Every new business will need a good lawyer, so it's crucial that you get the best advice your budget allows. Making a mistake can mean wasted money and time to get contracts redone and equity deals renegotiated. To make the process a little easier, we’ve identified five common mistakes that start-ups make as well as the clearest ways to avoid them.
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.
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