Post Category → Startup Lawyers

When the A-Lawyers Break Free: BigLaw 2.0

Nutshell: The world of transactional tech law used to be divided into A-Player lawyers earning the gold at large firms and everyone else making a decent living at second-tier small firms. SaaS eliminated that world, and small can now mean better, faster, and more lucrative; which means A-Lawyers are breaking free.

No one who operates in the startup space needs to be told that bigger does not always mean better.  In fact, the opposite is often the case. Being large often makes you slower, more bureaucratic, and inefficient. Just try getting a piece of new technology adopted at a major law firm, or getting a secretary to learn that technology.  I’ve been there.

Big Was Better

If bigger leads to better performance, there must be something about the nature of the product or service in question that requires a large organization.  In law, that “something” was historically (i) expensive, proprietary resources to properly service clients (barriers to entry), (ii) the need for collaboration among multiple specialties, and (iii) high amounts of friction in effecting that collaboration.

Before the days of SaaS and Secure Cloud Storage/Collaboration, top-tier transactional law required at a minimum (i) a law library, (ii) internal word processing, (iii) teams of administrative support and attorneys, and (iv) dozens of legal specialties under the same roof.  Without that, you would be slow and inefficient.  In that world, choosing a small firm usually meant, as a fact, that you were dropping down a tier in quality.

And then things changed. Your “library” is now a subscription SaaS service. Word processing you can outsource by the hour. Same thing for admin support.  People working remotely often collaborate more easily than people working within the same law office, if they use the right tools. When BigLawyers step back from their billing timer and realize this, two very important thoughts come to mind:

  • Why are you all here? – Why do we (all kinds of different lawyers working in different areas that require different processes) need to still work under the same structure? I’m tired of having to justify to a bunch of litigators or IP lawyers that some software that I NEED for MY practice needs to be put into the budget. Why can’t I come to work in jeans if my clients don’t care? Why do I even have to come in to work today? All I do is stay in my office anyway.
  • Where the f*** do all my billings go? I bill $600 an hour. I take home like 20% of that. Wait, you mean all of this obsolete, bloated, bureaucratic infrastructure is the reason 80% of what my clients pay disappears? They hired me, not your brand. Why am I here?

Focus Always Wins

Every variable that once made the large, full service law firm necessary and optimal has been turned on its head by the web, SaaS, and the cloud. Now, a corporate lawyer at a small firm can staff a deal just as quickly, if not more quickly, utilizing a network of smaller, more focused, more efficient and (yes) better lawyers and law firms. It doesn’t take a Harvard MBA to understand why a top trademark lawyer operating out of a trademark boutique that does nothing but trademarks is going to be vastly superior at (guess what?) trademarks than a lawyer who works alongside dozens of other types of lawyers. Focus trumps being a generalist; and that applies equally to lawyers and law firms. 

But the reality of how SaaS has changed the landscape isn’t exactly news, at least not to people who follow these topics. Why then has it still seemed as if large firms have a lock on the best lawyers?

Money

In every profession, the best expect to be paid according to their talent. This is not rocket science, nor is it surprising. A-Lawyers have stayed in BigLaw for one very simple reason: it paid the most. Notice the past tense.  When big really did mean better, the better clients went big, and that means big paid more.

But it was only a matter of time that enough top lawyers started asking themselves “where the f*** do my billings go?” and realized that BigLaw’s overhead and bloat leaves an enormous amount of room to cut out fat, charge less, and still take home WAY more.  Yes, my friends slaving away in BigLaw trying to hit your 2000-2150 billables quota so you can earn that nice little bonus amounting to 3% of your billings, the cat’s out of the bag. Many of us at small firms earn more than you do. A lot more. And we do it with better technology, a more flexible schedule, and often working from wherever we want. All while our clients pay a lot less. Who, long-term, do you think is going to win at attracting talent?

You know what’s better than profits-per-partner? Profits in your wallet.

