Does your startup need a lawyer?
In one word? Yes
Having seen a few ventures ground upwards, I can vouch for statutory compliances and requirements not featuring into the top five agendas of startup managements. Typically, Indian startups somehow have a tendency to push anything they perceive to not be of immediate importance to the back burner. By contrast, their peers in the west see the larger picture and realise the need for a solid foundation on which to build a business. Think of it as building a house, where the legal eagle you hire is your foundation and what you build from the surface level upwards is your business.
A. Can you compromise?
A lot of folks tend to compromise on engaging with a lawyer at the earliest stages of their ventures, and rely on available resources and handymen who are able to incorporate a company and somewhat operationalise an entity. Unfortunately, there is more to the law than merely setting up shop and commencing work. The nature of the entity you choose for your business, how you structure its legal form, how conducive you make it to receive funding, compliance with statutes from the outset, are all vital parameters that a good lawyer can lend you his experience with. For example, in a time when some of the industry’s marquee businesses are “externalised”, it might be useful for you to understand and explore the nuances of what that means, whether you should adopt that route, what the government’s future policy is likely to be, the pros and cons and fall-back solutions.
B. What should you be looking for?
I wish I could say—find yourself someone with “experience”. That’s a no-brainer! Sure, experience is of paramount importance, but it isn’t the only thing you should be looking for in a lawyer. You might not know it just yet, but what you’re doing is in fact selecting a Partner for your business. In the same way that your chartered accountant and family doctors are keepers, a good lawyer will serve you well in time to come. Use your network, talk to people, go through LinkedIn profiles, run a Google search and see if you can whittle it down to a select list. Once you’re here, you’re looking for some of the following filters to aid you in funnelling the flow further:
- Pick a Firm: Long after the individual is gone, the firm remains. You may hire a great independent lawyer today only to discover he’s gone tomorrow. You always want to be able to call upon someone to carry that baton forward without a hitch. Of course, you could always jump ship with the lawyer when he moves on to his next firm, but then you’re doing the same thing really. But what if he moves abroad, or quits the practice, or goes in-house, or worse, drops you like a hot brick because he doesn’t fancy your business anymore? Pick a law firm. You’ll be happier for it.
- Attitude: Someone who talks the talk should also walk the walk, correct? Do you connect with the guy? Is he someone who understands your business and the fact that you’ve taken a leap of faith towards producing a new born? Is he an understanding guide or a condescending one?
- Domain Experts: It might all seem very intimidating at first, but pick the right lawyer for the right field of law you need him for. A General Corporate/M&A lawyer will not have domain expertise on Intellectual Property who may not have expertise on Private Equity/VC deals who might not know anything about representing you in court as a Litigator, who in turn might not know much about General Corporate/M&A. It’s a bit like going to the right doctor for an ailment. Sure, you could sometimes get by with a general practitioner, but invariably you need a specialist.
- Money matters: NOBODY works for free. The first few times are all hunky dory with conceptual level advice, but come time to hit the ground running, you will need to pay up. And because this is a big deal, figuratively and sometimes quite literally, I’ve tried to put down a few parameters you could use in money matters with your counsel.
Talking the 3 letter word
Lawyers usually have ‘targets’ (pre-determined revenue/billing goals set by the firm they work at) to attain in a year. So don’t hold it against your lawyer if he brings up the subject in your conversations. That said, if you feel it is something that is coming up a little too frequently, you might well have a situation coming up where you’re worrying more about how to pay him than what you’re getting from him. So how do you tackle this? Here are a few pointers:
- Fee structure: by agreeing on a fixed fee instead of hourly billing (where you’re effectively billed by the hour), you will be hedging uncapped legal bills. It’s best to have a conversation with your lawyer and ask him if it makes sense to go in for a fixed fee structure or if he envisages a discounted hourly billing rate might work out cheaper. If you have a genuine partner at hand, not only will he advise you correctly, you might be able to structure the fee in a manner that could be a hybrid of lump sum fixed fee and hourly billing with hard caps/soft caps.
- Deferred Compensation: today, there is a breed of lawyers who understand that startups often have a cash crunch/liquidity issue at the outset, and are willing to defer payments. Have a word with your lawyer and ask him if you can make payments in tranches. You could pay a percentage of his fee today and pay him the balance after you’ve raised capital, whether through external funding, revenues or otherwise.
- Nature of compensation: ever thought of proposing equity to your lawyer? It’s a long shot, especially since you’re a startup, but there are some folks out there who understand the nature of disproportionate returns that can be made. The additional advantage is that you will probably appreciate your lawyer’s skin in the game and by default have a domain expert on board. This might even be a shrewd way to virtually ensure you’re insulated from legal issues in the long run.
Suggestions I’ve made are from personal experience only. While they might not be cast in stone, they could be used judiciously to first identify and then extract the best relationship you can with a prospective partner for your business.