(Editor’s note: Caine Moss is a corporate and securities partner at Goodwin Procter LLP. He submitted this column to VentureBeat.)
Selecting legal counsel for your new venture is one of the first decisions you’ll have to make as a startup entrepreneur – and it’s one you shouldn’t take lightly. While corporate counsel typically doesn’t have a lot of complex work early on, there’s a good chance you will be with that person or firm throughout the life cycle of your company.
As your company matures, the legal issues you’ll be asking your lawyer to tackle will become more demanding. You’ll need someone in your corner you value and respect.
Here are some tips to ensure you make the right decision:
Narrow the universe. Do your homework in advance of reaching out to potential targets. Look for an attorney who has represented companies in your space. That person will be familiar with, and be able to anticipate, many of the issues you are likely to face.
Scour your extended network to seek a referral from a respected entrepreneur or venture capitalist. These people have made the lawyer decision before, often multiple times, and you will be able to benefit from their perspectives.
Avoid the generic listings, too, as these will take you down a rathole. Typically, the most sought after lawyers don’t have to advertise their services on the Internet.
Take care with the email introduction. After you have identified the potential targets, send them (individually) a carefully crafted email introduction to set up meetings. It sounds obvious, but it is important to introduce your company and the opportunity to your targets in the best possible light.
Make sure to explain your company idea, where you are located, why you are looking for counsel now, and what you want the lawyer to accomplish for you in the in the near term. You want to entice the best lawyers – but they’re usually busy and probably don’t need to represent another startup. They need to feel as if they will be missing out on an opportunity to work with the next Facebook.
Meet with the lawyer in person. Once you’ve connected with your targets by email, meet each of them face-to-face. At the in-person meeting, you will want to accomplish a couple of things. First, go through your pitch to gauge whether the lawyer understands your business.
The best lawyers (believe it or not) will be able to ask provocative questions around your business model, competition and risks. You should be able to take away from the meeting some useful perspectives about your business, but also a gut-level sense of whether the lawyer gets your business and is excited to be working with you.
Excitement is key — if the lawyer perceives you as just another startup in the stable, you won’t likely get the attention from that person you deserve. Also, have the lawyer give you a pitch of sorts: he or she should talk to you about their background, experience with other companies in your space and at your stage, and the services that their firm can provide your company.
Assess fit. In the end, besides competency, probably the most important factor in choosing a lawyer is whether you will want to work with this person over the long run. Make sure the lawyer is working for your company, and not another constituency. This point is a big one for some of the “marquee” law firms and often gets overlooked by entrepreneurs.
Some of the busiest lawyers in the startup space have deep relationships within the venture community, for example. This can be an asset to you as you seek funding from outside investors. However, you need to get a feel for whether your lawyer will be focused on the best interests of your company and not those of your potential investors, who may be long-standing clients of the lawyer . Ask the lawyer how he plans to deal with this potential conflict of interest.
Shop around. Talk to at least 2 and maybe 3 lawyers before you make your decision. Don’t fall in love with the first lawyer you meet, and balance each lawyer’s strengths and weaknesses against the others.
Often times your gut changes as you take these meetings and get acquainted with lawyers possessing vastly different styles. On the other hand, if you’ve done your homework and identified the key targets, you shouldn’t have to boil the ocean and take a dozen meetings.
Talk openly about the fee arrangement. You should get your fees deferred until funding if you are unfunded. Ask about whether the law firm will require equity up front. If they do, negotiate this (it always is negotiable, even when firms say it isn’t).
Talk about billing rates and project billing for particular tasks (incorporation, note financings, license agreements, venture financing rounds, etc). Ask the lawyers if they bill for attendance at board meetings (most don’t for early stage companies).
Lawyers are migrating towards increased billing flexibility with startups to win business, and you should take advantage of this.
Meet the team. Don’t sign the engagement letter unless you first meet the partner’s team – the mid-level or senior associate, the junior associate, the paralegal and perhaps the IP specialist. Also, do your best to ensure your partner will not pull a Houdini after the engagement letter is signed. Have the lawyer commit to being highly visible to you throughout the course of the engagement.
Check references. Finally, once you’ve decided to go with a particular lawyer, talk to a couple CEOs of the other companies the lawyer works with. In many cases, this may be your best intelligence on the lawyer’s qualities. You may decide to do this even before you’ve made a final decision, to break the tie between two equally appealing candidates, for example.
Take your time selecting a lawyer, and get it right. It could end up being one of the more important decisions you make for your startup.