DO YOU NEED A STARTUP LAWYER? DO YOU NEED TWO?
J and I are committed to bringing you the good and the bad, our successes and our failures. Here’s a situation we recently ran into with our choices for legal counsel.
When we set out to find legal representation for Mynstein Inc., we sought experience in two specific areas: intellectual property and equity and finance structuring. These are not your run-of-the-mill questions that Legal Zoom and Bizfilings can adequately answer. The indiscretions of my youth taught me the value of a good attorney, so we focused less on the cost and more on the quality. One of our attorneys was specifically referred by a friend of J’s.
The other was chosen for his online presence. Only later would I learn about his involvement with the Lean Startup Machine website, which was purely coincidental and came up while discussing this blog. As I researched the tangled web of RSPAs, Vesting Schedules and Venture Capital Funding, I found myself coming back to his website again and again. Not only was the content great, but he was taking the time to reply to nearly all of the comments with specific answers to the questions posted by visitors.
So, we retained two completely different lawyers in different cities at about the same time, and immediately went to work with both of them getting things squared away for Mynstein. One of our attorneys read a ten-page summary about what Mynstein will be developing and immediately offered to introduce us to some angel investors whom he believes might be interested…which brings us to the first lesson in this story….
LESSON 1: DON’T HIRE A LAWYER, HIRE A GATEWAY
At Leanliness, we are all about running on a thin budget. Expenses are posted in the Subscriber Dropbox folder so everyone can review them, and it’s not much. But with Leanliness, we won’t be pursuing investment. Mynstein is a different story. We are networking and preparing for investor expectations now. When you are looking at potential relationships with lawyers, accountants, PR consultants or any other professional, focus on the value of the relationship and not the price.
Besides having someone outside the company validate an idea we think is great (which was alone worth the retainer!), our attorney is acting as an advisor and may help us bring capital into the business. Not bad for a lawyer, right!
LESSON 2: DON’T OVER-DO IT
J and I have both learned some valuable lessons already, which is part of the process. Some advice for picking a lawyer to help set up your business: Go with one who knows, or at least knows of, investors with whom you can engage. This, of course, would not be a factor had we not been seeking funding.
So what’s the problem?
The dilemma stems from the specific roles each attorney was hired to fulfill. One was retained primarily for Intellectual Property protection, the other for Startup issues like stock purchases, share distribution, establishing the appropriate vesting schedule for the founders, etc. We are being proactive to protect the assets of the business with Trademarks, Copyrights and Patents with one attorney, and getting professional advice to make sure we don’t create any roadblocks that would complicate a liquidity event down the road with Angel investors or Venture Capital firms from the other attorney. Therein lays the problem.
The Angel Investors I have been referencing so far are friends of our IP attorney, which creates an awkward dynamic because he is not involved in the equity structuring of the business. Using one attorney to negotiate with the friends of another is like having two quarterbacks in one game. Toes *will* get stepped on.
This led us to consolidate our legal services. The choice really didn’t have anything to do with the legal skills of either attorney; both were doing great jobs. The decision was more about relationships and proximity to the investors we are pursuing as partners and mentors. As I pointed out in Lesson 1, an attorney should be a lot more than just a legal guru if you’re going to get the most bang for your buck.
LESSON 3: ONLINE SERVICES ARE NOT A SUBSTITUTE
In a previous article I compared Legal Zoom and Bizfilings, which we used to form Leanliness LLC and Mynstein Inc., respectively. But, we were able to do so only because of extensive research prior to filing. I’m a firm believer in “Trust, but Verify.” So, I spend quite a bit of time online reading IRS codes, GAAP, best practices and the blogs of other entrepreneurs. Besides, J started an LLC last year, so we had that experience to lean on. I also spoke at length with FREE S.C.O.R.E. attorneys and business leaders with experience prior to filing.
If I had to guess, the time I spent researching the legal issues compared to the cost savings probably makes me worth about $.02/hour. If that doesn’t appeal to you, I would recommend you hire an attorney for your startup, and start early! The sooner you file with the State and receive an EIN, the sooner you can open a bank account for your business. Concerns about Piercing the Corporate Veil aren’t the only reason you need a business bank account. Separate debit cards and checkbooks make accounting much easier, and during the startup period, you’re going to have a lot of expenses.
Stay tuned for more lessons learned. You can subscribe to get updates on our blunders as they happen!