TL;DR: In engaging startup law firms, founders need to pay close attention to the differences between inexperienced junior legal professionals, like paralegals and junior attorneys, relative to experienced senior attorneys and partners. In order to fit their high-cost structures into tight startup budgets, some law firms significantly water down their services by forcing startups to regularly engage mostly with inexperienced junior people; many of whom are advising founders on issues they simply lack appropriate experience and judgment for. For high-stakes, complex issues, many of which come up in the early days of a company, this can lead to costly missteps for which startups end up paying a very high price.
Because of their inexperience, first-time founders often get tripped up in engaging their first legal services providers. Very often, they think they just need “a lawyer,” without understanding that, just like doctors, law has dozens of specialties and sub-specialties; and they need lawyers who specialize in emerging technology companies. But even if they narrow down the options of firms they are talking to, founders often lack an understanding of the differences in how various startup law firms/practices are structured in terms of senior professionals v. junior, and how that has a very material impact on the kind of service the company is going to receive.
In What Partners in Startup Law Firms Do, I walked you through what the different titles and levels of expertise at law firms mean. Partners at serious, respected firms have gone through extremely strict vetting and training processes, ensuring that they’re capable of delivering very high-stakes (very high-cost of errors) and flexible legal expertise in complex, multi-variate contexts that fast-moving startups often find themselves in. The process of moving away from Partners toward more junior-level attorneys and paralegals is often referred to as “de-skilling.” It requires adding rigidity and uniformity to work (checklists, templates, standardization, automation), so that less-capable professionals are able to handle limited-scope projects without blowing things up.
De-skilling is an important and very useful part of building up any law firm, because it allows firms to make highly-specialized and trained Partners accessible to companies when they’re needed (which is often, but certainly not all the time), while also handling lower-stakes and simpler work more efficiently and at lower cost. While every law firm that works with startups offers a level of de-skilled work, it’s clear that firms vary dramatically in how far they go with it.
Some firms keep partners and senior-level attorneys highly involved with a startup from Day 1, while delegating periodically to paralegals and juniors. Other firms go so far as to make paralegals and junior lawyers the main point of contact for early-stage founders. To a first-time founder, the difference between these two approaches can seem subtle, but in terms of what is actually being delivered by the firm (and long-term outcomes), the differences are the opposite of subtle. In fact, we constantly see fast-growing startups make extremely expensive legal mistakes (or poorly thought-out strategic decisions) because the founders were relying on paralegals and juniors – as a “cost saving” mechanism – when those junior professionals were totally out of their league in the advice they were giving.
When paralegals and junior lawyers are made the main legal contacts of a startup, it’s the law firm’s way of saying “You’re little right now, and therefore just a number to us. But if you become something more significant, we’ll allocate our real expertise (senior level) to you.” The problem with this mindset is that many of the decisions made in the very early days of a startup are setting up the foundation and relationships that the company is going to live with throughout its trajectory. The company may be small at the moment, but actions being taken can be extremely high-impact and permanent, and therefore often require experienced judgment. This is especially true if the company doesn’t fit into a cookie-cutter context that can be distilled into a linear, simplified template for a junior to follow.
High-cost firms with weak(er) brands often over-delegate to inexperienced paralegals and juniors.
While a number of variables can play into it, the single largest driver of how much startup law firms rely on paralegals and junior lawyers is the interplay between the firm’s overall cost structure and the budget that startups engaging that firm are willing to accept. I emphasize that it’s the interplay of those two factors, because while some very high-cost law firms could stretch the amount of junior delegation that they throw onto startups, their reputation is sufficiently strong that founders who engage them are willing to pay the high cost of staying closely in contact with partners and seniors.
The very top of the top-tier of high-cost startup “BigLaw” – the top 3-5 firms, what I often refer to as the “Ferrari” tier – often doesn’t have to play games with excess de-skilling. They’re expensive, founders know they’re expensive, and yet they stay very busy anyway because if you’re legitimately on a Unicorn track (>$15MM Series A, clearly gunning for a 10+ figure long-term valuation) you’re a fool for using any other firm outside of that category. Companies on this track usually don’t struggle to pay their legal bills, even if they’ve engaged a Ferrari firm, because the size of their financings can more than accommodate a large legal budget.
It’s often the second tier of the very high-cost firms that I’ve seen start playing games with over-delegation to juniors. These firms also have extremely high operation costs, including all of the pricey infrastructure of the Ferrari tier, but they don’t have the brand credibility to command appropriately sized budgets from their early-stage clients. How do you make the math work in that case? You offer founders lower-priced fixed-fee projects, while putting in the fine print that the founders are going to spend 99% of their time talking to paralegals and juniors incapable of offering effective advice outside of very narrow contexts. Some of these firms will also throw in some half-baked automation software (cue the “machine learning” and “AI” buzz words) to make over-dependance on juniors seem “cutting edge,” when it’s actually a playbook that firms have been using for some time; and smart entrepreneurs know to avoid it.
The true Ferrari tier of Startup BigLaw often doesn’t need to play games with over-delegation to juniors, because founders who engage them know exactly why those firms are so expensive, have accepted it, and are willing to pay for experienced, senior-level attention. It’s more… OK let’s stick with the car analogy, the “Jaguar” tier of BigLaw (high-cost, but not the top of the top tier) that most often follows the junior-driven playbook. Their operating costs are the same as (or very close to) the Ferrari firms, but they have to offer discounts and lower budgets to attract startup clients (weaker brand); necessitating a watering-down of the actual offering to make the math work. What you end up with is still far from cheap, but requires you to stay within a very rigid, narrowly defined path for everything to not fall completely off the rails.
