Legal documents and diligence can be scary for many startups. Early-stage founders have a lot on their plate: maintaining cash flow, securing deals, adding new features or inventory, etc. That’s why many startups are relieved to shift the responsibilities of cap table management and equity documentation to their attorney.
Unfortunately, this creates problems on both sides of the startup-law firm relationship. I’ve worked as a startup lawyer and as a startup employee — so I’ve seen it from both sides. Startups rack up tens of thousands of dollars in legal fees, taking valuable capital out of their growing business. Attorneys are billing for the execution of standardized startup documents instead of using their time offering valuable strategy and legal analysis.
I’m here to help startups walk a mile in their attorney’s shoes. A little mutual understanding can go a long way to improving the startup-lawyer dynamic.
Through my years of experience, I understand how legal professionals operate, and the motivations and structures that define their behavior. Startup founders can maximize the expertise of their lawyer by educating themselves on the basics of equity management. With a little help from technology, and the right perspective, the startup-lawyer relationship can be better for both parties. This goes for early-stage startups looking for their first lawyer, as well as Series A and B stage companies dealing with a major firm.
Startup attorneys will handle standard paperwork if you ask them — but it’s not the best use of their time.
Two important things for startups to know:
- Lawyers are incentivized to bill more hours
- Lawyers don’t like doing mundane, administrative paperwork
It’s pretty simple, really: the more hours a lawyer bills, the more money the firm makes. This doesn’t mean that they’re billing you for an afternoon nap or a coffee run. It does, however, mean that if a startup approaches their attorney and says “sort out my cap table,” the startup lawyer will spend all the necessary hours to accomplish that task.
Therein lives the conflict. When companies aren’t empowered to take actions on a day-to-day basis to maintain their legal documentation, they’re leaving their startup legal counsel to tend to a mess of paperwork, even if it’s very standard or basic in nature. So while attorneys are happy to bill hours, they’re not so thrilled to be using their law degree to track down signatures and check numbers. Guiding you through important milestones and decisions is a lot more fun - for both of you.
You’re building a relationship with your startup lawyer — it’s ok to communicate your preferences.
Hiring your startup legal counsel can be tricky. It’s important to remember that your startup attorney works for you, not the other way around. Firm X might have a great reputation for working with startups. Still, ask yourself: do they work the way I want them to?
The best work is done in a collaborative process between startup and law firm. Be open and honest with your attorney before you decide to bring them aboard. Ask for transparency in what you’ll be charged, and when. Tell them you want to take a more active role in the work you do together. Ensure that they’re open to using a technology platform to enable accuracy and efficiency with your data and documentation.
The “digital lawyer” — one that embraces new solutions — is the new standard.
There’s a growing expectation that startup lawyers will embrace tech platforms. Traditionally, lawyers are only trained with technology in the form of research and drafting tools. There historically was a bit of nervousness around new tools and technology offerings. But this trend is shifting, and cap table management software is now the standard.
No matter if they’re a boutique office or an international firm, your startup law firm should embrace the new archetype of the “digital lawyer.” Attorneys who welcome a platform that streamlines their workload will have more time to focus on analysis and strategy. This provides more transparency and efficiency for everyone.
Technology helps you optimize your startup lawyer’s time and effort.
Startup documents aren’t very unique. They’re typically very similar rather than invented from scratch for your specific startup. Equity management is hugely important, but startup founders can take an active role in managing largely standardized startup documents like equity grants and intellectual property agreements.
The more ownership startups can have over this work, the more value they’ll get out of their lawyer or startup law firm. Take the time to understand cap table management and documentation, so you can, for example, start a workflow to generate those documents and have your lawyer review, rather than drafting them wholesale. Small steps like this free up time for your startup attorney to help you with the things that you can’t do yourself.
Innovative startup teams can use an equity management platform like Fidelity. That way, when your company is ready to fundraise, Fidelity will auto-populate the standardized fundraising documents you need – drawing the data directly from your cap table. Your startup lawyer can then focus on the negotiations and execution of the deal. That means you’re billing your attorney for the strategy and analysis you need the most.
A mindset shift, a little perspective, and an assist from technology: it all mixes together to help startup teams and startup lawyers work better together.
Schedule a demo to see how a tech-enabled solution like Fidelity can ensure a strong, healthy strategic partnership with your attorney.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
Sample scenarios are for illustrative purposes only.
