So far, my scorecard for legal help for startups and investors has been pretty dismal.
Let’s see. The stories go on:
An LLC agreement costs $6000 to create but upon dissolution of the LLC the agreement has ambiguous terms on who owns what and causes tons of issues upon dissolution. Note that an LLC agreement can be created and filed in about $1000.
A term sheet is created by a new associate who is new to Silicon Valley and barely has any experience in startups and financing. He tries to snow an investor during a call to defend his terms and the investor, who happens to be seasoned and coached by his really good lawyer, refutes every point made by associate, who concedes at the end of the call that investor was actually experienced and compliments him.
The night before the first investor meeting, a lawyer totally flakes on entrepreneur and doesn’t have a term sheet done! It arrives around midnight the night before and there is no time for review at all.
Entrepreneur asks for term sheet, and lawyer delivers one. Investor reviews and finds provisions that have no meaning whatsoever to the current deal. It is obvious that lawyer cut and pasted from a previous deal term sheet and didn’t bother to review and check for relevance to current deal, costing everyone in time and legal fees.
Entrepreneur asks for advice from lawyer on what to do from a financing standpoint, and gets almost no worthwhile advice whatsoever. Friendly investor guides entrepreneur through all the possibilities and helps develop a financing strategy.
Investor asks lawyer for help on looking at startup term sheet and gets back worst case scenario response on the whole thing. Investor initially gets cold feet, but quickly realizes that this particular lawyer is the most conservative, worst case scenario lawyer in the world, and investor realizes that risk is a part of life for the early stage investor and that this lawyer isn’t the right person to advise on early stage investments. If investor had listened to this lawyer, investor probably would never make any investments at all and would rather sit home and stuff money in mattress.
Legal help is crucial to both the entrepreneur and investor. It doesn’t matter that the legal help sits in a big expensive firm or a smaller shop. Why can’t we find good, dependable, and experienced legal help?