How to get your money’s worth from your startup lawyer

You will never know as much as your lawyers do about the legal services they provide to you. It is a classic asymmetry of information, where the party that knows less gets the worse deal. In this case, that is you, the startup founder.

As an attorney and a co-founder of a venture-backed startup that made it over the finish line, I have been on both sides of the table. Through that experience, I’ve adopted an approach for managing legal spend which you can use to help ensure that you get the most from the money you put toward legal fees.

Have you had a great experience with a startup lawyer? Tell us in this brief survey.

Overview of Common Fee Structures

There are really only three legal fee structures: flat, hourly and contingency. In addition to these, attorneys may charge differently for consultations (free vs. paid), may or may not require a retainer to be paid before starting work, and perhaps will entertain certain forms of deferred compensation, such as delayed payment or equity in lieu of cash (though most will not, knowing that odds are well stacked against your startup).

Flat fees. Always good for self-contained, relatively routine legal tasks, such as business formation and subsequent stock issuance, standard IP assignments, employee handbooks, employee compensation plans, trademarks, etc. In the ideal case, you are paying your lawyer to do something they have done a hundred times before, with only minor tweaks along the way – it is predictable work that comes at a predictable price. Recent changes to the California Rules of Professional Conduct (effective 11/1/2018) have provided further guidance to lawyers and clients concerning flat fee structures, making them relatively more transparent in theory, if not in practice.

The key question for flat fees, of course, is how much should your particular matter cost? The most accurate answer here, unsurprisingly, is that “it depends” – on the experience of the attorney, on the particular legal task at hand, on your unique business circumstances, etc. While the typical business incorporation might be $2,000 all-in, a seed financing (assuming common forms are used) could be anywhere between $5,000 and $20,000).

What are the exact flat fees you should pay? We’ll have more on that soon.

Hourly fees. This is the preferred method of billing for most attorneys, not necessarily because it results in more total fees, but because the lawyer has at least some assurance she will not end up working “for free” when the client inevitably has additional questions, makes unexpected changes, or requires counsel on ancillary topics. The particular hourly rate you pay depends primarily on the experience of the attorney, usually measured in years (the absolute minimum I would suggest you consider is three years), with most solo practitioners charging somewhere between $175 to $300 per hour, boutique firms charging between $300 and $500 per hour, and large firms charging anywhere between $400 (junior associates) to $950 (experienced partners) per hour — though everything in Manhattan is more expensive.

Contingency fees. While conceptually intriguing to some, contingency fees (usually 30 percent to 40 percent of the amount potentially awarded in a given legal matter, hence the contingency) are not typically relevant for early-stage startups where the goal is generally to avoid litigation. For that reason, I will focus mostly on flat versus hourly fees.

Finally, when it comes to retainer fees, it is helpful to know that lawyers must follow strict trust accounting practices (see Rules of Professional Conduct 4-100; and also Rule 4-200 for attorney fees in general). You can even reference these rules if you ever find yourself in a fee dispute. Remember, too, that government administrative or filing fees (e.g. the cost of filing for a trademark) are always distinct from the fees paid to compensate your lawyer and therefore should be itemized separately on any billing statement you receive.

How to Keep the Fees Down

Given that background, there are a number of things you can do to help keep your lawyer fees in check:

1. Hire lawyers who have experience with the particular task you are asking them to perform. Most lawyers have a specialty of some sort (however broadly defined) in which they are most adept and therefore efficient. The last thing you want to do is pay a lawyer to educate themselves in a new practice area. Lawyers will generally list their core practice areas on their website, and it is in these areas they are most likely to be proficient. It would be a mistake in my opinion to hire a lawyer to do any work outside the explicitly enumerated practice areas shown on their website. If you are considering hiring a true business generalist, then at least try to get a sense for the practice areas in which he or she most often provides counsel and be sure there is significant overlap with your needs, including experience working with startups specifically; also, consider ratcheting up the required minimum level of experience to at least 7-10 years.

