There’s one big common thread between all startups and all founders: Lawyers. And their fees.
No matter who you are or how many companies you’ve started or how smart you are, if you are taking in money and hiring employees, you have to have a lawyer.
theSkimm is a relatively simple operation — we pretty much function on some laptops and couches.
But we are first time founders and we ask a LOT of questions. We’ve been called ‘high touch’ by our attorneys (which is legalese for pain in the asses). We’ve also switched legal teams four times now — while this may make it sound like we are the difficult ones (which, cough, we probably are 70% of the time, cough), it’s been with good reasons. Think: starting with a smaller firm and graduating when we took in a larger round of funding or one attorney informing us on the day we signed a term sheet that he would be unavailable for the next 6 weeks.
When we first raised a Seed round, we asked other founders and our counsel how much we should expect it to cost…we were told around $15–20k depending on how complicated it was. Knowing nothing ever comes easy to us, we guesstimated another 10k on top of that. And knowing we had zero money in the bank at that point, we were able to defer fees until we closed our round.
When we raised our Series A round, we were told to guesstimate about $40k in fees.
When we raised our Series A, we were also told to be expected to cover the legal fees up to a certain cap for our lead investor ( a venture capital fund). Insert fake smile here.
To date, we have raised a seed round and a Series A. We have hired a team, lost some employees, done some trademarking, and explored some partnerships. All in all, nothing too fancy.
And to date, we have spent $200k on legal fees in about three years.
When we think about that number and throw up, it’s important to remember a few things:
- Lawyers are expensive
- Lawyers are always billing you.
- We really have a great relationship with our counsel and they are always VERY open with us when reminding us of how much things cost
- As one of our attorneys once told us, we need to learn how to use counsel correctly. Meaning, you get charged with every little question so, be smart in what you really need to go to an attorney for and what you can figure out for yourself. We’re still working on this one. A lot of times this is the difference between legal advice and business advice.
- We have never really felt we’ve been charged unfairly
We’ve realized in talking to other founders how broken the system is for startups and law firms, many of which are really trying wholeheartedly to support the startup ecosystem. We know and love certain legal alternatives and services that are certainly cheaper. But knowing that we have lots of questions, we also know we really need to have a relationship with one point of contact. So we’ve stuck with the traditional law firms.
Some tips we’ve learned along the way:
- Always request a lawyer cap fees for the year, ESPECIALLY when you are first starting out
- Always request deferring payment until a fundraise is complete ESPECIALLY when you are first starting out
- Always comb through the bill and don’t be afraid to ask questions over certain charges
- Learn how to use your lawyer. They are not your legal exec assistant and not your startup wikipedia. Bring them in when you REALLY need to and start to understand what are legal questions and what are general business questions.
NEW ENTREPRENEUR LESSON OF THE DAY: While you’re building your company, you will come across other industries that need to be disrupted. Acknowledge when and keep a list…
Originally published at blog.theskimm.com.
