Tag: startup

The “standard” for startup legal fees

Ask The VC got a second opinion on the issue, and it looks like the total costs up to the first round closing tally to around ten grand. Closing may cost you up to ten grand more.

Guy Kawasaki got it done for less than $5K, but didn’t raise venture financing (yet).

My take:

Initial structuring is generally pretty “standard,” and I’ve seen it done competently for under $2,500. And that includes any quirks like exchanges of contributed IP for stock, founders vesting, and a base option plan – not from your uncle’s divorce lawyer either. That is the cash price, no deferral – but is well within the credit card advance range for most. You may need a bigger firm come first round – the investors may insist on it – but structure will get tweaked whether you use the same firm thoughout or use a smaller shop upfront and switch to the big guys later.

It looks like you may pay a premium for fee deferral, twice – once in equity and once in deferred fees for going with a top-tier firm from the start (those are the only ones that can really afford to defer fees). And note…using a white-shoed operation is no guarantee your investors aren’t going to ask you to use their lawyer anyway. The question you have to ask yourself is whether the premium is worthy of the contacts that might be had as a result, as well as the cash you’ll conserve at the start. Paul Kedrosky says some need it, some don’t.

I’d go for getting the base put together with someone you know and trust, while sucking up the cash expense. Then, use whatever firm your investors are comfortable with if and when the time comes.

Too Much Noise

A colleague and I have been jostling around start-up ideas for the last six months. We have worked well together in the past, and would likely make a very productive team going forward. It was desire, looking for an idea to quench itself.

A few days ago, upon letting me know he was putting the last iteration of the idea on the back burner (I had actually been forced to bow out a few weeks prior, as a new client absorbed my waking hours), he said something that will stick in my mind for a long time to come:

“I reserve the right to vacillate on the idea a little longer.”

At first, one might think this guy had gotten cold feet, and was trying to bow out gracefully. My impression was something quite different. Not only do I respect this person’s highly refined business saavy, but I didn’t think the idea was a full-blown go either. This statement reflects not a lack of gusto, but a concept stuck up on a shelf, in plain view, for a little more pondering.

The lesson here – don’t give up, just know when to take a break.

Too many ideas hit the ground running, and never see the light at the end of the tunnel. Rarely is it a lack of enthusiasm that makes the concept slip fluidly into the gutter. More so, it is selectively ignoring basic risk reward relationships – economics and personal, that are so critical to turning an executive summary into a “living, breathing” entity with a better than outside shot at being called a going concern.

What made the approach we were taking so arduous was not so much that we couldn’t come up with good ideas, or that we found too many others doing something similar. Our search spanned the “flavors-of-the-day”, as well as some esoteric meanderings that raised more than a few eyebrows. No, our trouble stemmed from actually looking at ideas in a practical light, dissecting how System A competed with Product B, and how Software X enhanced Service Y and Z.

Rather than continue to expound upon this idea indefinitely, I decided to get scientific about what is going on in the tech marketplace. I have constructed a mathematical model which accurately reflects my most recent discoveries. I believe this model solves for actual value creation, using easily obtainable data from the present day software/internet realm:

$ to be made this moment in technology = (∆ (email ↔ webmail)ⁿ / (1*√(DATE)bloggingsitecount))ⁿ – (allsocialnetworkingsites * initialinvestmentoffirstsocialnetworkingsite)ⁿ + (savingsfromopensourcesoftwareuse)ⁿ – (savingsfromopensourcesoftwareuse)ⁿ + (advancementsinpersonaldatabasedevelopment / ∑ timeforindividualstolearnanewscriptinglanguage)ⁿ, where n = ((∞∩∂Ω™ + (every₤earnedfromRSSfeeds * thenumberoffeedssentbackandforthbetweenthesametwosites)) – all existing $ going to Google)

Make sense? No wonder we couldn’t figure out a concept/profitable business model combination up until now!
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