2. Educate yourself and then let your lawyer know you understand the basics. Today there are numerous high-quality, free templates and other resources available for the most common legal tasks facing startups (see links below). If you need new Terms of Service, for example, carefully read one of the many templates available, insert comments where you see fit, and pass on this marvelous example of intellectual aspiration to your attorney for final drafting. This will let the attorney know you have a basic understanding of what the assignment entails and at the very least reduce perceived asymmetries of information, improving your relative bargaining position.

a. Startup documents: Docracy, Upcounsel, Cooley Go.
b. Financing documents – Y Combinator, NVCA, SeriesSeed.

3. Ask to be notified when a certain dollar amount has been billed, or to receive an informal billing update at the end of each week (even if the billing is not strictly itemized). When subject to hourly billing, it is always a good idea to stay informed of where exactly you stand. While providing detailed off-cycle billing can be a burden for lawyers, providing an informal billing update to a client generally is not and most attorneys will oblige. Also, it never hurts to ask your lawyer for time/cost estimates before starting an assignment — here again you can request the attorney notify you when they surpass their estimate; if only subconsciously, you have anchored the amount the attorney believes is appropriate to bill on the matter, which can provide you leverage on future assignments if they ultimately exceed that amount.

4. Ask for an “emerging company” discount. Most lawyers who work with startups are willing to provide discounts to smaller companies: in the case of large firms, to attract the most well-funded startups; and in the case of smaller firms or solo practitioners, to better serve their primary client type — small, undercapitalized enterprises. Remember, too, most solo practitioners are themselves entrepreneurs who have taken the risk of launching their own businesses (albeit a law firm) so they can be surprisingly sympathetic to other founders in the same situation.

5. Consider deferred fee structures. Deferred fee structures generally involve payment in something other than cash, or payment at a time in the future; there are two primary types: (a) payment of fees delayed until close of pending investment; and (b) equity (or other consideration) offered in lieu of cash. I once heard of an attorney who accepted a vintage Martin acoustic guitar as full payment for fees in the high four-figure range. Although I would very carefully consider any deferred fee structures — because they can create a misalignment of incentives (or worse, an outright conflict of interest) — they can in certain situations be a workable choice for cash-strapped startups and risk-tolerant attorneys.

6. Get clarity on costs, expenses, billing rates for administrative assistants, paralegals, etc. One advantage to working with firms who staff assistants, paralegals, junior and senior associates — all of whom support the partners of a firm — is that billable rates generally range from lowest to highest, respectively. Whenever possible, you can request that paralegals and junior associates do the most routine (yet time-consuming) work, leaving critical negotiations to the partners and high-level drafting to senior associates. Finally, make sure you understand in advance what costs and expenses the firm will pass on to you (e.g. photocopying, postage, couriers, travel) and whenever possible, ask if these costs can be waived or reduced.

Follow these tips from the outset and with some experience, you can be sure that you will efficiently allocate resources against your legal service needs.

On that note, have you already had a great experience with a startup lawyer? TechCrunch is looking for the ones founders love to work with the most. Fill out this quick survey to tell us about your experiences and we’ll share the results with you.

Daniel T. McKenzie, Esq., manages the Law Offices of Daniel McKenzie, specializing in the representation of startups and startup founders. Prior to establishing his law offices, Daniel McKenzie co-founded and served as lead in-house counsel for Reelio, Inc., backed by eVentures, and acquired in 2018 by Fullscreen (a subsidiary Otter Media and AT&T).

DISCLAIMER: This post discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. TechCrunch, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.

Holoride’s in-car VR solution is the best thing at CES 2019

After days of demos and announcements and miles of walking, I’m confident in declaring Holoride the best thing at this year’s CES. The designation of “The best thing at CES 2019” is my badging. This isn’t an official award handed out by a governing body. This is just me saying Holoride is the best thing I’ve seen at the show.

This year’s CES is fine, I guess. The main theme is connecting services around the smart home. There’s a huge range of devices that now support services from Amazon, Google and Apple. CES 2019 also featured the launch of new silicon chipsets and self-driving platforms. But the thing that impressed me the most is from Holoride, a startup from Audi that wants to put VR in cars to entertain and reduce motion sickness.

