Startups

How to know when it’s time for your startup to stop DIY-ing legal work

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From the outside looking in, the world of startups can feel informal: You meet your co-founder at a happy hour, your lead investor over Twitter DMs and focus more on launching a minimum viable product than buttoning up onboarding processes.

But that’s not where the story stops. When founders take the formal leap into entrepreneurship, there’s a whole host of (sometimes tedious) work that needs to be done — legally and professionally. And startup lawyers, specializing in the niche documents and processes behind startup-building, can be useful resources.

At TechCrunch Early Stage earlier this month, attorney Lindsey Mignano spoke about the specific work she does as a co-owner of a San Francisco-based women- and minority-owned corporate law firm for startups. The firm, Smith Shapourian Mignano PC, largely represents early-stage startups and microfunds, which means she can detail the timeline for when founders should think about startup law — and their costliest mistakes.

Legal fees are expensive, and no good lawyer will tell you otherwise. For startups, this creates tension: A founder can either hire a professional or turn to online websites or legal tech companies for a more affordable option. The latter may be more realistic for founders, especially in the early days, when every dollar matters.

A startup founder may find themselves choosing either a lawyer like Mignano or a tech company to help them with specific legal services. For example, the firm offers guidance on options, cap tables and compliance, and Carta has a product and suite of services that do the same. How do you choose?

“With fundraising at these levels, we are all pretty slammed,” Mignano said, so tech could be a faster way to get legal help.

Mignano said that she’ll often tell clients to turn to Carta if they have questions about how much to pay employees or advice on how to break down equity and salary, areas where she doesn’t believe lawyers should be weighing in. “That can be a very expensive mistake if you overpay someone in equity and salary when you really didn’t have to,” she said.

That said, she thinks some tasks should always be done with a lawyer. For example, incorporation, or setting up a legal entity that will employ your team and establish your startup’s existence as a real company, can be a step that founders skimp on and do online through platforms like Clerky, Mignano explained. “For every founder who did a great job, there’s one that we have to do a lot of cleanup for,” she said.

“Sometimes they’ll say that ‘I’ll do [it online], I recognize that might screw it up, you might have to clean it up afterward, and we’ll come to you when we’re going to raise money,’” she said. “A lot of our clients are also self-funded, so there may be executives who have left a Big Tech company or a former founder who had an exit and they’re starting their next venture … they’re more likely to come because they experienced some of these DIY mistakes themselves.”

There is a hybrid, too. Lawtrades, which closed a $6 million Series A round in January, offers a marketplace of lawyers so that companies like DoorDash and Pinterest can hire legal help remotely and flexibly. Lawyers on the platform, meanwhile, benefit from a flat pricing structure and the ability to build their own virtual law practices.

“We bring together everything that’s required to source and deploy a high-performing legal team to supplement in-house teams on a full-time or project basis,” the company said on its website.

Legal tech startups bringing law, order to fragmented industry

Ultimately, if it’s affordable, Mignano recommends that a founder ask a lawyer for help with the formation and incorporation of the company. If not, she said that a client normally pulls in her firm for help with terms and exemptions when they’re about to start raising a round.

As for when to upgrade from an outside counsel to an in-house lawyer, Mignano said that companies may hire a legal member upon closing their Series A. But it’s a route for companies that are especially well-capitalized.

“I would just say that lawyer salaries are among the more expensive salaries that you will pay for. So attracting good legal talent who have experience to help guide you and bring them in house is a pretty penny,” she said.

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