How to manage legal expenses?

John Sturdivant CEO, Founder at WorkforceAlpha

June 2nd, 2016

We are a B2B SaaS business in proof-of-concept stage, and I'm trying to budget for legal expenses. I recently had 2 consultations with my lawyer about drafting sales contracts, and those alone took out a material bite from my working capital (~$1000). What should I expect to spend on legal at this stage? What are some strategies to manage these costs intelligently?

Anonymous

June 2nd, 2016

I suspect the principles are no different between the US and the UK - work with a firm that is used to the start-up environment and on that basis offers up fixed price menus for most things. And distinguish between company secretarial matters and supporting deals. Not everyone that is on-price for the day-to-day will necessarily have the skills/experience to back your corner during a major fundraise.

And avoid the vanity of Top Tier legal firms for as long as possible!

Suzie Williams Lawyer for Entrepreneurs and Investors

June 2nd, 2016

The answer to this question depends in large part in how you assess your legal needs. Are they "typical" needs for a startup, or are there nuanced founder issues or legal risks associated with your business model? If you believe legal services are a commodity, then you are price elastic and you can manage your legal costs by price shopping or by finding a lawyer who does a "review" function. This means you will do a lot of heavy lifting yourself.For me, that kind of legal work holds no interest. Like most seasoned startup lawyers, I like to work with companies that have interesting business models, ones that have legs and may be around for longer than 24 months. We're looking for relationships, not 24-month flings, and we are a lot more flexible on price and when we are paid when we think we've found The One. For that kind of opportunity, I will dig in, understand revenue model and draft contracts and work out the price - either in equity and cash, or cash. So, my advice is - pick a lane. Either you are willing to invest in a committed relationship with a lawyer (in which you both are mutually incented to keep legal costs as low as is practicable) or it's last call and the lawyer still standing at the club will do, as long as the price is right.

Rob G

June 2nd, 2016

John, now you know how those McKinsey clients feel when they get their bill. :( You are still in the 'proof of concept stage' so i presume this means pre-funding and pre-revenue. conservation of cash is critical. Don't spend money until you have to and then find ways to squeeze every penny. This particular case is relatively easy to solve. You are a McKinsey and GT guy so i'm sure you've seen your share of agreements so you know how to read an existing agreement and tell if it covers all or most of the bases you want to cover. So, legal documents for your relationships with customers, vendors, partners, employees, etc. are not a new invention. there are lots and lots of other companies who have already paid lots of money to lots of lawyers to produce lots of sales agreements. Many are online. Find a few that make sense for your company and copy them. find a company or 3 that are similar to yours and ask if you can copy theirs. That gets you 90+% of the way there and 90+% for $00 is good enough for now. Also, sites like Legal zoom have some good templates for cheep. If you need to combine features from multiple agreements do that. Then if you feel you must, run your draft past an attorney but stipulate that s/he is to spend no more than __ hour(s) and just redline your draft. Or not. until you have a pending sale it doesn't matter how bulletproof your sales agreement is. I can hear the attorneys groaning now. Yes, building a long-term relationship with an attorney or firm makes sense in the long run, but at this point you won't have a long run if you don't conserve cash.

John Sturdivant CEO, Founder at WorkforceAlpha

June 2nd, 2016

Thanks all - great advice! As a coda to the story, I ended up not even using much of their advice because I stumbled across Y Combinator's open source documents, which were almost EXACTLY what I needed (for free, on the internet, after the hours were billed).

As a PSA for everyone: https://www.ycombinator.com/documents/

Great stuff to be found here.

Ian Shearer Executive Chairman at Parakeetplay

June 3rd, 2016

John I have set up a couple of companies on a shoestring and here is what i do. 1. I will go to a lawyer and say "look i have no money to pay you, but if you give me some free time now you will get it back later when there is a decent transaction" Most lawyers will accept this but you must honour this understanding. 2. Ask my founder friends for copies of their legal stuff and just amend as necessary. Most of this stuff is not rocket science. 3. Download from the internet. There are various low cost sites now offering standard documents as well as free sites. Regards Ian

Chicke Fitzgerald

June 2nd, 2016

Oh John, that is just way too much for a consultation. I have an attorney on my advisory board that is doing work for a reduced rate and taking equity as well for his advisory role. He brings a ton of business experience to the table as he had been the Chief Legal Counsel for an international telecoms company (we worked there together on a merger).

Another option is to go to the local incubators and find out who they use for legal work. You want someone that understands start ups.

AVVO is a great resource to ask legal questions without paying for the advice. You may have to wait 24 hours or so to get the advice, and you still have to vet the advice that you get (often you get 5 or 6 responses), but it is a terrific resource. It was founded by a guy that I worked with on a project with the Board of Directors of Orbitz.

Also, there are many agreement templates available on the Internet and so you can start from that point, rather than from a blank sheet of paper. That saves legal costs.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

June 2nd, 2016

Th most value that a lawyer can bring to a startup or small company is often the value of problems that the lawyer helps them to avoid. This requires the lawyer to get to know you and your business. This takes time and time is what lawyers sell. There are many good lawyers who offer to discount their time for start-ups, myself included, but you need a good lawyer not the cheapest. You should have budgeted for legal services when you wrote your first business plan before you raised your first dollar in seed money and hired your first employee or partner. A monthly retainer is often the best way to have a lawyer available for continuing consultations.

Tim Parks VP of Growth at UpCounsel, Inc.

June 2nd, 2016

Hi John- There are some great threads on this topic already, but if you are looking for options you can also try using services like UpCounsel to get free quotes from attorneys for specific or ongoing needs. Full disclosure I work at UpCounsel, but your use case is one of the most common we come across. While there are other, more complex ways to manage your legal budget, (deferred fees, equity kickers, etc) I will let the rest of the community handle those. If you have any questions happy to connect you with someone on our team who works with tech founders to map out their legal budgets.

Jennifer Ernst

June 2nd, 2016

For documents that are fairly standard, I'm finding Rocket Lawyer to be useful and quite cost-effective. One way to manage costs is to familiarize yourself with legal terms and be comfortable knowing when you really need to consult a lawyer. E.g. I have no problem pulling a standard NDA and editing key terms myself.

Dan P.Eng. Startup guy - Customer success, Product Strategy, Operations

June 2nd, 2016

John, are there any entrepreneurship centres in your city, state that might be able to help with standard templates, etc? Other startups can be a great source of "been there, done that". I've had success in the past by reaching out to similar startups either in my area or through LinkedIN, etc. I normally reach out to learn more about them, how they operate, how they mitigate costs and in some cases, that discussion led to a discussion about documents and resulted in some sharing between companies. Maybe your lawyer is too senior for you right now when a junior lawyer may be more appropriate. In the past, my lawyer gave some of my requests to one of his subordinates which would result in more cost effective fees and still yield legal language and documents that protected my company's interests, etc. At the end of the day, it's a necessary expense. Good luck! -- Dan Dan Gagliardi, P.Eng. Http://ca.linkedin.com/in/dgagliardi Sent from Outlook

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