If you are like me, the only thing you know about the law is that you should plead the fifth when you did something wrong and don’t want to admit it … not that I’ve ever done anything wrong though ;). When my team and I began creating ThreadMatcher, we realized that this was something we would be investing all of our time to. In order to get it started right, we knew that we needed legal help. (DO NOT get a lawyer unless you are going to follow through with your idea). Unfortunately, neither of my cofounders knew a ton about the law either.
We started our search by asking anyone who would listen “What sort of services should we expect. How much money will that cost?” From that point on, we set up meetings with a few lawyers that friends, family, and our school set us up with. What we realized is that no law firm quotes the same price for the same services. The majority of the time, they hit you with a massive quote and follow it up with something like, “but we will do it right.” That statement always sounded a little weird to me. Do a lot of lawyers do it wrong? What does that look like? To be fair though, all the lawyers we spoke to were very generous with their time and up front about what to expect. We definitely appreciated their help and insights.
After a few weeks of talking to law firms, we set up a conference call with Wilson Sonsini Goodrich & Rosati, which is also one of the law firms that sponsors InSITE. Paul Tumpowsky, the chairman of InSITE, was kind enough to set up the call. After a few conference calls and then a face-to-face meeting, our team was very impressed. Not only was the partner, Adam Dinow, both friendly and intelligent, but his associate was also the exact same. They dealt with our never-ending questions with ease and great patience. The best part of WSGR is that they have a great track record of helping entrepreneurs.
Getting legal representation early is helpful not only because it protects the founders, but also because it forces the cofounders to have tough discussions as early as humanly possible. What are our equity splits? How many shares are we going to issue? How are we going to vest our shares? What happens if one of us decides to leave? When do we plan on hiring additional employees? Our suggestion to our readers is that you solve all of these problems as early as humanly possible. Ask a lot of “what if” questions, answer them, get it to a lawyer, and move on. If you want to have a simple letter agreement amongst founders before you talk to a lawyer, I think that is probably fine too. However, all the tough questions need to be asked in the beginning. Leaving those talks to the end will make them even more difficult.
The terms most law firms offer can be negotiated. This is definitely not always the case, but it is possible. The bottom line is that you are a startup. You don’t have cash and you can’t spend a ton of money on legal fees before you even launch your site. If a law firm gets upset at you for asking to lower their rate, then you don’t want to sign with them anyway. If they say that there is nothing that they can do about it, then that is fine too … at least you tried. Similarly, feel free to ask a ton of questions about anything you don’t understand. Legal speak is not really English so it won’t always be obvious what they are talking about. Good lawyers understand this and will help you out. However, please don’t take this as an excuse to ask them everything under the sun. If it is something you can figure out by googling a term, don’t’ waste their time. They are, of course, very busy … just like you and me.
Look for startup packages. Not all law firms offer this, but it can be very helpful to save money in the beginning. A lot of law firms will defer payments (the amount is negotiable) until funding in exchange for a tiny slice of equity. If you don’t need to save any money up front, then don’t worry about it. If you only have $20k to spend, this might be huge for you.
As always, please feel free to give feedback. We are still new at this and may be missing something. If so, we’d love to hear it.
Best,
Post written by the ThreadMatcher Team (Kevin St. John, Amrish Singh, Alejandro Chahin, NYU MBA’s 2013)