Hacker News Reader

Comment by nkw | Hacker News Reader

A good post. Especially this point:

"Get a lawyer that understands startups. It's important to find someone with experience. Not only can a good lawyer explain what's going on with terms of your agreement, he/she can tell you if those terms are standard."

I would also add parties need their own lawyer. Founders, investors, and the company are all different entities with different interests. If you have multiple founders, it is wise for each to have separate counsel. I've seen too many instances where there is a law firm for the company/one founder, and a law firm for investors, but the other founders just kind of "go along" because they think their interests are aligned with founder #1, when that may or may not be the case.

View on HN

Absolutely. There are several good points in that quote. I've seen the cap tables of startups that used lawyers who clearly hadn't worked with startups before. It was not pretty, and once it was a key factor in deciding not to invest, since the required cleanup would have been extensive.

Another great point is about recognizing whether the terms are standard. One thing people consistently forget to do is check for the "dog that didn't bark." It's not uncommon for investors (or entrepreneurs) to propose a term sheet that completely omits a standard section. If they had instead proposed something in their favor on that subject, then the other side would have certainly objected. However, if the other side is inexperienced, then they don't see anything objectionable!

I apologize if this comes off a bit glib, but sometimes this sort of advice makes me think the steps to founding a startup begin with:

1) Be wealthy

2) Don't be not wealthy

Being a founder (or co-founder or startup employee) means taking a decade out of your life for low pay and financial instability for the chance of having stake in a successful company. If you're not wealthy you're not in a position to be a founder in the first place.

Someone should really inform the college kids who keep applying to incubators like YC...

There's a big difference in the safety net of someone who went to a high level US college, and someone who had to get a job during high school to help pay the bills.

It's a different story when you've got nothing to lose. When you've already got a successful career and a life savings it's turning into a gamble that's just not worth it. The unfortunate thing is that the world needs more mature founders, and less college grad types.

I agree. This is one of my biggest problems with the current VC system: it excludes founders that have experience and judgment. I would even posit that founders who have a family to support are more likely to want to keep the company stable than a single 20-something.

You have to wonder if there are any reasons other than lower salaries that VCs prefer to work with young, nothing-to-lose types.

it excludes founders that have experience and judgment.

Those are the ones with money.

Most of them know it, but when you are in college or newly out of it, all of your friends are suffering from low pay and financial instability too. IMHO your 20s are a very good time to do a startup because the opportunity cost is low: you're probably not going to be making a whole lot of money anyway, so your choices are guaranteed poverty or likely poverty with the chance of a huge windfall.

Having money to start with makes a number of things much easier. It means fewer worries about what happens if it all goes south. It means being able to hire a lawyer up front. It means having a lot more runway for bootstrapping.

Money doesn't solve every problem, obviously, but it helps with quite a lot.

Most good Valley firms will defer fees for startups given a good referral. As for getting that referral, spend two years working in Silicon Valley and you won't have a problem.

Indeed. I tell would-be founders exactly this. I bootstrapped my company for quite some time before successfully courting investors, and this was only possible because being an engineer pays well enough to build a solid savings in advance. While on one hand I take pride in having had the willpower to make things work, this isn't a satisfying solution for entrepreneurship in general.

Or even worse, where they use the legal services provided by the VC or the accelerator. Bad move, bring your own lawyer and pay for that lawyer so that you know who they work for. And don't ever sign anything that you don't understand.

Yes, I'm sure every founder will be able to retain his own effective and experienced legal counsel, considering that good specialized lawyers generally charge at least $500/hr. Piece of cake for the founder who needs to pitch investors for seed money.

I know from experience that even if you do scrape together enough for a small retainer with such a lawyer, you're just naturally going to be last priority. The attorney knows that you aren't good for any more and any real work is going to take more time than you have on retainer, so they'll be working for free for a substantial amount of time, and that prospect doesn't excite anybody.

I so deeply agree with this, and I was surprised to discover just how much startup-specific stuff these specialized lawyers can do. Model your cap table in various scenarios (since most of us don't have a finance person early on this is HUGELY helpful) and also give you the due-diligence checklist for pretty much any counter-party, since they've sat opposing them all. They're also working on lots of deals, so they can give helpful answers to, "is this normal?" or "what are you seeing in the market?" that can help inform how hard to negotiate.

If you have a distaste for lawyers, as a lot of people do in our culture, and try to put off deeply engaging and instead do it yourself you are going to get burned. It is better to pay someone their hefty fees and then ask TONS of questions, so that you will truly learn from everything you have them do. This is the unsexy part of running a startup that I wish I could tell every founder. You just have to embrace it, might as well get good at it.

Reply on news.ycombinator.com