Why and How to Hire a Great Lawyer for Your Startup Company*
Though he was kinda slow and none too bright**, Microsoft co-founder, Bill Gates III did have one great asset: his father was a small business lawyer. Bill Jr. purportedly helped the teenage Bill negotiate phenomenally well on behalf of his fledgling software company and himself. Without his father’s guidance, would Bill have owned less than the 64% of the company that he started out with (Ballmer had 36%)? The world will never know, but I suspect so — my guess is he might have gone with the old 50/50 split that co-founders often agree on. (See this history here which I took straight from Noam Wasserman’s fabulous Founder Frustrations blog, where he discusses, among other things, the Microsoft Founders.)
Of course, most entrepreneurs have more upstairs than did/does Bill***. Despite their greater natural advantages, they should still make sure that they have a great lawyer. So, how do I define great lawyer? To my mind, for companies that are trying to raise equity capital (angel or venture capital), a good lawyer is someone who has done at least five angel/venture equity deals in the past two years, and a great one is someone who, at a minimum, has done ten.**** In other words, representing companies, founders and investors in angel and venture capital transactions should be a core part of what they do every day, rather than being an occasional thing they do when business is bad or when a friend asks them to help him/her out. Great lawyers for companies who want to take the equity-funding path are up on the latest deal terms. They have been privy to many different negotiating styles, have seen how different investors react to different “hot button” issues, and can bring this expertise to bear when negotiating on your behalf.
Also, figure out how to get some kind of a special deal from them — whether that’s having them offer extra services, like attending board meetings free of charge, taking deferred payment based upon some future funding event, or taking stock options as a form of payment. What I have found is this: lots of top lawyers are incredibly interested in working with entrepreneurs because they’ve seen how successful some early-stage company clients become, and they want to keep working with those kinds of companies. They know that the economics of early-stage companies require some special deal. And, sometimes, if you and your company truly seem high potential they’re willing to offer it. That’s a key point; top lawyers don’t offer special services for undifferentiated companies and entrepreneurs who just want a discount ‘cause they want a discount; rather, great lawyers are willing to “pay it forward” through right-sized economics and special services if they see the potential for payback in you and your business.
My final comment is that I have fully stolen this theme of hiring a great laywer from my esteemed and wise colleague, Lynn-Ann Gries – see her blog on similar subject here.
Notes:
* Disclaimer: I am not married to a lawyer nor do I have a lawyer in my immediate family. I have not been paid by the Cleveland Bar Association to post this blog. I do not get any kickbacks from lawyers. Indeed, I have practically no lawyer friends from whom I could get kickbacks, and since I recommended that you ask them for a discount for them to work for your tiny baby company (GE your company ain’t—might be one day, but it ain’t right now) lawyers probably aren’t that thrilled with me anyhow and will only give me the “kick” part of the “kickback”. Indeed, this posting is just my heartfelt and experienced-based belief about one key aspect of starting and growing a company.
** That’s sarcasm.
*** Ditto - sarcasm.
**** By the way, just because they’ve worked on at least ten angel/venture deals in the past two years (note: ask them specifically for their track record and ask for names of clients or references) doesn’t make them great, but at least it puts them in the running.
***** Here’s another article that gives some more advice on hiring good or great lawyers.
Becca Braun is President of JumpStart Ventures. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.
May 8th, 2009 at 3:56 pm
I see your path diverging from that of Shakespeare’s regarding lawyers — surprising!
May 26th, 2009 at 8:03 pm
John-took me a while (like, 19 days) to figure out your highly literary reference. Indeed, my path does diverge from that of Shakespeare when it comes to lawyers. But only in that one way, of course. Otherwise, The Bard and I are practically twins.