Iron Man needs help, Rocket told me. And like that I was thrust into a space battle against Thanos’ bad guys. There was an Oculus on my head and my body was dipping and diving, shooting through space, while I was waving my hands around, blasting the enemy. It was straight out of Disney World (partly because Disney helped with the content). Except I was in Vegas, in the back of an Audi SUV hitting speeds of 90 mph on a track.

After two laps around the track, I walked away fine. I didn’t feel sick at all, even though I’m the sort of person who can’t look at their phone in a car.

Matching the VR content to the vehicle’s movements is key to the Holoride experience. In short, when the car moves, the content moves in the same way. This reduces motion sickness, and, from my demo, I can confirm it works — at least on me.

The technology comes from a small startup recently spun out of Audi in a play to put VR in every car. The founders have been working on the technology behind the in-car VR system for several years. The automaker holds a minority interest through subsidiary Audi Electronics Venture, which helped develop the technology. Audi will license the technology to Holoride and the startup will use an open platform to allow any automaker as well as content developers to create whatever reality formats they desire.

I’ve experienced countless VR experiences, and this was one of the best demos I’ve had. The use case is compelling too. Not only does it provide entertainment, but it also solves motion sickness. It’s easy to imagine this in an ad-supported format in the back of an Uber or while on a long-distance bus. It could work in planes too. It could improve long car rides with the kids.

Holoride is a longshot and there are countless questions around the content, consumer outreach and compatibility. In order for it to take off, the company needs to build an ecosystem complete with developers, auto makers and consumers. Building amazing experiences is one thing; selling amazing experiences is even harder.

CES 2019 coverage - TechCrunch

Daily Crunch: How the government shutdown is damaging cybersecurity and future IPOs

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here:

1. How Trump’s government shutdown is harming cyber and national security
The government has been shut down for nearly three weeks, and there’s no end in sight. While most of the core government departments — State, Treasury, Justice and Defense — are still operational, others like Homeland Security, which takes the bulk of the government’s cybersecurity responsibilities, are suffering the most.

2. With SEC workers offline, the government shutdown could screw IPO-ready companies
The SEC has been shut down since December 27 and only has 285 of its 4,436 employees on the clock for emergency situations. While tech’s most buzz-worthy unicorns like Uber and Lyft won’t suffer too much from the shutdown, smaller businesses, particularly those in need of an infusion of capital to continue operating, will bear the brunt of any IPO delays.

3. The state of seed 

In 2018, seed activity as a percentage of all deals shrank from 31 percent to 25 percent — a decade low — while the share and size of late-stage deals swelled to record highs.

4. Banking startup N26 raises $300 million at $2.7 billion valuation

N26 is building a retail bank from scratch. The company prides itself on the speed and simplicity of setting up an account and managing assets. In the past year, N26’s valuation has exploded as its user base has tripled, with nearly a third of customers paying for a premium account.

5. E-scooter startup Bird is raising another $300M 

Bird is reportedly nearing a deal to extend its Series C round with a $300 million infusion led by Fidelity. The funding, however, comes at a time when scooter companies are losing steam and struggling to prove that its product is the clear solution to last-mile transportation.

6. AWS gives open source the middle finger 

It’s no secret that AWS has long been accused of taking the best open-source projects and re-using and re-branding them without always giving back to those communities.

7. The Galaxy S10 is coming on February 20 

Looks like Samsung is giving Mobile World Congress the cold shoulder and has decided to announce its latest flagship phone a week earlier in San Francisco.

Meet Caper, the AI self-checkout shopping cart

The Amazon boogie-man has every retailer scrambling for ways to fight back. But the cost and effort to install cameras all over the ceiling or into every shelf could block stores from entering the autonomous shopping era. Caper wants to make eliminating checkout lines as easy as replacing their shopping carts while offering a more familiar experience for customers.

The startup makes a shopping cart with a built-in barcode scanner and credit card swiper, but it’s finalizing the technology to automatically scan items you drop in thanks to three image recognition cameras and a weight sensor. The company claims people already buy 18 percent more per visit after stores are equipped with its carts.

