José Ancer is first of all a startup lawyer, with a client portfolio of startups of various stages based around Texas and other similar ecosystems outside of Silicon Valley. He’s also the CTO of Egan Nelson LLP, a boutique firm, where he actively is also building automation software to help the firm compete against larger firms. He also writes on his blog “Silicon Hills Lawyer” publicly and pointedly about his profession — and often takes shots at certain practices common among startup law firms, including Silicon Valley firms. You can get a sense of what’s in the full interview via these excerpts.
On not being “owned” by VCs and repeat players
“José has a depth of expertise in startup/company formation/funding issues and is very founder-friendly. He was able to guide us through our seed stage while staying efficient and keeping the billing reasonable.” Mary Haskett, Austin, Texas, CEO, Blink Identity
On early-stage and being “right-sized”
“I wrote a blog post called ‘The Problem With Chasing Whales.’ It talks about this problem of entrepreneurs hiring law firms that are overkill for what they’re building. We’ve had a lot of clients switch to us from the marquee law firm names, and while the largest complaint is cost — our rates are hundreds of dollars an hour lower because we keep our overhead very lean, while still having top-tier lawyers and lean infrastructure for scalability — another common complaint is responsiveness. You’ve got a million dollar convertible note deal that you need to get done, and to you and your employees, that deal is the world, but the BigLaw lawyer you’re working with has IPOs and unicorn deals pushing your deal to the back of the line. It’s a real problem. Our target profile client exits under $300M in a private deal; which is a type of startup that we think has been very underserved by the traditional hyper-growth oriented law firms in the market.”
On legal technology and automation
“I spend a lot of time talking to legal tech entrepreneurs, because efficiency via legal tech has always been a core value proposition of our firm. As I’ve reviewed and contemplated various tools, one thing I’ve always come back to is this unavoidable tension between flexibility and automation. Software, even cutting edge machine learning, can only handle a minimal level of variation before it breaks down and becomes more hassle (and cost) than it’s worth… Some firms have opted to lean very heavily on the fast automation and standardization side, and accept the rigidity that it inevitably introduces into their workflows… We’ve consciously gone a different direction… Our clients tend to think that constraining the advice startups get by boxing it into inflexible software (and pricing) is not only a penny-wise, pound-foolish confusion of priorities; it’s also exactly the kind of approach that benefits investors at the expense of one-shot common stockholders.”
Below, you’ll find the rest of the founder reviews, the full interview, and more details like their pricing and fee structures.
This article is part of our ongoing series covering the early-stage startup lawyers who founders love to work with, based on this survey we have open and our own research. If you’re a founder trying to navigate the early-stage legal landmines, be sure to check out our ongoing series lawyer interviews, plus in-depth articles like this checklist of what you need to get done on the corporate side in your first years as a company.
The Interview
Eric Eldon: You’re pretty outspoken about the state of startup law these days. Break it down for me: what is Egan Nelson doing differently from the other law firms out there?
José Ancer: If you look at the startup legal market, everyone knows the marquee, high priced firms. They represent Facebook, Uber, Palantir, Apple, etc. But when you pay those firms $700 an hour, as an example, 25% ballpark is going to compensation for the lawyers doing the main work. 75% is paying for other stuff. So then the question obviously becomes, how much of that other stuff is really necessary?
Our view is that there’s this segment of the startup market, and I call them non-unicorns, that is far more serious and scaled than what a tiny firm or solo lawyer can handle, but for whom BigLaw is completely overkill. We see these companies a lot more in places like Austin, Denver, Seattle, New York, etc., and it’s why our focus is on those markets.
If you look at our lawyers’ credentials, you’ll see a whole lot of Stanford, Yale, Harvard, etc., as well as marquee firm alumni. What you won’t find at our firm is ludicrously expensive office space, cute events that have nothing to do with legal counsel, or armies of staff that don’t deliver real value to the end-service for clients.
Our legal talent is paid very well, but our overhead infrastructure is designed for companies that sell as a private company for under $300 million, or perhaps operate indefinitely as profitable companies. These are “startups” that might be derisively labeled as “doubles” or “singles” in parts of Silicon Valley, but we think have been substantially underserved by the market.
Eric Eldon: Are you just focused on tech? Or what other types of industries?
Ancer: We cover a wide spectrum of industries, both Tech and CPG. Because Whole Foods HQ is in Austin, there’s a strong CPG ecosystem that has grown alongside tech, and we’ve integrated it into our expertise. The broad umbrella is typically referred to as “emerging companies.”
Eric Eldon: What are the areas of law that you focus on versus delegate to others?
