How startups prepare for legal challenges
For over six decades, Wilson Sonsini Goodrich & Rosati has been the law firm for tech pioneers associated with Silicon Valley's most incredible innovation milestones.
We sat down with David Wang, Chief Innovation Officer at Wilson Sonsini, to learn how founders can find the right law firm to secure their business. We cover topics like:
- How organized legal work helps companies weather turbulent economic times
- Why an established law firm is the right choice for your small business
- The importance of delegating intellectual property early on
“Our true value for startups is how our lawyers look at your situation, help you identify your unique legal issues, and then hopefully get ahead of them.” - David Wang, Chief Innovation Officer, Wilson Sonsini
Legal shortcuts early stage founders should avoid
Founders should be diligent about signing proper legal documentation as soon as possible. After all, paperwork shortcuts inevitably manifest later on as significant problems.
Don't Skimp on Your Legal Framework
New companies often don't nail down the legal side of their ownership structure. In reality, founders should follow the flow of:
- Designing and forming their companies
- Locking in legal agreements from day one
- Having documents signed with lawyers and advisers
The frequent omission of these documents creates massive problems years later if and when founders try to raise money or sell the company.
Delegate Intellectual Property
While the conversations may be difficult, it's critical to reach a consensus between co-founders on who owns what and who controls the company.
People are usually in a transitional period when startups launch. So, amidst the noise, they lack discipline about the company's IP rights, and again, obstructions crop up down the line.
In response, David emphasizes IP must be assigned to the company as soon as it's formed.
Hire a lawyer who actually understands your industry
If you’re looking for representation, a red flag is a prospective lawyer with no experience in your startup's industry, since their value-add should be industry-specific issue-spotting.
They should also seem completely trustworthy to you as a client because you’ll be asking questions and relying on their knowledge in domains where you don't have expertise.
“Quality and diligence matter. There’s no magic to it. That’s an evergreen piece of advice. It’s a simple but important question: Have you done the work?”
Prepared startups can withstand volatile conditions
Given today’s market conditions, unusual scenarios will only become the norm moving forward.
These circumstances make the need for excellent legal work more salient and visible, but David reminds us it’s as important as it’s always been.
Turbulent conditions always reveal fault lines in your legal frameworks. And it’s far more painful to address work that was skimped on in the past than it is to get it right from the get-go.
Invest in your startup like it’s the next big thing
David always asks new clients the same question: "Is your company potentially the next big thing, the next major IPO, or the next major acquisition worth hundreds of millions?"
The answer to that question, inevitably, is "Yes." If that's the case, they should treat it with that respective level of gravity from the beginning — on all fronts.
These technical, legal steps only matter if a startup succeeds. And if a founder isn't treating their startup as something groundbreaking, they should reconsider the entire endeavor.
“You don’t get to test your company’s legal structure before a problem hits.”
Why founders should work with established firms
According to David, working with freelance attorneys or small boutique firms may be more cost-effective in the short term compared to engaging with larger firms, but the difference in cost is immaterial if you actually succeed. The potential downside will also only be apparent when things get tested (i.e. when they really become life or death for your startup).
Misconceptions about big firms
In the early stages, the cost for startups to bring on a large firm tends to be a wash. As such, Wilson Sonsini often defers charging legal fees until the startup raises an early-stage round for the promising founder.
Delaying fees is common practice, but Wilson Sonsini has also developed internal tech and operational efficiencies that deliver services far more effectively than any smaller firm, who do not have the scale to make such investments
Overall, David advises scoping out the market and speaking to partners at various larger firms.
When the firm finds a promising startup with the proper credentials, they’re willing to work with unique financial situations to avoid cash flow pressure on the startup.
That flexibility in working with tech startups is, in David’s opinion, what has set Wilson Sonsini apart from other large firms throughout the decades.
Clients like Google, LinkedIn, and Twitter all began as true startups — and Wilson Sonsini has been with many of them from the start. They even incorporated Google.
“Investigate what the market offering is. You’ll find the larger, capable firms want to work with promising founders to understand the realities of startups.”
How to alleviate legal fees for startups
If you believe your startup has a shot at true success, focus on attaining high-quality legal work, rather than what’s cheapest in your early stages.
For instance, the incorporation of a company is a relatively routine procedure, but most cases are standard for only the first 95%. Those last few percentage points are the real struggle.
If founders lack proper advice on these differentiating factors, problems will likely occur later.
As such, engaging a sizable legal firm would provide startups with specialized advice on these issues. But it could also incur more legal fees than a young team is willing to pay.
A Dual-pronged Approach: Software and specialized advice
A number of startups opt for software that handles their incorporation from end to end, rather than paying for direct legal advice.
Wilson Sonsini fully understands this reasoning, which is why they emphasize the ideal solution is a dual-pronged approach:
- Companies only pay lawyer fees for truly specialized advice
- Otherwise, standard procedures can be handled with software
The firm recently launched its own streamlined incorporation platform: Neuron, which handles only the mechanical, automatable aspects of the process, for which Wilson became the first law firm to be named FastCompany’s most innovative companies
If a startup hit zero snags, it could breeze through as quickly as if it were a fully automatic system. But the reality is that issues will crop up requiring specialized advice.
As such, Neuron allows attorneys to quickly jump in and course-correct for the perfect solution.
“If you needed an operation, would you look for the cheapest brain surgeon? It seems like a silly comparison, but subpar lawyers can really be damning.”
What constitutes expert legal advice in tech?
With the addition of Neuron, Wilson Sonsini has been able to create an unparalleled structure for effective, startup-specific legal advice. David outlines a couple of its attributes:
1. Client-specific advice
As a large firm, Wilson Sonsini offers strategic advice tailored to varied and specific situations, industries, founders, and investors.
After 60+ years, they've likely seen everything under the sun. In other words: They have the pure breadth of experience to supplement their innovative digital systems.
2. Triage and prioritization
Their partners’ approach to client companies is essentially an exercise in triage. They prioritize workflows based on the startup’s legal budget and the issues at hand.
The process has grown highly refined and organized, so lawyers are trained to easily identify burning issues vs. minor issues that can be addressed down the line with low risk.
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