Do More Faster India, 2nd Edition

Chapter 72Lawyers Don’t Have to Be Expensive

Michael Platt

Michael is a partner at Cooley LLP and represents emerging companies throughout their lifecycle, with a particular emphasis on exit transactions, including complex M&A and public offerings. He has been a Techstars mentor since 2007.

I’ve run into a lot of founders who, when it comes to lawyers, think along the following lines: “Lawyers are too expensive. We’re a stealthy, scrappy startup. We’re just going to use the family lawyer or, better yet, file an LLC certificate ourselves. When we get the prototype finished and we get a VC term sheet, we can fix whatever we mess up. Let’s just initial the page with our equity splits so there is no dispute later.” This type of thinking is a great example of the 80/20 rule, and 80% of the time it’s the most cost-effective answer. But 20% of the time something different from what you anticipate occurs.

As a founder, your experience is unique and you haven’t had the opportunity to see 300 startups in formation and financing. I’ve seen this situation many times: cofounders who are close friends split the stock of the company, and later one of them can’t stomach the lack of income or meets her true love and moves across the country. Without the correct vesting agreements, you are destined to share the upside with someone who didn’t share the risk and economic pain of your startup. There are thousands of simple mistakes, ranging from bad decisions that can be fixed with money to fatal ...