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What It Means When Law Firms And Startups Give Away Legal Documents

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Editor’s note: Daniel Doktori is an associate in the New York startup practice at WilmerHale, a law firm, and the co-founder of the Harvard Law Entrepreneurship Project. 

Over the past five years, law firms in Silicon Valley, New York and Boston have put online – for free – the documents that startups need to execute basic legal transactions.

New sites, Cooley GO and WHLaunch, join first-movers Founders’ Workbench and Start-Up Forms Library, to enable entrepreneurs to incorporate their company, secure early-stage financing, hire employees and compensate them with stock options. has emerged as an industry standard for documenting seed investments, and offers answers to over 100 frequently asked questions, along with a term-sheet generator.

But as big law firms mimic their small clients’ “freemium” business development model, they face increasing competition from startup companies seeking to disrupt the legal industry.

I interviewed several lawyers working on these sites, founders of two startups in the legal space, and a law professor surveying the changing landscape. They reflected on the evolving business of law, how startups consume legal products, and what it all means for law firms and the emerging companies they serve.

How do law firms make money by giving documents away?

“I wanted to get something legit in writing, but I didn’t want to spend any money on it,” said one founder I spoke with. Despite the sentiment, a lawyer is typically the first outside adviser that a startup company pays (eventually).

Because the infamous “billable hour” system – where clients pay hundreds of dollars per hour regardless of outcome – remains ill-suited to cash-strapped startups, big law firms offer alternative payment structures including capped, deferred and discounted fees. Some even take small equity stakes in their clients.

These firms are hoping that the startup will get big, stay loyal and use the firm down the road for high-cost legal transactions like a merger or acquisition, an IPO or an intellectual property litigation. But many of these clients go out of business before they can pay off. As a result, startup law mirrors venture capital where occasional home runs pay for common strikeouts.

Putting legal documents online allows law firms to maximize potential deal flow at minimal cost. “It’s a scalable marketing move,” explains one attorney responsible for one of the popular sites. “If you have a question [about the documents] you’re probably going to contact us.”

Another emphasizes the branding value of the site, saying “It’s not like we’re trying to push our version of a non-disclosure agreement. The site is intended to position ourselves as an A to Z resource for startup companies.”

The sites also convey a message about the scale and quality of the sponsoring law firm: It has the scale to afford giving away the once-“secret sauce” and the quality to bet doing so won’t cannibalize business. That message is founded upon the idea that law is a service, not a product. As one lawyer explained, “what I’m telling you is that my documents are not what makes me special – it’s the advice behind the documents.”

Some attorneys emphasize their sites’ contributions to the larger startup ecosystem, highlighting informative blog posts and data on industry trends. “We don’t brand our documents. We are really sensitive about being supportive of the entrepreneurial community, and not having people feel this was a marketing thing.”

Others are skeptical. “In the past [firms have] offered free consultation: ‘come tell us about your issues and we’ll give you some thoughts and you can decide to hire us or not.’ This is kind of a small move ahead from that.”

Can Startups Do It Better?

Whether commitments to scale and quality prove fruitful may depend on whether startups in the legal space can provide “good enough” for far cheaper.

One company, Shake, provides a mobile platform to access and sign simple legal agreements like freelance consulting contracts, with users downloading native Shake templates or uploading their own. Clerky provides form documents for incorporations, convertible notes and employee agreements along with document-generator and progress-tracking tools. Docracy applies the Git-Hub treatment to legal documents, allowing users to tag and up-vote individual documents. Rocket Lawyer provides subscribers with documents and attendant instructions plus the ability to consult remotely with an actual lawyer.

These models assume that users are willing to do it themselves, and opinions are divided as to the accuracy of that assumption.

“I don’t want to be in a position later on when I say, ‘oh man, I didn’t pay the extra $400 and now I’m on the hook for $1 million,’” explained one observer. But startups may have a higher risk tolerance than the typical consumer of legal products. “These are really smart people,” said one lawyer who works with startups. “They believe in world-domination of the engineering class; everything can be reduced to an algorithm, and legal documents are not going to be spared.”

Law firms are taking note, but not shaking in their boots. They’re betting that DIY legal is like DIY surgery – too risky to justify the savings. “I think companies like Clerky and Shake are helping us realize what clients want,” said one lawyer. Another was sanguine about the topic of disruption in the legal industry, “I’ve heard about it for 20 years. Accountants used to literally count. Excel came along and automated all of that. Was the need for accountants eliminated? No. They just do different stuff.”

What’s the Future of Startup Law?

Startups may take different tacks, too. With more tools available for free, startup companies may recruit legal talent earlier. Typically, startups have waited until hitting a certain threshold of company size or legal costs before hiring an in-house lawyer. With more documents online for free, startups may “hire a really smart person with some experience” earlier and let them maximize the available resources.

For their part, law firms may change the way they train their lawyers. The forms and term generators coming online now extend products firms have used internally for several years. As younger lawyers put this technology to work and startup clients engage their law firms having already executed one or more standard transactions, legal learning curves will get steeper.

One law firm partner responsible for training associates describes a potential scenario a young lawyer might confront: “Your client is facing an insurgent stockholder and asks, ‘what do we do?’ If all you’ve done is pressed the ‘form-the-company button’ 200 times instead of drafting 200 sets of bylaws, we’ve got a problem.”

To avoid losing too much ground to in-house lawyers, law firms will move upstream toward higher-value (and cost) services. They will also seek to distinguish themselves on a more personal basis. Playing out a pitch to a prospective client, one lawyer asserted, “You can get that document somewhere else cheaper. You’re coming to me for my judgment.”

For now, entrepreneurs can only approximate such judgment by sifting through blogs offering often-conflicting advice. That too may change. In the long run, law firm websites may prove less a channel for document distribution than a platform for data analytics like “what’s market” for a certain type of transaction.

“Data is where I find the most compelling potential future for us,” says one lawyer administering his firm’s site. “We have a massive amount of data that is not available in aggregated form.” Another agrees. “I think we should be investing our money in coding – every contract we write should have individual provisions coded so we can track what’s going on.”

Some anticipate competition from the coders themselves. “I’m interested in seeing what non-law firms can do to provide advice. You can imagine robot-learning mining huge amounts of data to effectively crowd-source guidance.” Could technology products really replace traditional legal services? “Maybe you can eliminate the lawyer,” said one attorney. “Hopefully I’ll be retired by then.”

Author’s note: This article was developed through a series of interviews generously granted by Sarah Reed, General Counsel at MPM Capital; Ted Wang, partner at Fenwick & West; Peter Werner, partner at Cooley; Robert Bishop, partner at Goodwin Proctor; Jennifer Berrent, General Counsel at WeWork; George Triantis, professor and associate dean for strategic planning at Stanford Law School; Abe Geiger, Founder and CEO of Shake; Matthew Hall, Co-Founder of Docracy.

Featured Image: Tom Wang/Shutterstock