Lawyers – Waste of Money or Valuable Partners?

Legal advice can weigh heavily on a startup budget. Is it worth the spending? Let's have a look at the details.

The company launch

A notary is required to register a company in most cases. Incorporation also requires a partnership and shareholders’ agreement. Simply copying one of the many agreement templates that can be found on the internet is risky. First, the conditions might not meet the company's requirements. Second, incomplete or unfavorable terms can lead to heavy losses in the event of a conflict when the company has reached a significant valuation.

VC companies often require that startups accept their term sheets. It can be a good idea to bring in a law firm. They can review the contracts and negotiate better terms to improve the founders’ position, while they remain in a positive relationship with the investors.

General terms and conditions (GTC)

I have done it for two of my companies, I found terms and conditions on the internet and adapted them. It saved a lot of money, but it's risky. Specific important topics might not be covered, or you might be charged for copyright infringement.

Inspiration is good, copying should be avoided.

GTC play a special role. They are a vital part of the daily business, and every change must be communicated. Diligence is king. Under these circumstances, law firms should be involved:

• Your business model is entirely new.
• The company acts in a highly regulated sector, such as finance, healthcare, energy, or similar.
• The venture carries a high level of risk for customers or shareholders (injuries, capital loss, insecurities).

Intellectual property

Intellectual property is something that should be protected. Inventions can be patented, and trademarks can be registered.

It is possible to apply for a trademark yourself. However, there is a risk that the application will be rejected or challenged, and the application fee will be lost. This risk is lower if a patent attorney is hired, but it will never be zero.

Technical patents always require a patent attorney. The costs are high anyway, and the process is too complicated to manage it yourself.

Privacy and data security statements

Besides asking specialized lawyers to define privacy and data security statements, consulting firms that specialize in privacy and data security issues can be a good and cost-effective alternative.

In B2B business, we always need more detailed provisions in the form of a data processing agreement (DPA). This will likely go beyond what founders can create themselves.

Other situations, such as contracts and conflict cases

There are many situations where lawyers can be helpful. When you have them on your side, you can rest easy and proceed professionally. But it's important to find the right law firm. These characteristics indicate good law firms:

• They are specialized.
• They can present comparable cases in which they were successful.
• Clients provide positive feedback.
• Colleagues who specialize in a different area of law recommend visiting them.
• They understand your business and your case.

The most relevant question is whether your attorney is one of the strict risk avoiders or of the enablers of viable legal pathways.

How should legal aid be evaluated overall?

It is a balancing act between legal certainty and the financial capabilities of a company. From this point of view, legal advice can sometimes seem a waste and sometimes an investment. In most cases, it is a cost that contributes to stability.

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Which topics to cover next?

This startup series on how to spend time and money wisely in the early phase will be continued. Some issues may be more pressing than others. Therefore, I have set up a poll where you can vote for your favorite topics. I will then go through them according to reader’s votes.

If you are a startup and need immediate support, you can also apply for a free consultation. Having received a lot of support in my early days as an entrepreneur, I am always happy to support people who are now where I once was. I do this as a mentor in accelerators, but also on a one-on-one level. Please understand that I cannot do this endlessly. Some requests may be denied or postponed. Nevertheless, I encourage you to apply.

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This article is a shorter version of the one published on Medium.

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