ago
As a lawyer, I'll first say that it is always okay to haggle a little bit about the billing arrangement. I would expect an entrepreneur to want to negotiate. Two, some of these practices described would raise eyebrows with state ethics committees. Double billing travel time, rounding up your billable hours, it all amounts to padding your bills. Lawyers have been disbarred for such practices, and this typically happens when people start wondering how they can be billed greater than 24 hours per day by the same attorney. Lastly, if you are a start up, you have no business going to an attorney that is going to charge you $600.00 per hour. A rate that high should be reserved for some specialties, like perhaps patent litigation. If you are paying an attorney $600.00 to incorporate for you, you probably will not be in business for long.
cykho 13y ago
The most atrocious overcharges we've experienced have been around equity asks. For some reason firms think it's good practice to ask for a sizable chunk as an interest payment for their incorporation fee (which they expect to be paid anyways). Even if a company is worth $1m (founders time for 4 years) half a point (standard ask) is $5k. If incorporation costs $10k (mid-range) that's 50%+ interest! Not to mention there is some risk mixing the roles of counsel (representing the company) and owner (a minority shareholders) I think this has spilled out from WSGR and hope it stops soon.
nirmel 13y ago
I would love feedback on my startup, Lawdingo.com (YC W13), as I believe it addresses many of these issues. We get independent lawyers to be transparent about their prices, we solicit community reviews, and we make lawyers available instantly. I'd humbly recommend people try it out for their startup legal needs. It's free.
- papasmrf 13y ago
  As a lawyer I am always interested in sites that want to try to change the legal profession in some way. My thoughts: Do you vet the attorneys in some way, ie, require a bar license number to become a lawyer on the site? Usually on the consumer side these sites just turn into a race for the bottom price, with no real regard for the quality of the representation that will be given. Frankly that is a problem for all of these types of sites, it should be a concern for you in terms of attracting quality lawyers to the site, a quality lawyer with a quality practice will not necessarily want to get into a position of competing on lower and lower prices.
paul_f 13y ago
Whatever you do, never use the attorney recommended by your investors.
- borplk 13y ago
  can you please elaborate on this?
diziet 13y ago
You can also use services that provide lawyering a-la-carte : https://www.upcounsel.com/ https://www.upcounsel.com/ or things like https://www.clerky.com https://www.clerky.com .
sarreph 13y ago
Could anyone explain to me what the author may be alluding to as a 'regular lawyer' as opposed to 'your lawyer'? "If you use your lawyer, you’ll get charged way more than if you used a regular lawyer"
hudibras 13y ago
At what point does it become more cost-effective to hire your own counsel?
acjohnson55 13y ago
I had a good experience with Scott Walker and Ki Ingersoll at Walker Corporate Law. Granted, I have no basis for comparison, so I could very well have overpaid. But for the fixed-rate company conversion they did, their guaranteed rate was in line with the estimates I got elsewhere. I felt like they were quite helpful and attentive, and there were no surprises. What I could not afford was uncertainty in results or budget. By that standard, they delivered.
etanazir 13y ago
your goto lawyer should be a friend.
deleted 13y ago
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146 points by audreymelnik 13y ago

If you have a startup and a lawyer this is a must read! Avoid being overcharged!

Although I wouldn't over-think this, if you've never dealt with counsel before this article is worth a couple of minutes to skim through. Just one example is probaly enough to highlight, but it is a classic: Resource double-up. "You’ll have a conference call scheduled and they’ll invite additional attorneys to sit in. And they’ll charge you for it, even though they may not say a word during the meeting. Add a clause to your contract that says, “We agree not to bill you for any more than one attorney on any conference call with you.“

lukev 13y ago

A lot of these strike me as not only sneaky, but unethical and possibly even illegal. For example, as a software consultant I would feel I were committing fraud were I to bill two clients for the same hour of time. Is there a different consensus around the definition of "billable time" in the legal world that makes this not as bad as it sounds?

