The $10,000 Sentence

You’re in a startup and everything is scarce including capital. Thus, when you encounter a legal issue (like incorporation) you conduct a cost-benefit analysis of hiring a startup lawyer.

I understand the need to ensure you are getting value for the small amount of capital you start with — I did the same thing when I hired a large firm earlier this decade for my startup. And as a startup lawyer, I’ve fielded multiple requests for a “per page” breakdown of my legal fees.

While the per-page-basis is one way to evaluate the benefit of hiring a startup lawyer, it completely ignores the only reason to ever hire legal counsel: the advice.

I’ve drafted and/or reviewed several financing docs in 2010, but the most valuable work product I’ve dispensed to startups this year are actually sentences such as:

That option grant is fine, provided we vest his shares.

Burn the term sheet unless they delete that provision.

That’s f***ing crazy.

These sentences are worth much more than the theoretical 0.1 hours billed on the legal invoice. On a straight value basis, these 3-second sentences should be billed at $10,000 (or more) with everything else at $50. (Before I get the hate emails — I’m not trying to get paid $10,000 for these sentences, I’m just trying to demonstrate what is the true benefit of hiring a startup lawyer.)

Sometimes these “$10,000 sentences” are the difference between a client failing in month 3 and getting a Series A done a year later.

The $10,000 sentence is why no matter how many “free” legal documents are out there thanks to Google or any other “kit” you’ll see on the internet, human legal counsel will never be replaced.

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Long live the $10,000 sentence.

Startup Issues

7 thoughts on “The $10,000 Sentence

  1. So how fair is it for you to be paid nothing for the value-creating advice you provide and far too much to proof-read a document? Why should a client have to consider whether a question and its answer were worth $100 every time he called you? Wouldn’t it make more sense for both lawyers and their clients to price legal services with a flat-rate retainer rather than by the tenth?

    1. I do flat rate projects. It was just a hypothetical.

  2. Amen! And thank you. Please don’t charge me $10k though.

  3. You are spot on – Good legal counsel is worth its weight in gold, especially when starting out. I believe that many founders (at least those who are starting their first company) do not realize the value of such until in hindsight when it’s much more costly.

    Have you considered billing at a project rate as opposed to hourly? Project billing could reduce this scenario.

  4. Absolutely. Advice is worth it’s weight in gold and that value is rising!

    On the contrary, the wrong advise could cost $10,000.

    The $10,000 Sentence.. both ways.

  5. A big machine in a factory stops working. Nobody knows what the problem is, and the stopped factory is losing big money every minute.
    A reputated expert is called. He gets into the factory, examines the machine, ask for a hummer. Give a strong stroke in a machine corner, the machine get working again.
    The bill:
    -100$ for the visit
    -5$ for the stroke
    -10000$ for the know-how

  6. […] call to a lawyer will save you a lot of money.  I think startup attorney Ryan Robert from Dallas sums it up best.  In short, if you are hesitating regarding a decision with legal ramifications, then you should […]

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