Working with Startups what do Law Firms and Attorneys contribute?

David S. Rose
David S. Rose , Founder and CEO , GUST INC.
9 Mar 2014

While it sounds tautological, the most important thing a law firm brings to the startup table is…a knowledge of the law surrounding everything having to do with founding, financing and operating a startup!

But while obvious, that doesn’t make it any less important. There are an enormous number of laws that cover the world of business, and those go up almost exponentially once you start dealing with fundraising/financing. Many times I have seen startups skimp on legal expenses in the early days, only to learn the very costly lesson that a lot of work had to be done over again, and in some cases even jeopardized the company’s very existence. The peace of mind that comes from knowing that a firm like WSGR or White & Williams has your back is extraordinarily liberating. Trust me.

After that most basic and important function, I’ve found that the other really valuable things that a law firm brings to a startup are:

  • Formation/organization documentation and administration: Take a look at this interesting package from one law firm to see the kinds of things that could include: Start-Up Organization Package
  • Validation: While this may not be quite as important as a law firm will claim, there is truth to it. Because all of the major startup law firms have more potential clients than they can handle, they are pretty choosy about who they work with, so having a top tier venture firm as your lawyer provides at least a bit of comfort to investors and others that you’re legitimate and should be reasonable to work with.
  • Relationships: any good venture lawyer spends most of his or her professional time working with people in the space on both sides of the table, and therefore can make suggestions (and sometimes introductions, if warranted) to investors, advisors and other companies in the industry.
  • Counsel: While we call lawyers our corporate “counsel”, the truth is that they are not (and probably should not) be your primary source of business advice. After all, they are *lawyers* not peers in your industry. Much as I love most of the lawyers I’ve had over the years, I find their business advice to be supplementary, rather than a core value proposition. But often, any advice from an arbitrary smart person is better than nothing, and sometimes there just aren’t other people to whom to  turn.
  • Market conditions: Because negotiating and papering deals is what startup lawyers do, they have MUCH more experience than a typical entrepreneur will when it comes to “market terms” such as valuation, protective provisions, and the like.  Assuming your lawyer is a smart, active, experienced, deal maker, trust his or her advice when it comes to negotiating terms! (But note the assumptions. An inexperienced lawyer can kill a deal faster than a speeding bullet.)

The bottom line take away is that lawyers are a really critical part of the startup process, and a good one is worth his/her weight in gold.

Gust Launch can set your startup right so its investment ready.

This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.