fiatmoney 13y ago
Double billing for travel & work done during travel is definitely ethically verboten, and frequently specifically used by lawyers as an example of unethical behavior.
cylinder 13y ago
It actually is against the professional rules that govern attorney conduct. We (lawyers) are trained on this in school in a mandatory course and have to pass a standardized ethics exam to be licensed (separate from the bar exam).
gamblor956 13y ago
Some state bars have decided that lawyers can no longer bill travel time to one client if the time is also spent billing work to another client. However, many states still accept this practice, because on its face, it is perfectly reasonable and ethical. For example: if a client is being billed for time spent traveling on behalf of the client, the lawyer could do nothing while traveling and the time would still be billable to that client (as travel time). Even if the lawyer then does work for another client at the same time, the lawyer is still spending time traveling for the first client. (Note that travel time is frequently billed at lower rates or is otherwise discounted compared to normal billable work.) Curiously, however, it is not permissible to bill the same client for travel time and again for time spent working on that same client's case while traveling.
- ProblemFactory 13y ago
  Billing for idle travel time, but not double-billing travel+work makes sense. The premise is that travel is wasted time by the lawyer - that he could have used for another client or family if he did not have to travel. If they can bill another client during travel, then it wasn't wasted time for them after all.

smalter 13y ago

It's good to know how lawyers overcharge, but it's better to find a trusted lawyer who you don't have to worry about. We work with Yokum Taku and Jesse Chew at Wilson Sonsini, and they've been awesome. Because I'm a former lawyer, I started out our relationship by scrutinizing every bill. I stopped when I realized that we were getting an amazing deal. We have only paid 1 legal bill in 2 years and we haven't been bugged at all about it. Our legal bill is being subsidized by your Airbnbs and the like. That's the luxury of working with a great startup lawyer that works with top startups.

matthewmcg 13y ago
Yokum's personal site startupcompanylawyer.com has a ton of useful "self-help" information too. It's a great resource.
smaili 13y ago
Problem is that bootstrapped startups can't afford big names like Wilson Sonsini. Any recommendations for cheaper alternatives that still offer similar quality?
- andrewfong 13y ago
  If it's a routine incorporation and note financing, try Clerky.
alexdevkar 13y ago
This is important advice. Spend time finding someone you trust and that you feel comfortable talking to. You won't run into any of the unethical things mentioned in this post with a good attorney. In fact, some of those things are against the rules of professional conduct. Another important point: You can always negotiate your bill. It is very common to pay less than the billed amount. Full disclosure: I'm a former WSGR attorney. Now a WSGR client.
- larrys 13y ago
  "Spend time finding someone you trust" Sounds very "find a good lawyer". How do you find someone you can trust? Or do you mean someone who appears trustworthy? Also noting that the parent comment says that they stopped checking the bills. There are cases in business where people know this dynamic and once they aren't being checked they tend to take more chances. Hence even the person who relates "he is great and I trust him" may not be aware of what is currently happening with billing (if they are not checking).

tkiley 13y ago

If I were still an IT consultant and a client raised even half these issues with me, I would probably terminate my relationship with that client, because I don't want to be nickel-and-dimed. If I would find this sort of pushback so irritating as an IT consultant, I presume a legal consultant would find it just as irritating. Why would you want to annoy an important consultant in this way?

jasonlotito 13y ago
Were you doing this as an IT consultant? Where you double billing for your time? Were you changing rates without warning?
- tkiley 13y ago
  Good point. On second thought, I think the more important issue is the one 7Figures2Commas raised: If you have a lawyer who does the worst of this stuff, you have the wrong lawyer. With that said, my blood pressure would definitely climb if a client challenged a 6-minute incremental bill for a phone call that was only 2 minutes.
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  - nopassrecover 13y ago
    Isn't it "nickel and diming" to charge for that 2 minute call at all in the first place?
larrys 13y ago
"nickel-and-dimed" Exactly. Experienced business people write this off to the "cost of doing business". You look at the total value and make a decision as to whether to continue the relationship. If you didn't know the way attorney's billed then you can be thankful for the lesson that you have learned. Read and understand before signing anything. You are of course free to negotiate the fee down after receiving the bill and many lawyers will discount in order to continue the relationship. From my experience lawyers tend to be willing to accept whatever they can get that is reasonable - they aren't going to pursue an action against a client unless the majority of the bill isn't paid or there is something else causing animosity or problems.

