Anyone who is interested in startups — how they work, what makes them work — and especially anyone who has any thoughts of actually starting a startup should read Paul Graham’s blog/essays. (Paul doesn’t make it easy for you. He doesn’t publish new essays very regularly — I know, I’m not one to talk — and his RSS feed is generated by HTML-scraping someone else set up. But the content is worth it.)
Here’s a story he tells:
One YC startup negotiated terms for a tiny round with an angel, only to receive a 70-page agreement from his lawyer. And since the lawyer could never admit, in front of his client, that he’d screwed up, he instead had to insist on retaining all the draconian terms in it, so the deal fell through.
I had a very similar experience, years ago. My brother and I were going to buy a condo as an investment property. We hired a lawyer my brother knew, and at the time thought well of, to do the legal work for us remotely, since we were buying in Denver and at the time he lived in Connecticut and I lived in North Carolina. We found a place and started the process of making an offer; the lawyer was going out of town, so he brought his partner into the deal; the partner then brought in a junior associate, who wrote an offer that was something like 13 pages long, with all sorts of terms and conditions.
The condo was bank owned — this was during the last catastrophic, it’s never going to get better, collapse of the housing market — and the bank took one look at the contract and said, in so many words, “fuck off.” It was going to cost them hours of lawyering to decide if the contract made any sense, and it just wasn’t worth it — they wanted the condo off their hands and they had a hundred other properties to sell too.
For this exercise, the law firm billed us something like 50 hours — well over a grand. See, first they billed us for the time spent talking to me about the deal; then they billed us for both partner’s time when the one going out of town explained the issue to the one covering for him; then they billed us for the time of the second partner explaining to the junior associate; and for the junior associate’s time writing the 13 page contract. All this, to get a contract that promptly lost us the deal.
Later, we found another property, used something like a standard offer, and got what we wanted.
Here’s the lesson. First, lawyers aren’t generally paid to make a deal go — they’re paid by the hour. If you act risk-averse, they’ll be happy to bill you for making sure you never get into a risk, even if you never get where you wanted to go. (This isn’t true of all lawyers, by the way. My favorite local lawyer tells you a price up front for what you want, with the understanding that if something goes badly she’ll come back to you.) Second, lawyers like lawyering. Given the chance, they’ll do lots of it. And third, your lawyer is not necessarily your friend.
The most useful skill one can have with a lawyer is to know when to stop them in mid-argument and say “Yo. Don’t be a schmuck.”