Networked Law: BigLaw 2.0

Examples of specialists we (corporate lawyers at a small firm) use to staff deals (i) a former silicon valley BigLaw tech transactions partner (head of his group) now operating a solo practice, (ii) a T100 in Texas trademark lawyer operating out of a trademark boutique, (iii) one of the country’s leading open source specialists operating a solo practice, and (iv) a veteran venture capital paralegal working virtually from Palo Alto. Everyone bills 40-60% less on an hourly basis than they would at a major law firm, which doesn’t even account for their ability to optimize pricing, process, technology, and staffing for their practice area. And, yes, everyone takes home more than they would in BigLaw.

You know what that’s called? D-i-s-r-u-p-t-i-o-n.  I don’t use that word lightly. This is not a piece of software that large firms can ultimately pay a consultant to help them adopt, but a fundamental restructuring of how top-tier transactional law operates.

The Future

Small firms are not just for the mickey mouse club anymore. The A-Lawyers are asking “Why are you all here?” and “Where the f*** do all my billings go?” and are doing something about it. Focused, faster, efficient, networked, and now with much bigger paychecks. Small law has been around for a while. But BigLaw 2.0 is just beginning to ramp up. As more A-Lawyers set themselves free, most of BigLaw will have to face the reality that all the branding in the world can’t save a bloated, overpriced, and now completely unnecessary delivery model.

p.s. We’re hiring.

Contracts are for the Divorce; Not the Honeymoon.

Principles:

  1. Small holes have a way of widening when you push a few zeros through them; and
  2. When a contract is being negotiated, founders are focused on the marriage. Their lawyer is (or should be) focused on the divorce.

Founders, for personality reasons, often pride themselves on being “closers” and able to accept levels of risk that others aren’t willing to tolerate.  They’re “upside” people. That’s generally a great thing, but seasoned negotiators know how to play off that tendency to their advantage.  This happens all the time:

Background: A draft’s been delivered and negotiated back and forth a bit. Then, right before signing, the other side’s counsel drops in a provision that they say should be uncontroversial – and casually includes a signed signature page, ready to close.

Company Counsel: (speaking to Founder) This provision is problematic.  It could lead to X, Y, or Z. I’ve seen it happen before.

Founder: (speaking to lawyer) Ugh, seriously? I just want to close this deal.

:: after discussion, Founder calls Investor to discuss ::

Investor: Your lawyer is being paranoid. There’s no way we’d do that. We’re all aligned here.

Founder: Yeah, you’re right. Damn lawyers.

:: Docs get signed ::

When the Company becomes more valuable, X, Y, or Z ends up happening.

Founder: F***ing S****!@#

Paranoid? No, Experienced. 

Why do good startup lawyers see red flags where founders just see corner cases holding up deals? The answer is simple, and it’s not risk-tolerance. It’s volume.  This is often the founders’  first VC deal, or at least they’ve never dealt with a fall-out with investors or business partners.  This likely isn’t even the lawyer’s 50th rodeo. The lawyer knows that contracts are drafted during the honeymoon, but enforced during the divorce. And holes in contracts have a way of getting bigger when there’s 7+ figures ($) waiting to be pushed through them.

Granted, there are a lot of lawyers who do in fact make mountains out of molehills.  See ‘When it’s time for your startup lawyer to shut up.‘   But that doesn’t mean that a good lawyer will simply gloss over all issues to keep the business parties happy. Founders need to be prepared when experienced negotiators push the “let’s just get this closed, we’re all aligned here” button to discredit a lawyer’s advice. It’s an old-school tactic.

Good Cop, Bad Cop.

So my advice to founders stuck in this scenario is to go with another oldie-but-goodie: good cop, bad cop. In other words, ask, but blame your lawyer.  It goes something like this:

Investor: Your lawyer is being paranoid. There’s no way we’d do that. We’re all aligned here. (replay)

Founder: Yeah, you’re right. He is paranoid.  I know you’d never do X, Y, or Z. Lawyers are such a pain in the ass. But can we just make the change so that we don’t have to discuss things with him again?  We’re ready to close if you are.

