Legal fees can burn through a startup’s resources fast when firms bill at $500+ per hour. Fortunately, there are alternatives. Your startup can save money on legal services.
Some lawyers are willing to defer their fees until a startup is more solidly established, and others may be willing to work for equity in the company.
We’re going to explore some of these money-saving options:
- Go to a startup legal clinic
- Find a law firm you can pay in equity
- Defer fees
- Pay-as-you go
- Use free contract templates
- Hire a lawyer online
- Review contracts at lawgeex.com
Go to a Startup Legal Clinic
A number of law schools offer free or low-cost legal advice and help to early-stage business ventures, a great way to save money on legal services.
Some of these clinics can be found at:
- Duke Law School (Durham, North Carolina)
- Santa Clara Law School (Santa Clara, California)
- Cardozo School of Law (New York City)
- University of Colorado – Boulder
- University of Michigan Law School (Ann Arbor, Michigan)
- Northwestern Law School (Chicago, Illinois)
- University of Virginia Law School (Charlottesville, Virginia)
- Nebraska College of Law (Lincoln, Nebraska)
- University of Washington School of Law (Seattle, Washington)
- UC Hastings College of Law (San Francisco, California)
Check with your local law school if it’s not listed here.
Some incubators, accelerators, and universities also offer legal services to startups on a deferred payment model in which the startup would need to provide an equity stake in the company.
Find a Law Firm Willing to be Paid in Equity
Many law firms have done very well by investing in their clients. However, being a lawyer for a company as well as a shareholder in the company can create a conflict of interest. Some law firms avoid this problem by creating separate funds to hold the equity and requiring their start-up clients to sign a waiver of any conflict claims.
Both the equity stake and the value of legal services to be provided in exchange may be capped. This is a way to save money on legal services in the short term, but be sure you’re ready to give up some of your equity in the long term.
Some law firms, especially in Silicon Valley, are willing to defer their fees until the closing date of the initial financing. The firm takes the risk that the financing won’t close and the lawyers won’t get paid. Sounds too good to be true? Make sure you read the fine print.
If a startup has income from an early stage, a law firm may be willing to be paid on a “pay as you go” model – providing all of a startup’s legal services in exchange for a set percentage of the startup’s monthly revenue. This is a useful option early on when revenue is still fluctuating significantly.
Use Free Contract Templates
Law firms and other online sources offer free legal form templates startups can use.
For example, Orrick’s Start-Up Tool Kit includes a term sheet creator you can use to create a draft.
The firm’s Start-Up Forms Library had models of bylaws, founders’ stock purchase documents, director- and officer-related documents, employment and consultant documents, and technology-related documents.
You’ll probably want a lawyer to review your drafts and make sure it fits your exact needs, but it’s usually cheaper for a lawyer to review a document than to create it from scratch.
Hire a Lawyer Online
A number of online services will help you find a lawyer. Some of these services are nothing more than directories; some will check references and rate lawyers.
Online legal services can vary widely in cost, and you get what you pay for.
For example, on a service like UpWork you can post your legal request and get bids from all over the world. You may be able to find someone willing to work for less than $20 per hour. However, this person may not be familiar with the US legal system or fully fluent in English. You might also find a brand-new graduate of a US law school with zero or minimal real-world experience. By paying a bit more, you may be able to find an experienced US lawyer with good feedback.
On the other end of the spectrum, UpCounsel is highly selective and accepts only a small percentage of the attorneys who apply. It checks references and confirms that all its lawyers are in good standing with their state bars. With each job, users rate the quality of service. UpCounsel lawyers may charge in the range of $250 per hour and may offer flat fees for standardized tasks like creating NDAs.
Use LawGeex to Review Your Contracts
LawGeex provides fast, affordable, automated review of more than fifteen types of common legal documents. The LawGeex tool can tell you what’s common, uncommon, and missing in your document and explain confusing legal language.
If you want to understand a contract before you sign it, simply upload it at www.lawgeex.com.
The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice.