As a former (or maybe I should say “reformed”) lawyer, I understand all of the financial and other pressures on the legal profession these days and I sympathize with the guys who are just trying to make a living. But I’m also aware that, at the very same time we’re trying to make it simple, faster and easier for startups to raise money (thru the JOBS Act among other initiatives), the lion’s share of the lawyers working with new, early-stage businesses and entrepreneurs are still basically pretending that they need to redraft and reinvent the wheel every time they create a set of totally boilerplate, Seed or Series A investment documents and, worse yet, they’re charging way too much for their services. I realize that it’s getting harder (with more and more attorneys graduating every year) to find challenging and lucrative work, but that’s no excuse for making work where it’s not required.
And that’s not even the end of the problem. Because many investment communities in a number of major cities and states are just beginning to fully embrace and encourage more centralized and concentrated efforts (as well as physical locations modeled after our 1871 start-up facility in Chicago) which are intended to channel, support and promote the growth and dramatic innovations inherent in entrepreneurial businesses, these areas lack the institutional knowledge, professional networks, and standard business practices (for better or for worse) which are one of the few charms and virtues of doing business with venture firms on either coast.
As a result, even after your new business has spent a small fortune (certainly in your eyes) on a set of basic corporate and investment documents, you now discover that you have the privilege of paying for an even more costly (and less beneficial or valuable) process where the competing lawyers on multiple sides of even the simplest investment seek (almost always at your expense) to justify their own fees and their existences by engaging in stupid, irrelevant and time-consuming (and, oh yes, fee-generating) nit-picking and fly-specking of the same old documents that people (and businesses in exactly the same circumstances as yours) have successfully used without changing a single word or provision for many, many years. It’s wasteful; it’s offensive and presumptuous; and now is the time to put an end to it.
The truth is, as far as Seed round and even Series A investment documents go, there’s just nothing new under the sun and the sooner we all agree (city by city, state by state, or whatever) to a standard, universal and stipulated set of basic documents which can be made available to all parties at a realistic (and modest) cost, the sooner we’ll stop ripping off young, eager entrepreneurs and their backers and investors and let everyone get down to the real business of building their businesses. It’s actually amazingly effective for an entrepreneur (regardless of the amount of leverage he has or lacks in a negotiation) to simply say to his counsel and to the other side that these are the documents that everyone he knows are using and that he’s not prepared to start doctoring them up for anyone’s benefit. And the really good news is that it’s the truth and it’s readily and immediately verifiable. What could be smarter, easier or more efficient? And why aren’t we doing it nationwide?
So here are five simple steps for you to get the process started on the right foot regardless of where you’re located and without respect to how many deals you’ve done before.
(1) Make Sure Your Lawyer Knows His Stuff
Every lawyer says he or she can do anything. They teach you to say that in law school because it’s a good practice for getting hired. The truth is that doing deals is a specialized area and some attorneys in town and some firms focus on the work and do it better, faster and more regularly than many others. Even more importantly, they know all the other attorneys who also do deals for a living and they know the shortcuts, code words, standard provisions and restrictions, etc. because they all do it every day. And some of them can even help you get your funding by introducing you to their clients. Go with a pro – not Joe who will try to learn the ropes on your time and on your dime.
(2) Ask Him (or Her) to Use the Standard Documents and Ask for a Flat Fee
Ask for the standard package of documents and for a fixed fee. Make it clear that your feelings won’t be hurt if the actual forms and paperwork are done by an associate and not by the Big Guy himself which is what’s going to happen in any event anyway. This saves everybody a lot of time and cuts down on the phone tag where you call the partner (who doesn’t know anything about the status); he calls the associate (they both bill you for the call); and then generally a secretary calls you back with an update. Just send Sally the secretary some sweets and have her keep you in the loop.
(3) Read the Documents Yourself Until You Really Understand Them
You don’t have to be a lawyer to understand the elements of a basic deal and shame on you if you’re stupid enough to need to pay your lawyer to read these documents to you or for you. It’s your business and your livelihood that’s on the line – so spend the time and get smart at least once on the document package - because (God willing) you’ll be seeing the same documents every time you do a new deal in the future. You don’t have to be Perry Mason or Einstein to figure these things out and, frankly, if your lawyer isn’t using a set of documents written in pretty plain English which just about anyone can understand (give or take a few special phrases which won’t ever matter to you anyway), then he’s not doing his job.
(4) Tell the Guys on the Other Side Exactly What You’re Doing
Tell the investors exactly what you’re doing and don’t be ashamed of the fact that you’re being smart and cheap at the same time. If they have any brains, they cut the same kind of package deal and reduced fee arrangements with the attorneys on their side a long time ago. And if they’re smart investors, they understand that it’s actually - at least in part - their money that you’re spending on those legal fees rather than on marketing, product development or sales.
(5) Exchange and Sign the Papers – Get Your Money – Get Back to Business
Don’t be a pig on valuation. Take whatever they’re giving. Take the money and run before they change their minds. Get back to building your business. Thank me later.
PP: “You Get What You Work for, Not What You Wish for”
