Background reading: When a startup lawyer can’t scale.
When navigating startup legal issues, it’s very important to learn the distinction between “startup” and “small business,” because it’s not always clear, given that both start out small.
When someone says “small business” they are referring to something like a coffee shop, or a restaurant. For the first several years, the customers will be geographically local. If it takes any investment at all, it will likely be 1-2 local “partners” putting in money. Equity likely isn’t used much for compensation purposes, because the much slower growth of its value means it won’t incentivize employees as much as cash will.
“Startup” on the other hand, refers to a company that (naturally) starts out small, but whose customer footprint will likely be more national and international, and is likely to scale faster than a small business. Startups still differ in their types of growth trajectories, with Silicon Valley being well-known for building / emphasizing hyper-growth “Unicorn” startups. See: Not Building a Unicorn for our perspective on how smaller startup ecosystems often build companies that behave differently from what SV produces.
But the main point here is that startups face much more complex legal issues, and a higher volume of them, than small businesses do. And that requires a different type of legal infrastructure to get the work done.
The legal market can be separated largely into 3 categories: solo/tiny firms, boutique firms, and very large firms (BigLaw). BigLaw is structured for billion-dollar companies, and startups on that path; and is priced accordingly. Solo/tiny firms are well-designed for small businesses, including small apps likely not looking for much scale.
Boutique firms are designed for the “middle market” – higher complexity and volume than small biz, but much leaner and lower overhead than BigLaw. E/N (our firm) is a boutique firm.
At any given time, a seed or Series A stage client of mine will have a commercial agreement being drafted, a few option grants in process, an NDA to be reviewed, and perhaps 1-2 other projects in play. If they were waiting on me, personally (a Partner) to handle all of it, they would be waiting far longer than they can afford to. Expecting a Partner (who has many clients) to do all of that work is also ridiculous and inefficient; the law equivalent of asking a Neurologist to check your temperature, treat a cold, and give you a simple vaccine. Overkill.
So firms designed for scaling startups have paralegals, junior lawyers, senior non-partners, word processing professionals, and technology – an infrastructure to get different levels of work done efficiently and on time, with Partner oversight. That’s necessary for startups, who often operate on compressed timelines, and can’t wait very long.
If you’re a startup, and not a small business, make sure you hire a firm with the right infrastructure to get things done efficiently and promptly. Otherwise, when you need your lawyer most, you’ll be faced with a several week (or month) wait that could kill a crucial deal.
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