Without informing their board, one startup racked up $150,000 in legal fees in just three months.
The investment team I was part of reached out to the founder to explain why.
He told us that the fees were for documents relating to the establishment of the company, financing, various agreements and intellectual property registrations.
Because fees like this can sink an early-stage startup, it’s important for startup founders to know cost-effective ways to use lawyers.
As a founder, you can get the most out of legal aid by deploying a few smart strategies that won’t break the bank or blow your budget.
Hire a lawyer
Not everything you do requires a lawyer: You simply need to know when to hire a lawyer, how much to spend, and when to do it yourself.
Your startup needs the right legal structure. The structure depends on various factors: the nature of the business.
Its growth potential, financing requirements, liability considerations and tax implications.
Most startups are incorporated as either an LLC (Limited Liability Company) or a C-Corp.
Your business attorney can help you determine which structure is best for your company.
All startups enter into agreements and contracts with employees, suppliers, strategic partners, distributors and partners.
It is wise to have a lawyer help you draft contracts to protect your startup’s interests.
These three key areas require legal coverage. Intellectual Property (IP) Protection: Identify and protect your IP, including patents, trademarks, copyrights and trade secrets.
Fundraising and Securities Law Compliance: Your capital returns from investors require compliance with securities laws.
These laws were created to ensure transparency in investing. As an entrepreneur, you provide your investors with accurate information about their potential investment.
This includes all associated risks. A lawyer will advise and help your startup navigate the process to ensure your company is in compliance.
Before you hire a lawyer, ask other entrepreneurs, your board and advisors for referrals to potential lawyers. Find out how much they pay for legal services in your area.
This will give you a good idea of how much you will pay and what to expect.
Ask about education, experience and how satisfied they are with their lawyer.
It is better for you to have a lawyer who specializes in the business ecosystem and has years of experience with entrepreneurs.
Angel investment groups often have alliances with sponsoring law firms that specialize in the startup space.
Because these law firms understand the risks associated with growing companies.
They often have experience on all sides of the complex business and intellectual property issues that start-ups are likely to encounter.