danray 13y ago

Half of these are unethical (i.e., they violate actual, binding rules of professional ethics with actual consequences). The other half should be spelled out in the engagement letter. If you don't like it, tell your lawyer -- we really will negotiate on these issues.

larrys 13y ago
"Half of these are unethical" Which ones exactly and why? (Serious question if you are making a general statement please back it up with more information.)

7Figures2Commas 13y ago

I won't say that this post is devoid of useful information, although there are some questionable claims (such as the notion that an attorney is double billing for travel-related work). More importantly, however, I think it misses a more fundamental mistake that startups make: they don't know how to choose a lawyer. If you're working with a firm that has summer associates (referred to as "law students" in the post), and they are being billed out at $200/hour, you are almost certainly working with a large, full-service law firm. And large, full-service law firms are expensive. Working with a large, full-service law firm is overkill for the vast majority of early-stage startups. Even when it comes to securities-related work, you can find reasonably-priced experienced, competent practitioners with BigLaw backgrounds who work solo or at smaller firms.

larrys 13y ago

"So let’s say a lawyer’s fee is $600 per hour (which is $10 per minute). He speaks to you on the phone for 2 minutes. That just cost you $60. Not $20. That’s a $40 rounding charge. Wow. Another way to think of it is a 200% markup." So what we have is that the base cost of a phone call with your lawyer is always going to be $60. I don't have a problem with that other than obviously it would be nice if the cost were zero. As far as $60? A conversation of 2 minutes and a conversation for 10 minutes is still interuptive and takes your attention from whatever you are doing. As anyone who has been in a zone doing work will attest to.

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joshuaheard 13y ago
And, a 2 minute phone call doesn't take just 2 minutes. The lawyer has to pull the file, make notes on the call, set a tickler, then put the file back. Boom, 10 minutes.

larrys 13y ago

"There’s a clause in your agreement that talks about incurring expenses in connection with your representation and they can bill you for these up to a certain amount without prior approval. Tell them you require them to get your approval before incurring such expenses. And list out the expenses you will not pay for. It’s likely they will have a clause detailing the types of third party expenses they can incur on your behalf. Push back on this list and exclude items like mileage, travel, food, phone charges, copying and research expenses such as Lexis-Nexis, storage and data management services." Ridiculous. As a business person that has dealt with lawyers, consultants, accountants (in the bricks and mortar world, not the startup lottery) as well as has clients that I do work for (so I've been on the other side) I would totally steer clear of anyone that comes out saying things like this. Unless I was desperate. It's just not the way to have a professional relationship which involves trust. Get approval on every expense? Even minor ones? Not going to reimburse for something unless on a white list? Get serious. This strikes me as penny wise and pound (and time) foolish. The major cost is the hourly rate and whether you are being billed honestly for that (or not). And that is something you have no control over unless you are watching them all the time. To expect that it matters that you will not approve a minor charge when the attorney can easily jack up his billing on the major charge is a waste of time. Better to question the bills after the fact and if you feel that you shouldn't have to pay for the lunch bill that your attorney had when meeting with someone on your behalf while leaving a large tip by all means bring up the issue. But just like with employees a certain amount of leeway is often necessary.

audreymelnik 13y ago
I would say that it is "penny wise and pound foolish" for a lawyer to nickel and dime by charging for expenses like these. The bigger picture is actually that the lawyer realize that eeking out every little expense from a startup client isn't productive. The aim should be helping that company to get to a stage that they can have a big exit, and charging for things like these is only going to constrain that possibility. Lawyers often seem to pass on charges that in any other industry would be considered a cost of doing business. The aim here is not to accept that from a lawyer. The main cost should be the rate rather than the ancillary services and expenses.

