Ever since I ventured into Startup Law, an unconventional legal practice, a few years ago, I have constantly been bombarded with this question —What does a Startup Lawyer do?
In this article, I will attempt to answer this question. But we must first explain what a startup is and how it differs from an ordinary business.
What is a Startup?
A startup is a young company founded to disrupt an industry and change the world by creating something new or solving a problem in a novel way. A startup differs from an ordinary business because it initially has high costs and low revenue and relies on external funding from investors or other sources. In other words, a startup has a high risk of failure but, at the same time, a high potential for growth and success! A notable example of a startup that has achieved success in its own field is Airbnb.
Why does a Startup need a Startup lawyer?
A startup aims to grow rapidly and create innovative products and services to disrupt the market. To achieve that goal, it must get right at the beginning. To quote Peter Thiel, “a startup messed up at its foundation cannot be fixed.”
Confronted with many legal and business challenges, a startup needs fitting legal advice and guidance. This is where a startup lawyer comes into the picture. Here are some reasons why a startup needs a lawyer:
- To help with formation and registration: A lawyer can help you choose the best legal structure for your business, such as sole proprietorship, partnership, LLC, or corporation. A lawyer can also help you register your business with the city, county, state, or federal authorities and obtain any licenses or permits that you may need.
- To help with contracts and agreements: A lawyer can help you draft and review contracts and agreements with co-founders, investors, employees, contractors, suppliers, customers, and other parties. A lawyer can also help you protect your intellectual property rights and avoid disputes or litigation.
- To help with fundraising and financing: A lawyer can help you raise capital from angel investors or venture capitalists by preparing term sheets, offering documents, stock purchase agreements, convertible notes, etc. A lawyer can also advise you on compliance with securities laws and regulations.
- To help with scaling and growth: A lawyer can help you deal with legal issues as your business grows and expands into new markets or jurisdictions. For example, a lawyer can help you with employment law matters such as hiring practices, compensation plans, stock options, employee benefits, non-disclosure agreements, non-compete agreements, etc. A lawyer can also help you with tax law matters such as income tax, sales tax, payroll tax, etc.
- To help with exit strategies: A lawyer can help you plan for the future of your business by exploring various exit options, such as selling your business to another company (M&A), going public through an initial public offering (IPO), or winding up your business.
Then, some might ask:
How different is a startup lawyer from a business lawyer?
A startup lawyer is a type of business lawyer who specializes in working with startups. A startup lawyer has experience dealing with the specific legal issues that startups face, such as formation, funding, intellectual property protection, scaling, and exit strategies.
A business lawyer is a generalist who provides legal advice on various aspects of running a business, such as contracts, employment law, tax law, commercial law, corporate law, and securities regulation.
Most importantly, how a startup lawyer treats the fundamental legal issue a startup faces. The following excerpt from Brad Stone’s book, “The Upstarts: How Uber, Airbnb and the Killer Companies of the New Silicon Valley are Changing the World” explains well:
Q: “Have you thought about the legality of this?”
A: “These businesses either work or don’t work based on whether or not they are good for consumers? It was too early to judge how such a novel activity would fit into existing laws governing the hotel industry.
Unlike an ordinary business lawyer who is over-obsessed with the compliance (legal or not) issue, a startup lawyer is more open to a novel service or product and always guided by the (good or not) principle of whether they are good for consumers.
Having answered the above two fundamental what and why questions, the next is the How question —How to Choose the Right Lawyer for Your Startup?
Choosing the right lawyer for your business depends on several factors, such as:
- The stage of your business: If you are just starting out, you may need a startup lawyer who can help you set up your business entity, protect your intellectual property and raise capital from investors.
- If you are already established, you may need a specialist lawyer to handle highly complicated legal matters such as tax, corporate exercise, etc.
- The size of your budget: Lawyers charge different rates depending on their experience, reputation, location, and practice area. You should also consider alternative fee arrangements such as flat or equity compensation.
- The compatibility of your personalities: You should look for a lawyer who understands your vision, goals, and values and communicates clearly and effectively.
Now that I have answered the questions —- What does a Startup Lawyer do and Why a Startup needs a Startup lawyer, I hope more Startup Founders can accept and see Startup lawyers as an essential and valuable partner in their startup journey.