Think back to the last time you wrote a business plan for a startup. Do you recall your estimated expense for legal fees? $1,000? $10,000? $0?
How much to spend on legal fees is a common issue for startup companies with more than one correct answer. However, there are a few factors that suggest your startup should loosen up the purse strings.
Back in my college days (post-Prodigy, pre-Google), I wrote a business plan for a Web 0.01 startup company and allocated a meager $500. I had no idea what I’d be getting for that $500, but I figured my business plan software included the “legal fees” entry for a good reason and I did not want to leave it blank.
Fast forward to today. Going to law school, running my own startup company, and now representing dozens of other startup companies hasn’t led me to the exactly-how-much-to-pay-your-startup-lawyer magic number. Instead, I’ve learned to spot the issues that suggest a startup company should be spending more rather than less on legal fees:
(1) Number of Founders: If your startup is going to have more than one founder, this would indicate you’ll need to add to your legal fees total. Establishing and documenting the co-founder relationship is one of the most important aspects of a having a successful startup company. I wrote a previous blog article regarding startup co-founders.
(2) Raising Capital: If you plan to raise capital from any third party, whether from your mother or Oak Investment Partners, your must increase your legal fees. No exceptions.
(3) Public Company – No, I don’t mean a “publicly-traded” company. Rather, the more your startup will have a public presence, the more you will need to spend protecting your startup company from infringers (such as trademarks, etc.) and other 3rd parties.
-Discussion of copyright, liability, infringement, IP, and insurance issues
-Organizational resolutions and bylaws
-Stock purchase agreements
Guy’s post also has some wise advice about how much to spend on startup legal fees:
You could do less legal work and do it cheaper, but if you ever want to raise venture capital much less go public or get acquired for more than scrap value, this is not the place to save a few thousand bucks.
While Guy paid $4,824.13, I do not recommend using his number as a benchmark for your legal fees. There are too many variables to consider which are both internal and external to your startup company. Thus, I am hesitant to even provide a range of estimated startup fees. But if you consider the three issues (number of co-founders, raising capital, and public company), you will know whether paying your startup lawyer a larger amount is warranted.