How Much to Pay Your Startup Lawyer

How Much to Pay Your Startup Lawyer

Ryan Roberts
April 15, 2008

Think
back to the last time you wrote a business plan for a startup. Do you
recall your estimated expense for legal fees? $1,000? $10,000? $0?

How much to spend on legal fees is a common issue for startup
companies with more than one correct answer. However, there are a few
factors that suggest your startup should loosen up the purse strings.

Back in my college days (post-Prodigy, pre-Google), I wrote a
business plan for a Web 0.01 startup company and allocated a meager
$500. I had no idea what I’d be getting for that $500, but I figured my
business plan software included the “legal fees” entry for a good
reason and I did not want to leave it blank.

Fast forward to today. Going to law school, running my own startup
company, and now representing dozens of other startup companies hasn’t
led me to the exactly-how-much-to-pay-your-startup-lawyer magic number.
Instead, I’ve learned to spot the issues that suggest a startup company
should be spending more rather than less on legal fees:

(1) Number of Founders: If your startup is going to
have more than one founder, this would indicate you’ll need to add to
your legal fees total. Establishing and documenting the co-founder
relationship is one of the most important aspects of a having a
successful startup company. I wrote a previous blog article regarding startup co-founders.

(2) Raising Capital: If you plan to raise capital
from any third party, whether from your mother or Oak Investment
Partners, your must increase your legal fees. No exceptions.

(3) Public Company – No, I don’t mean a
“publicly-traded” company. Rather, the more your startup will have a
public presence, the more you will need to spend protecting your
startup company from infringers (such as trademarks, etc.) and other
3rd parties.

Guy Kawasaki provides us with a real-world example of how much startup legal fees may run. Guy paid $4,824.13 in legal fees when he started Truemors. And his legal fees included the following:

-Trademarking Truemors
-Drafting a Terms of Use
-Discussion of copyright, liability, infringement, IP, and insurance issues
-Organizational resolutions and bylaws
-Stock purchase agreements

Guy’s post also has some wise advice about how much to spend on startup legal fees:

You could do less legal work and do it cheaper, but if
you ever want to raise venture capital much less go public or get
acquired for more than scrap value, this is not the place to save a few
thousand bucks.

While Guy paid $4,824.13, I do not recommend using his number as a
benchmark for your legal fees. There are too many variables to consider
which are both internal and external to your startup company. Thus, I
am hesitant to even provide a range of estimated startup fees. But if
you consider the three issues (number of co-founders, raising capital,
and public company), you will know whether paying your startup lawyer a
larger amount is warranted.

About the Author:
Ryan Roberts is a corporate lawyer and advises clients in a wide
variety of transactional matters, with an emphasis on startup
companies, mergers and acquisitions, and corporate governance. His
clients have included companies in the technology, energy, real estate,
health care, construction, and retail sectors. Visit his law firm’s website.

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