Do More Faster India, 2nd Edition

Chapter 74Your Brother-in-Law Is Probably Not the Right Corporate Lawyer

Brad Feld

Brad is a partner at Foundry Group and one of the cofounders of Techstars.

Entrepreneurs hate to spend money on lawyers, especially early on. I’m a good example of this. My first company (Feld Technologies) spent $99 to incorporate our company in Delaware, wrote our own one-page contracts, and didn’t hire a lawyer until we were negotiating the sale of our company seven years later. At that point, we paid handsomely for our shortcuts because we had very few of the formal records required by the company that wanted to purchase our company. We were lucky, though, because our business was simple, had no investors or shareholders other than the three original partners, and didn’t have any litigation over the course of our business.

When I made my first angel investment (in NetGenesis) after selling my company, I got an education in how lawyers work with startup companies. I resisted it at first, but then realized that I was investing $25,000 of my hard-earned money into NetGenesis and I wanted to make sure my ownership stake was properly documented. Fortunately, the company found great startup counsel (Joe Hadzima—a well-known early-stage lawyer in Boston at the time). We documented everything correctly and inexpensively, including vesting arrangements for the six founders, which quickly turned into four, with only a small amount of vested stock going to the two who bailed early.

Over three years ...