stretchwithme 13y ago

I had mine arguing some obscure issue in some convoluted way just to get past the 20 minute mark so he could bill for another 10 minutes. And then they bill you $35 for sending you automatic reminders about important dates you're already reminding yourself about.

audreymelnik 13y ago

Thanks everyone for your comments. My main point in raising these points was to start a dialog about what is and is not acceptable to charge for and to raise awareness of these items for startups looking to take on a lawyer and I think I've definitely done that! Many (but not all) of the points I raised in this post were sourced from an analysis that my friend performed of a startup's legal bills from two separate silicon valley law firms.

alexdevkar 13y ago
If your friend knows of instances where Silicon Valley firms (1) double-billed travel time or (2) billed as you stated in the value billing section, consider reporting those to the CA State Bar. These are ethical violations.

rayiner 13y ago

This is generally good advice, but I'd like to discuss #6 (double billing during travel) and #9 (overbilling on assignments). Both are highly unethical practices. I can't imagine that they're all that common, if only because in this day and age of electronic billing and sophisticated clients, it's so easy to get caught doing something like that. As for #4 and #7, as a client you can probably get concessions given that it's a buyer's market for legal services right now.[1] But generally, I think those practices are legit. The cost of training is baked into the price of every product you buy, and legal services is no different. With regards to #7 specifically, that tends to be a situation where the junior lawyer who doesn't say anything on the call will be the one doing whatever work comes out of the call. It will cost you more money in the long run if he or she isn't on the call and has to get a download after the fact. A better approach is to communicate via e-mail when possible and communicate directly with the associate doing your work unless the partner needs to be involved. This is kind of related to #2 and #10. Where I used to work, mid-level and senior associates would handle the day-to-day communications with the client for securities offerings or credit agreements worth tens of millions of dollars. If you retain a large firm where an associate will be doing most of the work on your matters, then find a team where the partner in charge is good at delegating the day-to-day stuff so you don't have to incur his higher rates for that sort of thing. Alternatively, depending on your needs, you might find a small outfit or even a solo practitioner who will be doing most of the work on your matter himself or herself, and doesn't need to deal with the inherent overhead of delegation. [1] Given that, it might just be easier to skip the nitpicking and ask for a 10% discount on the final bill. PS: What do people here thing about fixed fee arrangements? I'm not sure how they should be structured for a startup, but that would avoid a lot of the silliness inherent in billing. At the end of the day, there is a price to legal services based on supply and demand. Whether you charge for law students or raise the top line fee or give an across-the-board discount is ultimately cosmetic.

bradleyjg 13y ago
> This is generally good advice, but I'd like to discuss #6 (double billing during travel) and #9 (overbilling on assignments). Both are highly unethical practices. I think that absent very explicit disclosure and agreement, they'd be grounds for discipline by the bar. Certainly they read like an easy MPRE question.

andrewfong 13y ago

Having been both a founder and now a start-up lawyer at a large firm, I'd toss in a few extra tips: (1) If you're unhappy with your bill, PUSH BACK ON IT. Even if you like the partner that you're working with, a substantial portion of your bill will be generated by paralegals and associates like me. And, as an associate, my marching orders are to account for every last minute of my day, even if I think it was an unreasonable thing to bill for. In theory, the partner is supposed to see these items before they go out and make a judgment call on whether to write it off, but more often than not, the partner will eyeball the total amount without looking too closely at the details. Case in point: When I was a founder, a paralegal at a well-known law firm made a mistake with our cap table and left off a single share. We ended up getting billed $300 to find that single share. When we changed firms a year later, we mentioned this to the partner, who was surprised and had no idea this had happened (despite ostensibly signing off on the bill). (2) Check in with your lawyer regularly -- doesn't have to be a phone call. A quick e-mail will do. Bills often come in monthly intervals, and fees can rack up pretty quickly in that time. As a lawyer, I'll often start work on a new matter only to find out that my work is no longer required after several weeks have passed and I've already billed the item. Regular check-ins can help avoid this. In addition, it'll be easier to draw connections between vague descriptions on your bill ("Attend to cap table") and what actually happened ("find missing share that paralegal left out"). As a side benefit, regular check-ins result in faster turn around, especially if there are multiple matters competing for your layer's attention. (3) Second opinions can be free. If you're unsure about the advice your getting from a lawyer, ask a lawyer at another firm. Those other lawyers will view this as a chance to poach a client and will write their time off as business development. As a side benefit, those lawyers may point out mistakes that your current law firm didn't catch or is reluctant to admit to.

