Tech Startups: Recruiting Your First In-house Lawyer
09 August 2019
At the beginning, a lawyer is not going to be on your radar.
There are legal needs from the off – terms and conditions documents, employment contracts, a shareholders’ agreement, hopefully the registration of a trade mark – but in the early stages of a tech startup’s life, founders typically only instruct lawyers when they must.
With a limited budget and competing priorities, legal spend is deprioritised over product development and marketing, and lawyers are seen as an alien species who charge a lot to produce things of questionable value that no-one really understands.
At this stage, therefore, which lawyer you choose is primarily driven by price or recommendation. Alternatively, you may choose to avoid lawyers altogether and opt for a platform which provides a suite of templates to customise yourself. But be wary – a lot of startups experience issues later as a result of poorly written documents.
Whatever your approach, founders usually find it to be enough to get through the early stages. As the business starts to grow, however, so do its legal needs. Employment issues arise from an expanding team, a larger customer base means more contract negotiations, and founders increasingly face questions about how their company handles personal data. Typically, the CFO or COO assumes responsibility for these issues, outsourcing to a lawyer as needed, but handling things on a very reactionary basis to keep costs down.
Again, this works for a while, but eventually your tech startup will reach a tipping point – where the day-to-day legal questions arise so frequently that they distract the CFO/COO from their main role. You may also be approaching your Series A investment, in which case a significant due diligence and legal exercise is on the horizon. From experience, we usually see this happening when a business reaches 40-50 employees.
You’re now on the path to building your own legal function.
Your approach will largely depend on the projected growth of the business because you’re unlikely to be at the stage where you need a full-time lawyer but may soon get there if you raise further investment.
If you decide to recruit an in-house lawyer, you will need to consider how much responsibility you hand over and how involved they will be in the strategic direction of the company. Lawyers can add tremendous value to strategic discussions, so our advice is to involve them as much as possible. The more senior a lawyer is, the more expensive they will be, but as the sole lawyer in the business it’s important that they have the credibility to build a legal function from scratch, as well as the expertise to handle any issues that arise.
Legal recruitment is not without its challenges, even more so if you’re a non-lawyer doing the recruiting. How do you know how good your candidate is? And how do you find someone suited to the fast-paced, sometimes chaotic environment of a startup? Recruiting the wrong person can be expensive and damaging to the business, don’t rush into it.
There are alternatives to recruiting an in-house lawyer which are worth considering. One such being the service we’ve been rolling out recently: to provide tech startups with a senior lawyer on a retained basis.
It lets us fill a need for our clients in the most helpful yet unobtrusive way. We can manage all legal aspects of the business and ensure that risks are identified and mitigated, while saving on employee overheads. It also means we’re on hand with strategic advice and, when the time is right, are perfectly placed to help recruit a more permanent solution.
As more and more startups appear on the scene, the need for good lawyers is growing.
The trick as a founder is knowing when to invest in a legal set-up that goes beyond providing the initial contracts and early stage documents. It’s commonly the most underdeveloped and under-resourced area of the business but if you can get it right, it’s the legal function that allows a promising startup to make the transition to thriving scaleup.