Ancer: In general, there are two kinds of lawyers that I’ve found most startups need on a regular basis, apart from more infrequently used niche specialties. The first one is what I do, which is corporate and securities law. That’s typically what you mean by a “startup lawyer.” Formations, financing, acquisitions, you’re very much like the quarterback outside general counsel. I do a lot of strategic term sheet negotiations, hiring senior executives, “tricky” board governance; things that the CEO really cares about.
The second kind of lawyer is sometimes called technology transactions, or commercial contracts; which involves things like licensing, terms of service, distribution agreements, reseller agreements, etc. We have both corporate and commercial lawyers.
Then outside of those two types of lawyers, I call everyone else specialists: patent lawyers, tax lawyers, import/export, data privacy, etc. We’ve curated over the years what we call our “specialist network,” which is made up of other firms like ours; usually senior lawyers and partners who themselves left BigLaw to form leaner boutiques for their specialties. What’s happened over the past 5 years is that SaaS has significantly shrunk the fixed cost of forming and running law firms, so you’re seeing this ecosystem of very high-quality boutiques popping up built by the more entrepreneurial of BigLaw, who are collaborating to replicate the “full service” once locked into large firms, but without the soul-sucking bureaucracy.
Eric Eldon: What’s your ideal working relationship with a startup founder or founding team? Especially compared to how other types of clients might work?
Ancer: There’s this narrow mindset — pushed in startup ecosystems often by misaligned “repeat players” — that a good lawyer is whoever can close your deal the fastest. Everything is just templates and boilerplate, so let’s find a lawyer who can do it the fastest on a fixed fee. My observation over years in the market has been that while this mindset is sold as being about saving founders money, what it’s really about is muzzling lawyers and preventing them from fully counseling inexperienced teams, so that repeat players can then take advantage of their inexperience. Flat fees, for example, incentivize lawyers to rush work and not negotiate issues that are important, but founders might not know are important. VCs love it when your lawyers are on a flat fee, because they’ll “give in” on so many more issues that the founder/common team doesn’t know have long-term significance; even more so if your lawyers depend on those VCs for referrals.
Part of my reason for joining a high-end boutique firm, and leaving BigLaw, was addressing this big “captive counsel” conflict of interest problem that I see popping up all over the country between startups, their investors, and the lawyers involved. Over time, our entire firm adopted a policy of not taking on tech VCs as clients, or becoming dependent on them for referrals; which insulates us from a lot of the clever games that aggressive investors will play to get lawyers to not advise startups properly.
I believe, and our clients would confirm, that independence from the VC/repeat player community, combined with deep knowledge of startup financing and high-stakes corporate governance (board issues), allows us to say things, do things, and even write things (on my blog) that the startup community absolutely needs to see and hear, but that “captive” lawyers have been unwilling to offer because of the very real risk of retaliation from influential repeat players who refer them business. I’ve become a bit of a bête noire of lawyers who’ve built their practices by flouting conflicts of interest and working as company counsel despite being “owned” by VCs across the table.
I don’t see our firm’s position as being overly “founder friendly” or inappropriately adversarial. We obviously want successful clients. The founder is not my client; the company is, and I’m very much a “win/win” guy on deals. What it’s really about is how strong, experienced startup counsel has the unique capacity to “equalize” the imbalance of experience between first-time early common stockholders (including founders) and the investors across the table; who are usually far wealthier, experienced, and both diversified and better downside protected.
A segment of the investor community has slanted the startup legal market so far in their direction, by pushing “captive” lawyers and biased “standards” onto startups – with the clever excuse of “saving fees” and efficiency – that common stockholders are deprived of this highly valuable resource; and they get “played” as a result. We see ourselves as restoring balance to the market by refusing to play the games that other firms use to get business. It’s earned us respect from a lot of like-minded players.
Also, a second issue: I wrote a blog post called ‘The Problem With Chasing Whales.’ It talks about this problem of entrepreneurs hiring law firms that are overkill for what they’re building. We’ve had a lot of clients switch to us from the marquee law firm names, and while the largest complaint is cost — our rates are hundreds of dollars an hour lower because we keep our overhead very lean, while still having top-tier lawyers and lean infrastructure for scalability — another common complaint is responsiveness. You’ve got a million-dollar convertible note deal that you need to get done, and to you and your employees, that deal is the world, but the BigLaw lawyer you’re working with has IPOs and unicorn deals pushing your deal to the back of the line. It’s a real problem. Our target profile client exits under $300M in a private deal; which is a type of startup that we think has been very underserved by the traditional hyper-growth oriented law firms in the market.
Eric Eldon: I’m curious about your role as CTO of E/N. What does that mean, and what are your thoughts on some of the more software-enabled alternatives emerging in the legal market?