lr 13y ago

All of these are great to watch out for. However, the "Value Billing" one seems a little like, oh, let's see... Software! Programmers do value billing all the time. We write one piece of software and charge n number of customers for it. So, if programmers can do it, so can lawyers.

nknighthb 13y ago
If you've been contracting with customers to provide them your time as a programmer and charging them in this way, your customers need to sue you. Legal services are not a packaged product, they are time, and that time is what is being paid for.
- papasmrf 13y ago
  This comment really illustrates the major flaw in hourly billing. People begin to believe that all they are paying for is time. But they really are not just paying for time. They are paying for an attorney's expertise in getting the job done. This is why I try to stay away from hourly billing as much as possible. The billable hour is a scourge to the profession imho.
  - nknighthb 13y ago
    They are paying for time. The time of the attorney being engaged. Time from an attorney with significant expertise will, of course, cost more than time from someone who just passed the bar. If you want to bill on some other basis, fine, but you are not entitled to tell your clients you're billing them an hourly rate and then make up the hours based on the value you think is being provided. That's fraud.
    - papasmrf 13y ago
      I agree with you. My point was just that I do not want my value being reduced to nothing but time, and that is exactly what hourly billing does. So I tend not to do use hourly billing. Having done it working for other attorneys, I'll tell you it is a crappy way to spend your day keeping track of minutes.

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kylered 13y ago

Seriously, if you have a lawyer that needs to scam you out of your cash, then you have the wrong lawyer. Go hire a professional. Good lawyers are really busy and don't need to lie to you to make money.

adamzerner 13y ago

It really seems like the law industry does this type of stuff all the time, which is bs. The law industry is a service business. You pay them for their services. The service you get is much less than what you pay for. This mismatch = an opportunity to do better and make a lot of money.

grellas 13y ago

If your startup lawyer deals straight with you, gives you honest estimates, bills for time actually spent, uses good judgment in managing the legal time spent on your matter, avoids duplicative billing, is willing to deal fairly with situations when you question a billing item and have reasonable reasons for doing so, and, of course, does the job right and is a good lawyer to work with, then be thankful and do not quibble around the edges about things such .1 billing increments, small expense items advanced and expected to be reimbursed, and the like. Remember that lawyers are in business too and want to devote their efforts where they will be most rewarded and appreciated. While that certainly doesn't mean cheating a client, it does mean dealing with clients who see the lawyer as a trusted ally and not as an adversary and who will not be nibbling at the ankles with every step a lawyer takes. In dealing with any lawyer, watch out for padded bills that have vague descriptions of what was done, beware getting billed for substantial amounts of lawyer learning time, scrutinize all cases where double billing might be involved, make sure billing rates match your needs as a company (big firm vs. small firm), try always to get estimates in advance, negotiate fixed fees or caps where appropriate, get timely bills sent to you, review the bills carefully, and question billing items that don't look right. As concerns lawyer billing, those are the big items. If you pay attention to those, you will maximize your chances of getting good value from the firm and minimize the risk of abuses. Beyond that, you normally can ignore the small or trivial points. Remember that it is a professional relationship and mutual trust should be the order of the day. If it is not, then maybe it should not be maintained as a continuing relationship.

