4 ms·

Should I give my lawyers equity?

18 points by terpua 19y ago

DaniFong 19y ago
The analysis here seems pretty shallow. As in every other deal, one needs to consider what they're offering, and your own position. In our case, we are equity rich and cash poor. We don't care nearly so much about our share, so long as a great product gets off the ground. We also don't particularly think it's a wise course of action to bargain with a law firm. Especially when one has better things to do. We're talking about 1% here. Shouldn't you be spending time worrying about your product? Or more cynically, getting a better VC deal? Lastly, there's the equity equation. If these particular lawyers would improve your prospects for 1.01% over the alternative (other lawyers, or more specifically, over the bargaining process for other lawyers when you should probably just be coding), it should be worth it: more if you're risk averse.
- nivi 19y ago
  Thanks for the comment Dani. When it comes to applying the equity equation, consider the opportunity cost: http://venturehacks.com/articles/equity-equation#opportunity http://venturehacks.com/articles/equity-equation#opportunity For example, 1% spent on lawyers is 1% you can't spend on developers.
  - DaniFong 19y ago
    True, but another consideration is that sometimes those optimal deals take long enough to make, they should be factored into said opportunity cost. Whatever time you're spending hunting and bargaining with lawyers could be, alternately, spent hunting for developers, or hunting for users, or one of any other things. Indeed, the value of the better firms may be far more than worth any 1% investment. Perhaps a better idiom is that the lawyers are investing in the company. They're large enough to qualify for riskier investments open only to institutional investors, so they miss much higher levels of interest than the public. This means that a deferred payment is a significant hit to their bottom line, and should be counter balanced. Additionally, certain law firms waive their fees unless an initial financing to completes. These firms, in addition to helping you out legally, also can help appreciably in raising the next round, and getting the best deal (for themselves and the founders).
optimal 19y ago
Give them bones--they especially like to crush bones to get at the tasty marrow inside. Oh wait, that's hyenas. How much value do the lawyers bring to your business, and are the services they're offering specialized, or of the commoditized, cookie-cutter, boilerplate variety?
- Kaizyn 19y ago
  It's a lot like a protection racket. You need lawyers to help protect you from the laws others lawyers have made. You need lawyers to protect you from your competitors' lawyers. You also need lawyers to protect you from random people who know how to take advantage of the litigation system setup by the same lawyers who made the legal system to create more work for lawyers.
ALee 19y ago
A venture lawyer we know usually puts a warrant on for his firm (DLA Piper), which allows them to invest at the round valuation for up to .1 to 1% of the company. I generally think that law firms nowadays are really not taking as much a hit by deferring fees, especially the ones in silicon valley who are competing for your business.
- nivi 19y ago
  I wonder what the warrants are priced at? If they're priced low, it is like giving them free equity.

18 points by terpua 19y ago

The analysis here seems pretty shallow. As in every other deal, one needs to consider what they're offering, and your own position. In our case, we are equity rich and cash poor. We don't care nearly so much about our share, so long as a great product gets off the ground. We also don't particularly think it's a wise course of action to bargain with a law firm. Especially when one has better things to do. We're talking about 1% here. Shouldn't you be spending time worrying about your product? Or more cynically, getting a better VC deal? Lastly, there's the equity equation. If these particular lawyers would improve your prospects for 1.01% over the alternative (other lawyers, or more specifically, over the bargaining process for other lawyers when you should probably just be coding), it should be worth it: more if you're risk averse.

nivi 19y ago
Thanks for the comment Dani. When it comes to applying the equity equation, consider the opportunity cost: http://venturehacks.com/articles/equity-equation#opportunity http://venturehacks.com/articles/equity-equation#opportunity For example, 1% spent on lawyers is 1% you can't spend on developers.
- DaniFong 19y ago
  True, but another consideration is that sometimes those optimal deals take long enough to make, they should be factored into said opportunity cost. Whatever time you're spending hunting and bargaining with lawyers could be, alternately, spent hunting for developers, or hunting for users, or one of any other things. Indeed, the value of the better firms may be far more than worth any 1% investment. Perhaps a better idiom is that the lawyers are investing in the company. They're large enough to qualify for riskier investments open only to institutional investors, so they miss much higher levels of interest than the public. This means that a deferred payment is a significant hit to their bottom line, and should be counter balanced. Additionally, certain law firms waive their fees unless an initial financing to completes. These firms, in addition to helping you out legally, also can help appreciably in raising the next round, and getting the best deal (for themselves and the founders).

optimal 19y ago

Give them bones--they especially like to crush bones to get at the tasty marrow inside. Oh wait, that's hyenas. How much value do the lawyers bring to your business, and are the services they're offering specialized, or of the commoditized, cookie-cutter, boilerplate variety?

Kaizyn 19y ago
It's a lot like a protection racket. You need lawyers to help protect you from the laws others lawyers have made. You need lawyers to protect you from your competitors' lawyers. You also need lawyers to protect you from random people who know how to take advantage of the litigation system setup by the same lawyers who made the legal system to create more work for lawyers.

ALee 19y ago

A venture lawyer we know usually puts a warrant on for his firm (DLA Piper), which allows them to invest at the round valuation for up to .1 to 1% of the company. I generally think that law firms nowadays are really not taking as much a hit by deferring fees, especially the ones in silicon valley who are competing for your business.

nivi 19y ago
I wonder what the warrants are priced at? If they're priced low, it is like giving them free equity.