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.