Five Ways You Can Protect Your Startup Without Hiring a Lawyer

Startup - shutterstock_191690525Let’s face it – every dollar counts when you are going from zero to funded or cash-flow positive. And good startup lawyers are expensive! While you will undoubtedly need to hire one at some point, you can minimize the cost by allowing them to do what lawyers do best – providing advice, both legal and strategic – rather than filling out forms, putting out fires, or fixing mistakes. Here’s a couple of ways you can take charge and reduce your bills:

Check your employment documents. Many startup founders come up their ideas or even start working on their startups while employed by someone else. The danger here is that your employer may have a claim to whatever intellectual property you develop as a result, and even if they don’t try to exercise that claim, an overlap might scare off seed investors. So before you do anything, pull out those employment documents and look for the provisions regarding “invention assignment” or other IP assignment. While “inventions” may seem like something that doesn’t apply to you, it is probably broadly defined to mean just about anything you create. And if you create something on company time, using company equipment, or even if it just relates to your job responsibilities, your employer may have a claim to ownership over those inventions. So plan in advance how you will avoid this, and be able to document it so you can show investors you took appropriate precautions.  Consider speaking to a lawyer if you are concerned about any overlap.

Incorporate and do basic formation tasks online. Did a business lawyer just say we should incorporate online? Yes! But don’t just use any service – almost all of them will not be right for the typical scalable, investment-ready startup, and will cost you more in the long run if you try to use them. However, there is a service called Clerky that I can’t recommend enough. The founders are startup attorneys that went through Y Combinator and built a service that automates the incorporation and formation tasks that many (but not all) startups should address. You may need to know a bit about typical startup formation (see my next point), and/or should consider finding a Clerky-friendly attorney who can advise you. But using Clerky could save thousands compared to paying a lawyer to take care of these tasks manually.

Read up on equity financing terms. Investment transactions will involve some of the most important decisions your startup will face. Smart founders should understand terms, valuations and how it all comes together well in advance of negotiating a financing round. You can do that by reading Venture Deals by Brad Feld and Jason Mendelson. Subtitled “Be Smarter than your Lawyer and Venture Capitalist,” that description is not far off. In this slim, easy-to-read volume, these experienced VCs walk you through the economics, legal terms and mechanics of raising money. Reading and understanding this book will help you get financing, improve your terms, and cut down on your legal bill when the time comes to negotiate and close your round.

Manage your cap table online. Once you have stockholders beyond the founders, managing your equity issuances, capitalization tables and certificates will get complex. You can pay paralegals or associates at your law firm to manage it for you, or you can consider a tool like eShares. Designed to reduce and automate the tasks involved in equity management. It is again a complement (rather than a replacement) for your startup lawyer, and could save you a lot on legal fees in the long run. And they can help you with your 409A valuation, too.

Build electronic signature processes into your workflow. Being a startup founder means signing lots of documents. There are board consents, equity grants, customer contracts, partnership agreements, license agreements… the list goes on and on. Fortunately there are a number of electronic signature providers out there that can disrupt the old “print, sign, scan, send back” routine that is inefficient and insecure. As a startup law firm we have high-volume needs so we don’t mind the cost of premium solutions like Adobe EchoSign or DocuSign, but there are cheaper options as well such as HelloSign or RightSignature. It should go without saying that your lawyers should be using these as well, because not only does it cut down on legal fees (time spent chasing, collecting and assembling signature pages in documents) but it also helps protect you from fraud (in an age when you can swap signature pages in and out of any old PDF, having an audit trail of the documents and signers is a terrific innovation).

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Ultimately, whether you jump in and learn and use these tools yourself or not, you should be making sure your lawyer is leveraging technology to improve efficiencies and reduce costs. Good legal advice is invaluable, but paying your firm to do rote tasks is not in any startup’s interest! Feel free to contact us at Accelerate Legal if we can be of assistance.

Lumio Lighting a Path in Design and Entrepreneurship

Lumio LogoClient Spotlight: Lumio

When you are passionate about helping entrepreneurs, it doesn’t get much better than working with Max Gunawan. The founder of Lumio, Max is an architect, designer, maker, supply chain analyst, publicist, salesman, executive officer, marketer and shipping clerk all rolled into one. Not only that, but he manages to do all those jobs better than many who have just one of those titles. And he does it all with a smile. [Read more…]

Startup Visas Are a Great Idea!

Congress is currently considering a bill that would provide 75,000 visas to persons who currently hold H-1B or F-1 student visas who have started businesses with investment of at least $100,000 and that employ at least 2 other people within a year and at least five in the following three years.

The bill, the Immigration Innovation Act, received support from President Obama in his State of the Union speech. [Read more…]

A Tale of Two Incorporations

I filed an incorporation mid-December, and just received the acceptance notice from the State of California today, nearly two months later. I could have gotten it back sooner, but we had some time and wanted to avoid the $500-1000 expedite fees charged by the California Secretary of State.

But that seems to be the new normal here in California: If you want to form a business, it will take two months to do so, unless you pay an expedite fee on top of your regular fees and taxes. [Read more…]

Happy Holidays!

Happy Holidays to all clients, colleagues and friends!

New Global Entrepreneurs

My trip to Colombia was an opportunity for reflection on the new model of emerging companies: products and companies born in one part of the world that gain traction and investment with relocation to Silicon Valley.  Generally speaking, in the past few years we have seen a number of entrepreneurs choose to take a very deliberate strategy in attempting to build a global company:

  1. Develop a product and gain some traction in their country of origin.
  2. Incorporate a company in Delaware, contribute the IP to the new company.
  3. Move business HQ to San Francisco Bay Area to seek investors, partners and customers, all the while participating in Silicon Valley’s unique startup culture. Meanwhile, the company’s development team remains in the country of origin, which reduces development costs and  provides competitive advantages to the business. [Read more…]

Presentations in Medellin, Colombia

Next week I’ll be in Medellin, Colombia attending the Outsource 2 Latin America & Caribbean conference and meeting with clients and partners.

I’ll be giving a talk at Espacio, the new co-working space in Medellin on Dec. 6th at 6p. I’ll be presenting on “Preparing to Seek Capital from Silicon Valley Investors.”

If you are in Medellin for the conference, come on by!

How Entrepreneurs Can Save on Legal Bills

VentureBeat has a terrific article up today on how entrepreneurs are saving tens of thousands on legal bills. Their suggestions:

  • Use smaller firms, solo practitioners, and virtual services;
  • get it done right the first time; and
  • take care of legal stuff sooner than later. [Read more…]

Start at the Beginning

For the first post in my blog, the immediate question was “Where should I start?” Should I write an analysis of negotiation strategies in subsequent rounds of VC financing?  What about methods for organizing stockholder, debt holder and optionee documentation? Or maybe my plan for listing companies on the NYSE?

Of course not. I should take the advice I offer entrepreneurs: start at the beginning! I know that sounds pat, but it is something we all need to remember. It’s great to think big, but first you have to execute the details. In a start-up, entrepreneurs need to focus their plans on developing a Minimum Viable Product, not on dethroning Facebook.

So for my first post, here are two very basic questions entrepreneurs should ask themselves when they are just cooking up a plan for a new business.

[Read more…]

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