1. Hiring a lawyer too soon.
Some start-ups hire a lawyer before they know what they really want or need
from their counsel. To learn more about the process, consider approaching a pro
bono legal transactional clinic. Those geared to service entrepreneurs at a
local law school can help with common start-up needs like structuring entities
and negotiating contractual agreements, explains Patricia H. Lee, director of
the Entrepreneurship and Innovation Law Clinic at West Virginia University law
school. In addition, the WVU transactional clinic is one of 27 active schools
in a pilot program launched by the United States Patent and Trademark office
that allows law students to practice intellectual property law, including
drafting and filing trademark applications under the direction of licensed
faculty supervisors. Startups save a considerable amount, paying just the $275
trademark filing fee for a single trademark and not the accompanying legal
fees. However, availability of these programs nationally can be a problem.
Also, students might only work at a clinic for two semesters, says Lee.
2. Hiring your Uncle Lou. You might want to hire an old
college friend or a relative, but you should consider a specialist. Tom
Cervantez, a partner at Business Counsel Law Group and a founder of Harvard
Angels, an angel investment fund for Harvard Business School Alumni, concurs
and adds, "If you hire someone that isn’t an expert in your area, they
might not know the nuanced norms or structures, which can lead to mistakes --
and that lack of savviness on your part looks bad to investors down the
road." To avoid gaffes, speak to other entrepreneurs in your field and ask
for referrals. Cervantez and Lee suggest interviewing several lawyers about a
range of topics, from the types of clients and cases they work with, to how
they communicate and if they have time for a new client.
3. Believing that bigger is always better. Large law firms
can be attractive to first time entrepreneurs but know that you might be paying
top dollar for the lowest tier staff since partners often work on larger cases.
"If you’re in the minor leagues you’re not going to get major league
pitchers," Cervantez says. Lee urges start-ups to search for smaller firms
that offer value and expertise. "There are great boutique firms that
specialize in things like patent and intellectual property law," she says.
Many of these boutique firms also contain partners that left large firms to
strike out on their own. Go for the big guns later when your company is larger,
making a major move or facing a serious lawsuit, since a big name firm may more
resources and can be more likely to scare the other side.
4. Not haggling on fees. It
might seem unimaginable to negotiate for an old-school trade like law, just
remember: You're hiring them just like you would any contractor. There are many
different arrangements for payment including monthly retainers, hourly billing
and flat fee projections. You can also use equity in your company as a down
payment. "Some firms will defer a client's payments through the process of
seed financing and basic company setup for 1 percent of equity," Cervantez
says. If pursuing that route, be sure to look at the fine print in the contract
and use their services carefully, being aware of any fee caps. And watch out,
experts warn, since you're essentially dining on credit.
5. Seeing a lawyer as just a lawyer. If
you're planning to offer equity in return for deferred payments, then you're
basically taking on your lawyer as a business partner and you should vet them
as such. Make sure that they not only have expertise in your field, find out if
they have contacts and knowledge that they can pass on to you. "When I
work as a lawyer for a start-up, I want to make sure you get investors,"
Cervantez says. "I’m gonna make a bunch of introductions and try to open
more doors." Also, most entrepreneurs are going to do more than one
start-up in their lifetime, so their lawyer can become a seasoned advisor as
they move from one idea to the next.
All the best!
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