Sidenote: I’ve found joint lawyer bashing to be an essential part of the founder-investor bonding experience. Don’t miss out.

Deal lawyers don’t mind being the bad cop at all. They’re used to it. It works.  Well, only if they’re actually your lawyer. See ‘Don’t Use Your Lead Investor’s Lawyers.’ You preserve your image as a closer, but still avoid the landmine pointed out by your “damn lawyer.”

If you don’t trust your lawyer, you should get a new one. And if you say you trust him, you should pay attention when he says that there is a serious problem in a contract.  We’re not all risk-averse pedants. We’ve just seen enough divorces to know what “we’re all aligned here” really means.

 

Don’t Ask Your Startup Lawyer for Investor Intros

Principle:  Nothing says “I can’t hustle” like a paid introduction.

A lot of young founders looking to raise seed funding for their startup go through the following thought process:

  • I need to get in touch with investors, but I don’t know any of them.
  • Well-known Startup Lawyers must know investors, and I need one anyway;
  • Therefore, I should ask the Startup Lawyer that I hire to make some investor intros for me.

The logic here isn’t bad. In fact, some startup lawyers emphasize their strong relationships with investors as a marketing pitch to companies.  Unfortunately, those relationships are sometimes too strong.

Yes, good startup lawyers do know many investors, and yes, they certainly can make investor intros.  The truth is, though, you shouldn’t want them to. Before I explain why, a bit of background facts:

  • Startup investors, particularly VCs, receive hundreds, maybe thousands of pitches every year.
  • There are very few areas of investing that carry as much uncertainty/risk as startup investing.
  • Therefore, investors rely on as many signals (shortcuts) as possible for filtering out founders that can’t build a successful business.
  • The ability to hustle (related to and including networking) is extremely important for a startup team, or at least the founder who will play the CEO/business role of the startup (investors will excuse a technical co-founder who sits in a closet all day coding); and
  • Finally, VCs often intentionally make themselves difficult to get ahold of as a way to test (find a signal for) the networking skills of founders.

As a sidenote: cold calling/e-mailing VCs almost never works, for the above reasons.

Hustle Deficiency

So here’s the big issue: if you type a well-known investor’s name into LinkedIn, there’s a 99% chance that you’ll find 100s of different “paths” to get an introduction to that investor. Twitter also often helps, as do AngelList, Accelerators, etc.  Now, of all those paths to a warm intro, what do you think it signals to the investor if the only person you could find to introduce you is someone you’re paying?  The first thing that will run through that VCs mind will be something like “huh, well, putting aside the actual business idea, the founder clearly sucks at networking.”  That’s not a first impression you want to make.

A second thought might be, “maybe they’re not bad at networking, but just couldn’t find someone to sincerely recommend them.” You get the idea. Having your lawyer introduce you to investors isn’t too far off from having your mom write you a reference for a job.

What good is my Startup Lawyer then for helping get investment?

Does this mean whom you hire as your Startup Lawyer is irrelevant as far as finding investors is concerned? No, it still matters, just in different ways.  A knowledgeable startup lawyer can help with (i) how to approach particular investors, (ii) making recommendations as to which investors would be better targets, and (iii) signaling to investors that there’s been some “adult supervision” in the Company’s development to avoid legal land mines.

Because reputable startup lawyers are (often) selective as to whom they represent, a good startup lawyer can also signal that, by representing you, he/she at least thinks your startup has good prospects.  Granted, a lawyer’s business judgment isn’t exactly on par with Warren Buffet’s or Paul Graham’s (obviously, he wouldn’t be lawyering if it was), but it’s something.

Nutshell:  Ask your Startup Lawyer for suggestions on whom you should seek intros to, and on how to do it, but don’t ask him for the intro itself.  It’ll just make an investor think that, because you resorted to a paid intro, the company lacks a competent hustler. Nobody wants to invest in a hustle-deficient startup.