Perspective, Pontification and Propoganda about Entrepreneurship and Venture Capital, brought to you by David Hornik of August Capital.

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Dave Biere

Prediction: by 2020 one of the current second-tier law firms will make the effort to turn themselves into a high quality startup factory. They'll develop systemized processes and will drive cost out of the system.

This will cause them to start winning a large amount of startup business (many of whom will continue using them as they grow), and cause this firm to become a top-tier law firm.

We've seen this happen with other fields, and within law we've seen it happen with many types of semi-standardized cases. It's going to happen here as well. The only question is which firm is going to step up to the plate and become every angel's favorite law firm.

Andy Freeman

I don't care how much a great lawyer is worth.

I care how much it costs to get the legal services that help me.

tj

That's like saying, I don't care how great a server is, I care how much it costs to get the server. Lawyers are no different than any other service or product you purchase. There is a range of cost and services, roughly correlating, but not necessarily correlating.

Jody Sherman

David, I worked with you when you were an "outstanding lawyer" and in the transaction we did together we agreed that "good enough" was where we need to focus our attention, rather than negotiating out a bunch of insignificant items. Is "good enough" not good enough when talking about this type of transaction?

After several rounds of venture financing over the years, there have only been few exceptions to the rule (at least for me) of "standard terms". Most of that stuff is very clearly almost boilerplate and typically non-negotiatiable.

But where we found the need to either negotiate or modify that which was "typical", the costs of our "standard" financing grew dramatically, which oftentimes had me wondering if I should actually care about a particular item (and spend the money to address it) or just move on.

It would be interesting to hear from you which items you feel are "standard" and on which specific areas one should typically spend the extra money. The power of good information is mostly held by the people providing the money and the people doing the lawyering. And both of them have incentives to negotiate (one for terms, the other for fees).

I don't mean to imply that either of the above has bad intentions. In the case of an investor, they are just beginning their relationship with you so clearly there is no incentive to begin that relationship with bad blood. And company counsel certainly doesn't want to be at odds with their client, but almost always the same company counsel works regularly with the firms who are providing the financing.

So what should we, the entrepreneurs who believe we should get a really affordable price for our funding documents, really think about when we have to spend more than the $5000 Fred mentions?

Please answer in the form of a question :-)

Matthew Crossett

Thanks for the great article - I never thought about how influential this legal change could be before (just lift something highlighted from the article).
Just posted something similar - would love to hear your thoughts! If you ever want to link up sometime over GoToMeeting to talk about a possible collaborative article, let me know!
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Demi

David, you did an excellent lecture on the Venture Law and Finance class!We love that!

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I video interviewed Ed Reitler, partner at Reitler Kailas & Rosenblatt NYC http://www.ezebis.com/startup-lawyers/ed-reitler-responds-fred-wilsons-challenge-startup-lawyers/ He suggested that $5k was a loss leader but they are willing to do it with the view to develop a long term relationship with the entrepreneur.

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Interesting thoughts for sure! Sticking up for lawyers is always a risky business....But surely, they are a necessary part of any business deals, and almost always, worth every penny in the long run.

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