Ancer: I spend a lot of time talking to legal tech entrepreneurs, because efficiency via legal tech has always been a core value proposition of our firm. As I’ve reviewed and contemplated various tools, one thing I’ve always come back to is this unavoidable tension between flexibility and automation. Software, even cutting edge machine learning, can only handle a minimal level of variation before it breaks down and becomes more hassle (and cost) than it’s worth.
Some firms have opted to lean very heavily on the fast automation and standardization side, and accept the rigidity that it inevitably introduces into their workflows. I can respect that, and believe there’s a market for it among a certain type of tech entrepreneur. That being said, I’ve written extensively about my personal observation that “let’s move fast, keep it “standard,” and save legal fees” has become in some cases a rhetorical sleight-of-hand (from investors) to get common stockholders to mindlessly adopt legal and financing strategies against their long-term interests.
We’ve consciously gone a different direction. We’re flexible world class counsel first, and legal tech second, usually in the background. My impression is that a lot more entrepreneurs today are thinking hard about whether stepping off the legal and financing assembly line, and better tailoring their strategies for their specific priorities, makes more sense. Maybe it takes a little more time — which with lower boutique rates, is more affordable — but for the highest-stakes decisions of a company, the payoff is absolutely there. Our clients tend to think that constraining the advice startups get by boxing it into inflexible software (and pricing) is not only a penny-wise, pound-foolish confusion of priorities; it’s also exactly the kind of approach that benefits investors at the expense of one-shot common stockholders.
We certainly know how to do “standard” deals and do them all the time. But we’re optimizing for teams who want more optionality, and more time with highly experienced lawyers who can think “outside the template” and flexibly strategize for the context. That heavily influences what tech we adopt, don’t adopt, and how we’ve built out the firm.
Eric Eldon: Can you tell me about a specific challenge that you helped a client navigate through successfully?
Jose: So… this was a very “sticky” deal, ending with a Series A. First-time entrepreneurs. It starts out with the founders needing to raise some bridge money. Their company was just starting to click, they were perfecting their product-market fit, and they needed to do a bridge round. They had a well-known lead VC who had a board seat and who had been driving things, who kept saying, “Don’t worry. We’ll take care of it.” But the VC had been watching their burn rate and cash closely, and like a week before they were going to run out of money, basically dropped a bomb — a vulture deal. He smelled blood, and said take it or leave it. A bait and switch. And at the same time, the VC was trying to force them to switch counsel to a “captive” lawyer, and was even telling them that their legal budget had to be zero until they did so; basically a way to shut me up. Let’s just say it didn’t quite have the effect he expected.
I sat down with the entrepreneurs and a trusted advisor, and we assessed the cap table, assessed the relevant contracts, and where all the pieces on the chessboard were, so to speak. What can we get done, and how can we be prepared for the a-hole’s response? Can we remove this bad actor from the Board?
We were going to make some very influential people very angry. Hope you never find yourself in this kind of situation, but sometimes it’s unavoidable, and who your lawyers are matters immensely in those contexts. I’ve seen these sorts of situations happen with other teams but with company lawyers “owned” by the VC, and the common stock gets steamrolled.
In the end, we managed to put together an equity deal with some high-integrity angels and other outside funds that had a higher valuation, more balanced terms, and forced the VC off the Board. Of course, nastygrams were sent. Threats were made. But today the company is doing much better, with far healthier corporate governance, and they’re prepping for a larger round.
So this sort of stuff happens, and don’t believe anyone who paints this PR image of all VCs and entrepreneurs just holding hands and singing “kumbaya” while building shareholder value. Lots of players put immense effort in creating this public persona of “founder friendliness,” while saving their games for closed doors. There are all kinds of subtle power moves repeat players can try to pull, and inexperienced founders have no idea how to respond without the help of experienced advisors willing to go to the mat, if necessary.
A good set of lawyers is like a military. Hope you never fully need to use them. There are a lot of great investors out there who play above the belt. But prepare for having to face off with a bad actor whose moves aren’t about growing the pie, but shrinking your piece of it. Don’t hire lawyers with dependencies on your VCs.
Eric Eldon: What’s a key piece of legal advice that you give early-stage founders?
Ancer: That strong early-stage ‘legal advice’ goes way beyond avoiding breaking rules (compliance) or filling a template faster than the next person. True “startup lawyers” are a unique combination of corporate lawyer (with high-level knowledge of tax, IP, and employment law as well), startup financing strategist, and board governance advisor. No other advisor on the market sees the ins-and-outs of angel/VC deals, cap tables, and high-stakes issues among board members, and the breadth of companies, the way a startup’s main lawyer does.
The ‘lawyer as box-checker’ mindset is exactly what smart repeat players want you to think, so they can get you to a point where you’re defenseless, and then use your inexperience against you.
