Author: Daniel Rizzi - STARTUP LAWYER AT DIMINNO RIZZI IN ASSOCIATION
Choosing the right startup lawyer can make a big difference for your company, so don’t take this decision lightly. Top startup lawyers help companies navigate the legal landscape, avoid pitfalls, and provide valuable advice on how to grow the business.
As a startup founder, you’ll have to wear many hats and make lots of decisions. One of the most important decisions you’ll make is choosing the right lawyer. Your lawyer will be involved in many aspects of your business, from crafting contracts to raising capital and filing for intellectual property, thus it’s crucial to find the best lawyer who has experience with startups in your sector.
How do most founders discover startup lawyers and law firms?
Many early-stage founders are simply introduced to a law firm through an accelerator program, without taking the time to research different options. Most law firms pay quite a large sum of money to sponsor this accelerator program to get first contact with founders. Unfortunately, founders end up working with a very junior associate that has little to no experience at a law firm. This means that startups end up paying for expensive legal services that they could have gotten for free or at a fraction of the cost if they had worked with a more experienced lawyer.
Other startups resort to doing a quick google search and going with the cheapest law firm they can find, due to cost constraints. While this might seem like an easy remedy, it could harm the company in the long run. Many lawyers that spend heavily on online marketing handle a variety of client types and may not be focused on startups in particular. Working with law firms that is familiar with corporate commercial law but inexperienced when it comes to startups could lead to suboptimal advice or even misguided direction – all at an unnecessary expense.
In some other cases, founders who need to make a quick informed decision, use lawyer referral services by The Law Society to look for solo practitioners. It offers online legal services and with its comprehensive directory of professionals, most startups can get matched with licensed lawyers for any legal needs, from preparing basic legal documents to filling for intellectual property.
Why it’s crucial to find a startup lawyer in the early stages of the company
To set your startup up for success in the future, it is important to seek out good legal representation from the get-go. A good startup lawyer can provide an invaluable service to help ensure the smooth operation of your business from the beginning.
It is vital to seek out good legal counsel early on because the cleaner and clearer your contracts are from the start, the fewer worries you will have as time goes on.
Good legal services can help protect your business interests, in areas such as obtaining permits, filing for intellectual property, setting up proper documentation to get your startup ready for fundraising, and drafting contracts to hire your first employees.
Don’t be afraid to ask around and research properly before choosing a lawyer. One of the most important things to consider when looking for legal services is to find a startup lawyer who understands your business and has experience with similar startups. Taking time to properly invest during this early stage will undoubtedly pay off in ensuring that your company remains successful down the road.
Where should founders start to look for a startup lawyer?
A great place to start your search for the best startup lawyers, particularly if you don’t know any lawyers yourself, is to ask around your network. Startups should ask their founder friends, ideally in their business vertical. Once you’ve compiled a list of potential lawyers, set up interviews and free consultations to get to know them better.
Be sure to ask lots of questions about their experience with startups in your space, their success rate, and what they think of the legal challenges your startup is likely to face.
Top 10 questions to ask before hiring a startup lawyer
Now that you’ve made a shortlist of potential startup lawyers, it’s time to select the one who will best suit your startup and can address any legal issues. To help you in this process, I’ve compiled a list of questions to ask each lawyer before making your final decision.
1. What is your legal area of expertise?
Founders should be looking for an experienced corporate commercial lawyer with expertise in privacy law, intellectual property, and corporate finance, particularly fundraising.
2. What types of clients or legal work do you turn down?
Tech startup founders looking for specialized legal advice won’t be able to find it from a lawyer that has been focusing on traditional areas like real estate, wills, trusts, litigation, or public company work. Even though some of these areas could be important parts of the business ecosystem, these lawyers may not fully understand the intricacies of the regulations for dealing with venture capital firms or be prepared to assist entrepreneurs in drafting documents for angel investors.
3. What percentage of your clients are startups?
A good startup lawyer mostly focuses on helping entrepreneurs and should have at least 50% of active clients coming from the startup space. The higher percentage of startups speaks volumes about their commitment to helping the entrepreneurial ecosystem. Consequently, founders looking for legal advice should seek out experienced lawyers with a high percentage of startup clients (75%+ is preferable).
