Unless you’ve been living in a cave, you’ve probably been privy to the conversation around startups requiring less money to launch and become market viable – and hence the increasing web chatter about free and low cost legal resources for startups. This blog is no exception. If you’re a regular reader of this blog (and I thank you if so!), you’ve probably read the post titled “One Startup’s Toolbox“. The post lists a set of tools we at Doubloon use at our company to manage workflow, track our progress against sales goals, delight customers, and build one seriously kick butt product. Many readers either commented or emailed me directly and asked for additional info on legal tools we use – the trend became unmistakable.
I aim to please, so here’s my follow up specifically listing startup legal tools we’ve used or will be using- the second in what is becoming the “startup toolbox” series. I’ve attempted to divide up the legal resources below into functional groupings: a) Document Generators, b) Templates, c) Online filing agents, d) Legal advice, and e) Blogs written by experts (not discussion threads). Each list is presented below in no particular order, and is not intended as a comprehensive list, only a “best of the best” as I see it.
Well that last sentence sounded suspiciously like a legal disclaimer… so I’ll stop here while I’m ahead and get on with it..
LegalRiver Terms of Service Generator - Provides a boilerplate terms of service document for your website visitors. Note you may require something substantially different if you’re providing a service online through that website – a subtle yet important distinction. Enter in your company name, business phone number, etc. and out comes a website TOS. Free.
Wilson Sonsini Term Sheet Generator – This Sand Hill Road law firm took their internal term sheet generator tool and placed a simplified version of the tool online for all startups to use. The generator provides a customized term sheet after responding to a questionnaire. The too also provides informational annotations and basic tutorials on financing terms. The tool is worth using just for the tutorials alone. It’s free, believe it or not.
Mutual Confidentiality Agreement Generator – by “open source” legal resource Lexpublica, which provides a couple of other basic forms as well. You probably don’t want to spend any money developing an NDA since most people won’t sign it anyway.
“Ideal” First Round Term Sheet – Published by Adeo Ressi’s Founder Institute (FI), the form’s content was discussed on Techcrunch here. – The goal is twofold: first, to reduce legal fees involved in simple seed fundings. The average legal fees involving a seed funding can fall between 20-50k, which is perfectly fine for a multi million dollar round but not quite so practical for a $100,000 angel round. The second is to protect founders. The FI term sheet eliminates terms commonly considered onerous for founders, such as participation with preferred stock, a 1x liquidation preference, and single trigger vesting acceleration on acquisition. The term sheet is free and “open source”.
Y Combinator’s Series AA Financing Documents – Much like the FI’s model term sheet, Y Combinator’s objective is to avoid burning lawyer time negotiating provisions that are almost never used, and lowering the cost of getting a deal done for smaller seed rounds. The template documents are generally founder friendly, specifically calling out a 1x liquidation preference and remaining silent on preferred participation. Discussion on Techcrunch is here for those who wish to dive into a bit more detail. The documents assume a preferred stock financing instrument, rather than convertible debt which is also a commonly used (and inexpensive) alternative. Free and “open source”.
National Venture Capital Association Model Documents - In their own words: “In general, these documents are intended to reflect current practices and customs, and we have attempted to note where the West Coast and East Coast differ in a number of their practices. However, one of our goals in drafting these documents is also to reflect “best practices” and avoid hidden legal traps, even if doing so means straying from current custom and practice. We have attempted to avoid, or at least point out, certain problematic provisions that have become “market standard” terms. We have generally tried to indicate such issues with a footnote and explanatory language.”. The documents are geared more towards VC rather than seed funding. Free.
Online Filing Agents
Biz Filings – Generally I recommend filing through a processor to save yourself time and money and the aggravation or getting something filed incorrectly. I give Biz Filings high marks here for ease of navigation a wizard-like walkthrough.
Harvard Business Services – Not quite as slick a walkthrough as above, but cheap, cheap cheap if you’re specifically looking to create a Delaware corporation. We used HBS to form our company.
There are a number of blog posts, articles, and other sources of information out there. As stated above, this is not intended to be a comprehensive list. I’ve cherry picked articles and blog posts which I consider “must reads”. That is, posts I think are highly relevant and contain a high signal to noise ratio:
How to Work with Lawyers at a Startup by Mark Suster, a founder turned VC and blogger I highly recommend reading in general. Before you read any other post, read this one. If you don’t read any other post, read this one. It’ll save you time, money, and make for a more successful relationship between you and your counsel. Many of the posts below also expound further on summary points included in this post.
The Six Biggest Legal Mistakes Startups Make – by Scott Edward Walker, a lawyer who advises startups and posts on Venture Hacks. The title is self explanatory: learn what not to do by reading about common fails others have made. Thats’ the same spirit behind this quick read. A longer but similar read from Harvard Business Review is here.
The Top Lawyer Lies List by Guy Kawasaki. Excellent lawyer fail checklist which you can use to ensure you don’t hire a chump. If you hear any of these from your lawyer, walk away and hire someone else.
Lawyers Can’t Tell You Not to Do Something posting on Venture Hacks by Bram Cohen is also related to the above. I’ll summarize his point here for the impatient. You already know it’s worthwhile to hire the very best developers even if they cost more, because they’ll produce more in less time and cost less overall. Same goes for Lawyers – Bram suggests founders insist only partners produce work. Even if the hourly rate is more, he suggests your long term costs will be lower since the newbies aren’t “learning on your dime”. Choice quote: ““Lawyers are like phone companies. Their bread and butter is in tricking you into racking up minutes.” Brutal but honest.
Term Sheet Series Wrap up by Brad Feld. The classic primer on Term Sheets (written in 2005), if you’re ready to head in that direction. It’s part glossary and part tutorial.
StartupCompanyLawyer. com by Yokum Taku, a lawyer at Wilson Sonsini. A great resource organized in a FAQ format, which as far as I can tell is kept by a meticulous custodian. I was fortunate enough to find this blog early on in my clueless newbie phase and picked up a good dose of smarts here.
StartupLawyer.com, by Texas lawyer Ryan Roberts, who apparently registered his domain name before Mr. Taku above did. Great tag-based navigation and clear, concise content make this another winner. The content is a bit “fluffier”/less detailed than the above blog, but a somewhat easier introduction for those starting at square one.