Eric Eldon: What is the biggest mistake or type of mistake that you’ve seen?
Ancer: At a high level, the biggest mistake I see is an inexperienced executive team (including founders) letting themselves become slowly and subtly infantilized by all the more experienced and influential, but highly misaligned, investors and other people they interact with; taking their advice as gospel instead of having the appropriate level of healthy (not cynical) skepticism. Common stockholders are one-shot players. They often lack personal wealth, don’t have the downside protection of a liquidation preference, and their net worth is highly concentrated in this one company. Repeat players (investors, accelerators, etc.) are the opposite. They’re wealthier, diversified, have downside protection, and are independently advised.
There is a fundamental misalignment between those two groups that never goes away, and inevitably feeds into high-level decisions on how to grow and manage the company, and how much risk to take. Of course, take advice from experienced people. Ask them for help in recruiting, and finding other resources. But they are not your BFFs, and will never be “fully aligned” with people whose skin is fully in this one company. Get advice from ex-founders who aren’t aligned with the money, and even get off the record (confidential) advice when the stakes are really high, to protect people from retaliation if the right answer for the common stock is going to make someone on the money side very unhappy.
This all sounds cynical, but it’s about navigating the market with your eyes wide open. Make friends, and build relationships. But this is a high-stakes game where some of the players are, literally, 100x as experienced and powerful as you are; and they know how to play 3D chess. Recruit your advisors, and do your diligence, accordingly.
Founder Recommendations
“José has helped with everything from fundraising to co-founder issues. He fluently navigates a wide range of complex real world issues that startups face, combining his legal savvy with common sense solutions that deliver real value.” — Jake Boshernitzan, Austin, TX, CEO, Knocki
“José Ancer and his group, Egan Nelson, are the perfect law group for startups to work with. They don’t require unnecessary high-priced retainers to lock you in, which was ideal for us as a bootstrapped startup. Overall, they’re agile, tech-savvy, and knowledgeable to the needs of startups in whatever stage they’re in — truly a pleasure to work with. ”— Gunhee Park, Tempe, AZ, Founder, Populum
“José cuts right to the chase with straightforward, well-informed advice. His colleagues are outstanding. He’s always responsive. And on top of it all, his prices are very reasonable for the high quality you get.” — Josh Padnick, Phoenix, AZ, cofounder, Gruntwork
“José helped us setup a new US entity which required moving IP from 4 other companies (3 in the UK and 1 in Canada) as well as moving convertible debt from one of the UK companies into the American entity. This was extremely complicated, requiring the coordination of legal and accounting resources in three countries. José managed the process brilliantly. By the end of it I was confident that all our legal ducks were well in order. Subsequent investors were very happy with the simplified structure.” — Paul Murphy, Austin, TX, CEO, Clarify, Inc.
“Agreements, SLA, conversion to Delaware C corp, breach of contract litigation.” — Taylor Hou, Houston, Chief Happiness Officer, APM Help
“Helped stop a hostile takeover from disgruntled ex-founder” — A startup founder in Austin, TX
“José has a depth of expertise in startup/company formation/funding issues and is very founder friendly. He was able to guide us through our seed stage while staying efficient and keeping the billing reasonable.” — Mary Haskett, Austin, Texas, CEO, Blink Identity
“José Ancer is a brilliant corporate lawyer that a startup founder raising funds from institutional investors cannot afford not to have. His legal knowledge and professional wisdom have been instrumental for us to negotiate and end up with founder-friendly terms for multiple rounds of fundraising.” — A startup founder in Austin, TX
“He has helped me negotiate with investors, set creative deal terms to help move investors along the pipeline and assisted with GDPR work.” — Daniel Senyard, Austin TX, CEO of Shep
“1. Bulletproof and founder-friendly employment agreements. 2. Available on call 24/7 – this was a life saver in more than one instances when a few VC deals, and business deals where about to fall apart because the parties could not come to terms. We could literally reach him, or someone at his firm at any time, on any day whether it was weekend or a holiday. I believe that at least in once case this saved one of my companies from going under and I will be forever grateful for that. 3. Exceptional at modeling and projecting cap table structures, particularly when working with various funding instruments (SAFEs, capped notes, uncapped notes, equity lines, etc.). 4. Very good at delegating to the right lawyers / experts for quickly securing essential company collateral (trademarks, patents/IP, visas/immigration). This may seem unimportant, but it is a tremendous time saving for a founder to know he only needs to call one place to be pointed to the right person. 5. From a startup perspective, reasonably priced compared to some of the other large firms I’ve had to interact with, or close VC funding with over the years, while offering much better service.” — A serial entrepreneur in Austin, TX