General Counsel for Startups

General Counsel for Startups

Most startups, especially the ones pushing the envelope, are struggling to decide whether, when, and how to hire a full-time or part-time general counsel.



Introduction

The disruption economy sweeping Silicon Valley has made founders, investors, employees, and the lay person re-think what it means to be part of a "start-up" in the modern age. Startup companies that play by the rules are getting left behind. For example, three of the biggest startups from the past year include:

  • Airbnb. Challenging hotel zoning laws.
  • Uber. Skirting the regulatory framework around taxi licensing.
  • Pinterest. Building a content marketing empire focused around the use of copyrighted images.

Most startups, especially the ones pushing the envelope, are struggling to decide whether, when, and how to hire a full-time or part-time general counsel.



Your startup has legal needs - a part-time general counsel may be the solution

A general counsel (or in-house counsel) is an attorney that handles legal matters for a business. Startups might only need a part-time general counsel, a medium size business might employ one general counsel, and larger businesses (ex: Google, Yahoo!, etc) may have several. The key role of the general counsel is to prioritize legal issues for the business, spot any legal issues in the company's upcoming business ventures, pursue litigation, and work on transactional matters on behalf of the business.

When should I hire a part-time general counsel?

Small businesses and startups are not likely to need a full-time general counsel right away. The reasoning is simple - most businesses simply do not have enough legal work to warrant this expense. In lieu of a general counsel, many businesses at this stage will opt to have an outside attorney act as "outside general counsel" to their business. Outside general counsel will work on projects and issues as they arise, on a part-time basis.

There’s no hard rule for when you should hire a part-time general counsel. However, if you're spending more than $50,000 per year in legal fees, you should consider working with an attorney to get a general counsel package. A typical general counsel package gives you 20 hours worth of legal work over a 3 month period for prices ranging from $2,000 - $4,250. If you do the math, this works out to roughly $100 - $215 an hour for legal advice.

When to consider hiring a full-time general counsel:

  • If you’re spending more than $200,000 a year in legal fees, you should consider hiring a general counsel.

  • IPO. You will generally need to hire a general counsel six to twelve months prior to taking your company public. This is due to the large amount of work and complex legal issues involved in a properly handled IPO.
  • Merger or Acquisition. General counsel can be beneficial during M&A to help all parties to interface with one another and cooperatively sort out legal issues.
  • Rapid Growth. If your startup or small business is growing very quickly, a general counsel can help to ensure that potential legal issues don't fall inside the cracks.
  • Business model with regulatory issues. Take a look at the most popular companies (Uber, Lyft, Airbnb), all of these organizations have had incredible success by challenging the existing regulatory framework. Unfortunately - these organizations also often advise the counsel of an attorney early-on and frequently, due to their disruptive nature.


The ideal general counsel resume

The general counsel generally reports to the CFO or the CEO, and will work closely with other officers and directors to achieve the company's goals. When hiring a general counsel, you should look for:

  • Prior in-house or startup experience
  • Business savvy
  • Broad legal experience
  • Exceptional communication skills with employees
  • Bonus - an engineering or science degree
  • Affordability & Business Savvy

Many small and mid-size legal firms offer general counsel services to early-stage companies. The advantage of this is twofold - first, outside general counsel services are generally less expensive than purchasing legal services from a big law firm without sacrificing quality. Second, having an on-going relationship with a specific attorney acting as outside general counsel allows for the attorney to become intimately familiar with your business, your organizational goals, and the best strategy for your company to pursue.