The point here isn’t to come down hard in saying that one approach or the other is right for every startup, but to simply ensure founders are aware of it, and use their judgment rather than being duped by clever marketing. Companies on what could truly be called “cookie cutter” trajectories can be OK having paralegals and inexperienced junior lawyers be their main legal contacts via what amounts to a “LegalZoom with a little extra” type of legal service offering. But experience has shown me that many entrepreneurs over-estimate how much of their legal work is (air quotes) “standard,” which can result in a blow-up once the legal technical debt comes due.
For negotiation-oriented issues, like structuring the subtleties of financings or serious Board-level discussions, there may also be ulterior motives behind investors pushing their portfolio companies to lean on inexperienced advisors (law firms that push startups to use junior people), with fabricated “standards” as an excuse. If it’s all just templates and standards, then what’s the harm in having your investors pick your law firm, right? Watch incentives and conflicts of interest. See: Negotiation is Relationship Building and When VCs “own” your startup’s lawyers.
When you, as a first-time entrepreneur, don’t know what you don’t know about high-stakes legal and financing issues, and you’re interacting with extremely seasoned and smart (but misaligned) business players, the last thing you want is to be relying on advisors who are only marginally more experienced than you are; or worse, are also “owned” by the money across the table.
High-end Boutique Law Firms are leaner and can offer lower costs, without over-reliance on inexperienced juniors.
Excess amounts of de-skilling and delegation to paralegals/juniors is not the only way that the legal market has attempted to lower legal costs for startups. An alternative, which we are a part of, is the emergence of high-end boutique law firms. These firms can offer regular access to true Partners and Senior Lawyers, but at rates equivalent to what the Ferrari tier charges for junior lawyers (hundreds less per hour); because they’ve cut out a lot of the overhead infrastructure that tends to inflate the cost of BigLaw. If your clients are Apple, Uber, and companies on that track (Ferrari tier of BigLaw), the way you build and market your firm will by necessity look very different from firms who deliberately target clients that, while serious and building important products/services, rarely make it onto the headlines of the NYT or WSJ (boutique firms).
This “lower overhead” (lean) boutique approach to law is not without its trade-offs, and I make that clear in my writings on the emerging boutique ecosystem. Every firm structure ultimately still has to follow math, and there simply is no magical wand that you can waive to deliver (again with the car analogies) Ferrari performance and resources at Acura/BMW prices. The very highest-end law firms that cater to marquee billion-dollar companies (and aspiring Unicorns) are extraordinarily expensive to grow and run, and there are very smart people running them who are well aware of how to safely trim costs within the constraints of what it takes to serve their clients. Boutiques offer a fundamentally different cost structure, because they are designed for a fundamentally different kind of client that doesn’t need a lot of the resources of the Ferrari class.
And please spare me the vaporware marketing suggesting that some new whiz-bang-pow piece of automation technology fundamentally changes the math of law firm economics. At the tier of corporate legal work that we are discussing (scaled, high-complexity and variability, high cost of errors, contextualized subjectivity), the amount of work even within the realm of possibility of being automated away with AI and data is a microscopic portion of what serious firms do. With apologies to the soylent-sipping lawyer haters out there (I see you, Silicon Valley uber-engineers), Siri isn’t going to negotiate your financings, or navigate your corporate governance, any time soon. We love legal tech and have adopted a lot of useful new tools, some of which are still in private beta; but nothing in the next 5-10 year horizon is going to fundamentally re-make law firms. Not at this level of complexity.
Properly structured high-end boutique law firms can and do offer significantly lower costs than BigLaw, without denying startups regular access to Partner-level, flexible strategic expertise. But the savings come from removing costs and resources that are required only if you are trying to serve the very highest end of the tech market; and boutiques don’t.
I tell founders all the time, “If you legitimately think an IPO or billion dollar valuation is on your visible horizon, please hang up and call the Ferrari tier of BigLaw.” We don’t do IPOs, and we’re not going to do your 10-figure cross-border merger involving 5,000 employees, 500 stockholders, and four tax jurisdictions. Hard pass.
At E/N, our Partners are perfectly happy letting the Ferrari firms compete for and serve Ferrari clients, while we work with a segment of the tech ecosystem that has been badly underserved. Our clients tend to exit between $50MM and $250-ish MM, and obviously at lower sizes if it’s an earlier-than-expected sale. Their legal needs and financings are sufficiently large and complex to pay rates high enough to support serious lawyers and right-sized infrastructure for scalability, but the founders also have an instinctive understanding that their trajectory isn’t going to be anything you’d call “cookie cutter,” nor are they aspiring to be a Unicorn.
High-end boutique startup law firms thus offer a balanced compromise and useful value proposition for founders building companies that clearly need credible, highly-trained and specialized senior-level expertise (without reckless over-reliance on paralegals and juniors), but for whom the Ferrari tier of the tech legal market is clearly overkill. Boutiques cannot and do not scale like the very top-tier of BigLaw, but the fact is that an important segment of the tech ecosystem doesn’t need them to.
Founders exploring the legal market should, at a minimum, ensure that they understand not just the varying cost structures of law firms, but also the varying levels of expertise/service those firms are offering within their cost structures. Two firms might look like apples to apples on the surface, but what your budget actually gets you ends up being wildly different. Firms promising low fees in exchange for inexperienced junior professionals (who can’t navigate significant complexity/flexibility safely, and offer poorly-fitted rigid advice) are selling something that – to experienced players who aren’t easily fooled – looks far less like efficiency, and far more like a time bomb.