Technology

How Lawyers Can Add Value for Startups

The problem is that, for startups, cash is king, queen, and whoever the king is shtupping on the side. But here’s where you as a lawyer can step in.

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Last week, I wrote a post about how to pitch your legal services to a startup. As a natural follow up, I thought I would move beyond the pitch and talk about how you, as a lawyer, can add value for startup clients. Pitching and getting a CEO to sign a letter of intent is great, but guess what a startup will do if you’re not providing value? They will sign another LOE with a different firm. In fact, I know several startups who sign LOEs with multiple firms and whichever firm introduces them to an investor wins their business.

Now, you would think that lawyers would understand how to help startups. The problem is that most lawyers tend to think too much like, well, lawyers. And, the fact is, that most startups don’t really need lawyers. Sure, startup founders need to draft corporate documents, put in vesting arrangements for the founders, and protect the company’s IP if there is any. But, trust me, most startups would list legal documents last on the list of their priorities, and they would be right to do so. Case in point: we formed our Delaware C-Corp, Reply All Corporation (because of course our lawyer f%^&ed up the name when he filed) long before we ever raised our first money. Did we really need a C-Corp or any entity for that matter? No. But we did it under the advice of counsel. Why? Because corporate lawyers tend to prescribe (are you sitting down?) legal solutions.

So, how can you add value for startups?

The key to adding value is to first understand that most talented founders might not be very good at startups. Paul Graham, founder of the Y Combinator, tells the story of Mark Zuckerberg being such a startup newb that he made the rookie mistake of founding Facebook as a Florida LLC, rather than a Delaware C-Corp. Why, then, was Zuckerberg so successful if he sucked at startups? Because, according to Graham, he was an expert in the only thing that really mattered: his users. I don’t pretend to know every startup founder, but the good ones I know are absolute experts in what their users want or need. But so many founders haven’t got a clue when it comes to how to raise money. Parker Conrad, the founder of Zenefits — a company that has raised a jaw-dropping $83 million in funding — has openly confessed that he is not a very good fundraiser.

The problem is that, for startups, cash is king, queen, and whoever the king is shtupping on the side. But here’s where you as a lawyer can step in. Your role is to make connections between founders and investors and help them raise money. This is markedly different than the role of a traditional corporate lawyer. I asked a senior partner at Schulte, where we specialized in hedge funds and PE funds, if he had ever introduced fund managers to prospective LPs, and the answer was no. But the VC industry still relies on lawyers to introduce founders to investors. It’s silly, but it’s the way things are done. If you’re going to work with startups, you’re going to need a Rolodex of investors, otherwise your clients will find a lawyer who has better contacts.

But it’s not just about making the introductions — it’s about making the right kind of introductions. If your clients have no traction, don’t introduce them to an investor unless the idea is so great that you want to invest yourself. Making too early an intro will only make you and your client look silly. And, even if your startup clients do have traction, before making any introductions, make sure that your clients have the documents that investors will require. This isn’t only a term sheet, it’s a one-page executive summary and a 10-15 page pitch deck. A great pitch deck, no matter how pretty, doesn’t close a deal for anyone — but, if the deck does not look right, investors will lose trust because, even though no investor will admit it, they will not fund a wet-behind-the-ears rookie. I once met an investor at a conference and, after hearing our pitch, he gave me his personal email and told me to follow up same day with a deck; this is usually a good sign. I sent him our deck, which, at the time, was a mess, and he quickly soured on us. So, the same way corporate lawyers collect precedents from all their previous deals, you, as a startup lawyer should, at any given time, be in possession of no less than 10 recent pitch decks and executive summaries from companies who successfully raised capital within the last year. Once they’ve finished raising money, many startups will share these documents with you.

As a startup lawyer, you might end up doing quite a bit of work that is not technically legal, but still adds value. I remember once doing a project for one of our clients at SRZ and remarking to the senior associate that the work had nothing to do with law, and that we should advise the company to do this work in-house rather than bill them. He responded, “They either do not want or know how to do this, and our job is not only to be their legal counsel, our job is to add value.” Successful startup lawyers would do well to heed that advice.

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If you’ve got any questions you would like to see me address in upcoming posts on law and startups, email me at [email protected]. I’ve already gotten some great questions that I intend to address in a separate post or a mailbag column.

Zach Abramowitz is a former Biglaw associate and currently CEO and co-founder of ReplyAll. You can follow Zach on Twitter (@zachabramowitz) or reach him by email at [email protected].

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