4. How much do you generally bill a startup of my size to get started?
If you’re not getting a straight answer from a lawyer about what services should be included in your startup package, it is important to take caution. It could mean that either the lawyer is inexperienced or unaware of the typical legal needs of a startup, or there could be potential additional fees on the horizon.
5. What is the largest amount of funds a startup has raised with you and how was the fundraising structured?
For startup businesses, there are generally four different ways to raise capital: issuing SAFE notes, convertible notes, convertible debentures, or via an equity sale with preferred shares.
It’s important to ensure that the prospective lawyer has closed sizeable deals on their own. If they can’t provide a detailed example of a deal they’ve closed, it’s safe to assume they simply don’t have the experience. Aim for a lawyer who has previously closed at least one transaction of $1 million or more as a minimum; ideally, you should be looking for someone with multiple high-value deals under their belt.
Though some lawyers from large firms are part of multiple high-priced deals, they might not be the key negotiator and could lack the essential skills or experience to assist founders with fundraising.
6. How much did you bill the last 3 startups who fundraised with you?
Be very wary if a prospective lawyer doesn’t answer this question directly. You will likely be paying the same high amount as the previous startups. Moreover, larger firms will typically charge significantly higher rates depending on the size of the fundraising round.
7. What is a SAFE note?
If your prospective lawyer can’t answer this question immediately, you should look for another lawyer.
8. How much about my business do you need to know before you can draft my documents?
Knowing everything about your startup allows lawyers to better defend and protect you should any legal issues arise. Not only do startup lawyers provide much-needed legal advice, but a great lawyer would also want to learn as much as possible about your business. If the lawyer isn’t spending at least 20-30 minutes asking you questions about what you do and how you do it, then this is a red flag for you.
9. Can I speak to a founder you’ve worked with whose company has failed?
Though failure is unfortunate but reality-based outcome for many startups, asking startup lawyers if they can refer you to founders that have failed can be awkward. If a lawyer claiming to specialize in startups can’t refer you to at least a few companies who have failed, then this is an enormous red flag.
10. I have “x” problem. Can you introduce me to a founder that could help?
Great startup lawyers not only help navigate entrepreneurs though the legal process, but can also connect them with other founders that face similar challenges. A good startup lawyer has an extensive network of founders and CEOs who have encountered similar problems. Furthermore, talking to other startup founders during the early stages of your company will give your venture the best footing possible.
Conducting a background check
The best way to determine if a startup lawyer is right for you is by speaking with founders who have worked with them previously. Additionally, you can leverage trusted resources that conduct background checks on all licensed lawyers.
A good lawyer won’t hesitate to put you in contact with founders they have worked with in the past and should always be willing to provide you with references. By speaking with at least 3 founders, you will get a better understanding of the lawyer’s approach, values, and capabilities. It’s important to understand how the lawyer has helped others, and whether they were able to achieve success in similar cases.
A lawyer directory by The Law Society is an incredibly useful tool to research the lawyer by name. The Canadian Bar Association conducts background checks on all licensed lawyers to ensure they meet professional standards and are held to the highest ethical standards. If you are in Canada, you can leverage the lawyer directories managed by The Law Society to look up the name of the lawyer practicing law in your province.
To start your basic background check, The Canadian Bar Association has made it easy to look up and find The Law Society for each province.
The Law Society has been regulating these licensees for decades, always acting in the best interests of the public, but it does not provide any legal aid itself.
More considerations when hiring a startup lawyer
A good lawyer will always keep the communication lines open, consistently updating their clients on what actions are being taken, how much time the process generally takes, and whether any changes have been made. Without good communication and high responsiveness levels, it’s hard to trust that your lawyer is doing all they can for your legal case.
About the Author
Daniel Rizzi is a Toronto based business lawyer that helps founders in software, Crypto, Fintech, BioTech, and the AI space navigate the legal landscape and make better decisions. From incorporations, shareholder agreements, terms and conditions, privacy policies, to fundraising and M&A, Daniel helps the underdogs become titans.
Article originally published on BYVI