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SilasX 13y ago
That's a lot to expect. Any lawyer diligent and conscientious enough to do all the stuff you've listed will also be really high in demand and only deal with the most deep pocketed clients in the first place.

Riseed 13y ago

If you're trying to be penny wise about legitimate third-party expenses like mileage and legal research, why pay $49 fee to a third party (in addition to state fees) to change your company’s name? You could have saved that third-party fee if you'd done it yourself through the Secretary of State's website. As an additional tip, you may be able to save some money by doing some of the legal research yourself. Google works surprisingly well for some things, as does the local public library, which may have a subscription to Lexis Nexis or Westlaw. Facebook is a great resource for family law issues. There are also free law-specific resources like nolo.com (e.g. http://www.nolo.com/legal-encyclopedia/small-business http://www.nolo.com/legal-encyclopedia/small-business) or avvo.com.

papasmrf 13y ago

As a lawyer, I'll first say that it is always okay to haggle a little bit about the billing arrangement. I would expect an entrepreneur to want to negotiate. Two, some of these practices described would raise eyebrows with state ethics committees. Double billing travel time, rounding up your billable hours, it all amounts to padding your bills. Lawyers have been disbarred for such practices, and this typically happens when people start wondering how they can be billed greater than 24 hours per day by the same attorney. Lastly, if you are a start up, you have no business going to an attorney that is going to charge you $600.00 per hour. A rate that high should be reserved for some specialties, like perhaps patent litigation. If you are paying an attorney $600.00 to incorporate for you, you probably will not be in business for long.

cykho 13y ago

The most atrocious overcharges we've experienced have been around equity asks. For some reason firms think it's good practice to ask for a sizable chunk as an interest payment for their incorporation fee (which they expect to be paid anyways). Even if a company is worth $1m (founders time for 4 years) half a point (standard ask) is $5k. If incorporation costs $10k (mid-range) that's 50%+ interest! Not to mention there is some risk mixing the roles of counsel (representing the company) and owner (a minority shareholders) I think this has spilled out from WSGR and hope it stops soon.

nirmel 13y ago

I would love feedback on my startup, Lawdingo.com (YC W13), as I believe it addresses many of these issues. We get independent lawyers to be transparent about their prices, we solicit community reviews, and we make lawyers available instantly. I'd humbly recommend people try it out for their startup legal needs. It's free.

papasmrf 13y ago
As a lawyer I am always interested in sites that want to try to change the legal profession in some way. My thoughts: Do you vet the attorneys in some way, ie, require a bar license number to become a lawyer on the site? Usually on the consumer side these sites just turn into a race for the bottom price, with no real regard for the quality of the representation that will be given. Frankly that is a problem for all of these types of sites, it should be a concern for you in terms of attracting quality lawyers to the site, a quality lawyer with a quality practice will not necessarily want to get into a position of competing on lower and lower prices.

paul_f 13y ago

Whatever you do, never use the attorney recommended by your investors.

borplk 13y ago
can you please elaborate on this?

diziet 13y ago

You can also use services that provide lawyering a-la-carte : https://www.upcounsel.com/ https://www.upcounsel.com/ or things like https://www.clerky.com https://www.clerky.com .

sarreph 13y ago

Could anyone explain to me what the author may be alluding to as a 'regular lawyer' as opposed to 'your lawyer'? "If you use your lawyer, you’ll get charged way more than if you used a regular lawyer"

hudibras 13y ago

At what point does it become more cost-effective to hire your own counsel?

acjohnson55 13y ago

I had a good experience with Scott Walker and Ki Ingersoll at Walker Corporate Law. Granted, I have no basis for comparison, so I could very well have overpaid. But for the fixed-rate company conversion they did, their guaranteed rate was in line with the estimates I got elsewhere. I felt like they were quite helpful and attentive, and there were no surprises. What I could not afford was uncertainty in results or budget. By that standard, they delivered.

etanazir 13y ago

your goto lawyer should be a friend.

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