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Stuart Garfield
Friday, February 6, 2009
Inside Legal Services
Startups search for lawyers to take ideas to IPO
By Amy Castor, Special to Mass High Tech
MHT managing editor Rodney Brown on NECN: 22 tech companies give back to community
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When you’re getting ready to launch a startup, finding a good lawyer is almost as important as picking out your management team. Your lawyer helps to incorporate the business, draws up important contracts, protects intellectual property, and does a host of other things, including, you hope, taking your company through a liquidity event. But how do you find the right law firm for your business?
The first bit of advice experienced entrepreneurs offer is to ditch the phone book. “That’s not to say there aren’t good lawyers in the Yellow Pages, but nine out of 10 times, people find a lawyer through word of mouth,” said Stephen W. Ingram, audit partner at Deloitte & Touche LLP’s Tech Venture Center in Waltham. A certified public accountant by training, Ingram advises startups on how to get up and running.
The New England startup community is a tight-knit group, and you can learn a lot simply by asking around. “Start your search by talking to other professionals, angel investors and venture capitalists,” said Ingram. “Find out who they work with and what their experience has been.”
An upfront consideration is whether you want to work with a large downtown firm or a Route 128 boutique with one to five individuals. Big-name firms charge considerably more, but the name recognition is important if you’re going after venture capital. In contrast, bootstrapped or angel-funded startups may be more inclined to go with the boutiques.
Once you pull together names of three lawyers, it’s time set up the interviews. “You’ll find that a good portion of the hiring decision comes from your gut,” said Don Shulsinger, a serial entrepreneur who co-founded Pixel Magic and Immedia Semiconductor Inc. “But liking someone is not an indicator of future performance. You still need to talk about pragmatic issues.”
During the interview, ask questions that challenge the lawyer. Find out what companies similar to yours he’s worked with in the past. “It’s great if someone can talk about their licensing deal with EMC, but how is that relevant to a startup?” said Ingram, who suggests asking questions such as, “What’s your philosophy as a hands-on partner? How often am I going to see you? Will you attend my board meetings without charging me?”
It’s also important to get a sense of how well a lawyer understands your technology. Some entrepreneurs use separate firms for IP and corporate law, while others prefer a one-stop shop. Either way, intellectual property requires a more in-depth level of understanding.
“In our case, the patent lawyer had better be an engineer by training to really get our technology,” said Shulsinger. “On the corporate side, I think it’s more important they grasp the business you’re in and understand how the technology is applied in the products you make.”
Chances are the senior partner is not the person you’ll be working with every day. “You want to know who the entire team is, not every cook and bottle washer, but you want to meet the partner and the key associate on your account,” said Chuck Digate, who founded Beyond Inc. and Convoq Inc. and is now working on funding clean energy businesses through his new firm, Clean Energy Investment Partners.
Little companies often suffer from a lack of oomph when it comes to getting attention. How will you know a lawyer is going to be available to work on an important business agreement when you need her?
“There’s no pat answer to that,” said Shulsinger. “It’s just something to have on your checklist, so you can go back and say, ‘I don’t care if you’re in the middle of a major acquisition. Six months ago, you told me you were going to be available when I needed you.’ At least you’ll have the high moral ground.”
Especially during a recession, money is at the front of everyone’s mind. You want to ask about fees, overall costs, and make sure your lawyer is going to be efficient and not drag three associates to every meeting. You can also ask about discounts and deferred payments.
“If you do get a discount, the quid-pro quo is, you’re expected to work with them through the whole path until you become successful, and then they charge full boat,” said Shulsinger. “If you’ve got a good lawyer and they’ve helped you along the way, they deserve to make money.”
Personal elements such as credibility, honesty and trustworthiness are also important. “Make sure your styles are compatible,” said Rob Carney, co-founder of Adero Inc., Peppercoin Inc. and Brring Inc.. “I also look for people who are candid about what they do or don’t know.”
Most serial entrepreneurs do a vetting process once and return to the same lawyer throughout their career. It’s like a marriage. “Once you find a partner who works well, it’s best to try not to change horses too often,” said Carney.
Amy Castor is a freelance writer in Amherst.
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