Early-stage startups, usually cash-strapped and running lean, often have trouble justifying the cost of quality legal counsel. Founders sometimes have a hard time understanding the value of their lawyer’s time and are constantly pushing their attorneys to provide more services at lower prices. Sometimes startups will try to avoid the legal expenses altogether by taking on legal work themselves. This can often lead to negative consequences for the business.
Experts that advise startups, including Gust’s CEO David S. Rose, agree that lawyers are pivotal in creating a successful high-growth company. From incorporation to exit, attorneys are there to help companies navigate and avoid the many pitfalls that can severely hinder the startup’s chances of success. Lawyers’ expertise and experience, both with the laws and practices governing operations and with the process of taking investment, make it crucial for startups to develop early relationships with attorneys to grow effectively.
So how can a lawyer's services provide the most value to startups? The number one benefit a lawyer provides is mitigating avoidable risk. When a company engages a lawyer it is not only hiring someone to prepare documents but also a professional with experience helping similarly-situated companies overcome similar legal challenges. Additionally, lawyers specialize in navigating complexity, of which there is plenty in the intricacies of intellectual property and private placement of securities compliance at both the state and federal levels. These are processes that are not prudent to undertake without the assistance of an experienced professional. Therefore, the greatest value a lawyer will bring to a new company is a third-party, objective, strategic, and analytical thinker that can help give the business its best chance at long-term success.
Because the value lawyers provide is greatest when thinking strategically about a business’s challenges in the context of complex systems, there are certain areas of legal work that are much lower-value ways to spend lawyers’ expensive billable hours. Some legal processes can be usefully automated (and increasingly are). A process is ready for automation if it is:
- Standardized: most cases follow either industry-specific or legal best practices
- Repeatable: it can be done at scale following a set of contained variables
- Precise: when performed well, the work conforms to precise standards
Processes with these three qualities are prime opportunities to offload some of lawyers’ busy work to software, allowing lawyers to focus on higher-value work while lowering costs for clients.1
Incorporation and formation are perfect examples of legal processes that have now become fairly standardized, are repeatable, and need to be accurate. High-growth companies that want to raise money from either angel or venture capital investors will almost certainly be required to be a Delaware C-Corporation. The company’s investors will also generally expect to have certain structures put in place to incentivize employees with stock options, have a certain amount of shares authorized for issuance, and have certain rights and obligations to its shareholders. In other words, investors largely prefer that a company be incorporated and set up in a very specific, standardized way before they feel comfortable committing capital into a company.
Many of Gust Launch's features automate legal processes that meet the criteria of standard, repeatable, and precise. So far, these workflows offer efficient incorporation in Delaware, company formation, establishment of governance, and stock issuance with 83(b) tax election support, to name a few. Because they are standardizable, our software can take costly, time-consuming tasks and solve them quickly and easily—allowing founders’ limited capital to go further while still maximizing their chances of success.
Despite the automation of these steps, founders using Launch will still benefit greatly from the services of an attorney. The universal problems of intellectual property, board relations, strategy, industry-specific issues, and investment negotiation are unique enough to each company that they require an expert to navigate. For this reason, the community of lawyers who focus on startups is alive and thriving, better empowered to provide these higher-value services to clients without needing to spend the first few thousand dollars in billable hours on a process that is standard and repeatable.
That’s why Gust Launch includes access to legal advice—and why we’re constantly looking for newer and better ways to facilitate collaboration between new high-growth startups with the expert startup lawyers who have the ability to help them maximize their chances of success.
Startup lawyers: if you’re interested in hearing more about the opportunities we’re working on, we’d love to hear from you. Please contact us at email@example.com.
1 See Michael Callier & Achim Reeb, The Industrial Age of Law: Operationalizing Legal Practice Through Process Improvement, 2015 Or. L. Rev. 853 for an in-depth discussion of legal process improvement.
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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.