I recently had lunch with Patrick Mitchell, who is a lawyer at Cooley LLC and a friend to Sigma Prime. He has extensive experience with startups primarily in the tech sector. I asked Pat about hiring a lawyer, as if I were an entrepreneur and was out looking for a partner to help incorporate an idea into a business.

Hiring a Lawyer – The Legal Stuff:

When should a startup hire a lawyer? An entrepreneur with an idea should only begin to think about hiring a lawyer when they are serious about their company or idea – i.e., ready to go fulltime.

Why should a startup hire a lawyer right away? Simple - a lawyer is needed to make the company a legal entity. At the time of incorporation, a lawyer can also help facilitate setting up bank accounts and efficiently guide a company through similar administrative to-dos.

What are some specifics a lawyer will do for you? A good reason to hire a lawyer is to mediate the division of company equity. This can often be difficult for startups; dividing equity appropriately is not always the founders’ inclination. Not every startup is going to have all members be Paul McCartney or John Lennon, there will be the Ringo Starr’s as well. Additionally, equity must also be used to attract employees and investors to startups, since startups normally won’t be making money right away. Equity is currency. The company must divide up equity such that they will be able to sell shares to both future employees and investors, while having the founders retain enough to be incented. A good startup lawyer who has experience in equity splits can be a great resource to help mediate this sensitive conversation among founders. Finally, a lawyer is needed for executing a financing strategy. Whether it’s the initial Seed or Series A investment, or a big growth round at a ‘unicorn’ valuation, a lawyer that’s been through all stages of startup financing can help structure the company optimally for future growth. 

Non-legal Considerations:

Experience. It pays for the entrepreneur to have a lawyer who is familiar in the space.  All lawyers will be experienced at drafting legal documents, but will they know the particular quirks to your chosen field? Hire a lawyer who has experience working with companies in similar areas. Don’t be afraid to ask for references, as this lawyer will be your partner throughout a stressful and critical stage of your company’s life.  

Willingness to see the other side. A lawyer will not only draft your legal documents, they will also be your general counsel. They need to have the ability to see their client’s point of view as well as their own. A good lawyer will empathize and understand the positions of lawyers and stakeholders on the other side of the table: investors, acquirers, and partners.

Timely legal advice. Part of being a counselor is just that: counseling. A good lawyer will not simply draft documents for you; they should give their legal opinion on issues, reflect openly on relevant past experiences, and not be afraid to challenge assumptions or provide alternative perspectives.

Following Pat’s advice would be beneficial to any entrepreneur looking to take his or her idea to the next phase. By examining the legal considerations and non-legal considerations in potential lawyer candidates, any entrepreneur will be able to find a candidate that will not only be competent on legal issues, but also provide sound support and guidance for a young company. This is key for a young company, because in many cases the entrepreneur or founders will be faced with many first time situations. Having a supportive lawyer to turn to for guidance will only help a company be successful.  

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