Caper’s cart

Today, Caper is revealing that it’s raised a total of $3 million, including a $2.15 million seed round led by prestigious First Round Capital and joined by food-focused angels like Instacart co-founder Max Mullen, Plated co-founder Nick Taranto, Jet’s Jetblack shopping concierge co-founder Jenny Fleiss and Y Combinator. Hardware Club, FundersClub, Sidekick Ventures, Precursor Ventures, Cogito Ventures,  and Redo Ventures also invested. Caper is now in two retailers in the NYC area, though it plans to use the cash to expand to more and develop a smart shopping basket for smaller stores.

“If you walked into a grocery store 100 years ago versus today, nothing has really changed,” says Caper co-founder and CEO Lindon Gao. “It doesn’t make sense that you can order a cab with your phone or go book a hotel with your phone, but you can’t use your phone to make a payment and leave the store. You still have to stand in line.”

Autonomous retail is going to be a race; $50 million-funded Standard Cognition, ex-Pandora CTO Will Glaser’s Grabango and scrappier startups like Zippin and Inokyo are all building ceiling and shelf-based camera systems to help merchants keep up with Amazon Go’s expanding empire of cashierless stores. But Caper’s plug-and-play cart-based system might be able to leapfrog its competitors if it’s easier for shops to set up.

Caper combines image recognition and a weight sensor to identify items without a barcode scan

Inventing the smart cart

“I don’t have an altruistic reason, but I really want to put a dent in the universe and I think retail is severely under-innovated,” Gao candidly remarked. Most founders try to spin a “superhero origin story” about why they’re the right person for the job. For Gao, chasing autonomous retail is just good business. He built his first startup in gaming commerce at age 14. The jewelry company he launched at 19 still operates. He went on to become an investment banker at Goldman Sachs and JP Morgan but “I always felt like I was more of a startup guy.”

Caper was actually a pivot from his previous entry into the space called QueueHop that made cashierless apparel security tags that unlocked when you paid. But during Y Combinator, he discovered how tough it’d be to scale a product that requires a complete rethinking of a merchant’s operations flow. So Gao hoofed it around NYC to talk to 150 merchants and discover what they really wanted. The cart was the answer.

Caper co-founder and CEO Lindon Gao

V1 of Caper’s cart lets people scan their items’ barcodes and pay on the cart with a credit card swipe or Apple/Android Pay tap and their receipt is emailed to them. But each time they scan, the cart is actually taking 120 photos and precisely weighing the items to train Caper’s machine vision algorithms in what Gao likens to how Tesla is inching toward self-driving.

Soon, Caper wants to go entirely scanless, and sections of its two pilot stores already use the technology. The cameras on the cart employ image recognition matched with a weight sensor to identify what you toss in your cart. You shop just like normal but then pay and leave with no line. Caper pulls in a store’s existing security feed to help detect shoplifting, which could be a bigger risk than with ceiling and shelf camera systems, but Gao says it hasn’t been a problem yet. He wouldn’t reveal the price of the carts, but said “they’re not that much more expensive than a standard shopping cart. To outfit a store it should be comparable to the price of implementing traditional self-checkout.” Shops buy the carts outright and pay a technology subscription but get free hardware upgrades. They’ll have to hope Caper stays alive.

“Do you want guacamole with those chips?”

Caper hopes to deliver three big benefits to merchants. First, they’ll be able to repurpose cashier labor to assist customers so they buy more and to keep shelves stocked, though eventually this technology is likely to eliminate a lot of jobs. Second, the ease and affordable cost of transitioning means businesses will be able to recoup their investment and grow revenues as shoppers buy more. And third, Caper wants to share data that its carts collect (on routes through the store, shelves customers hover in front of and more) with its retail partners so they can optimize their layouts.

Caper’s screen tracks items you add to the cart and can surface discounts and recommendations

One big advantage over its ceiling and shelf camera competitors is that Caper’s cart can promote deals on nearby or related items. In the future, it plans to add recommendations based on what’s in your cart to help you fill out recipes. “Threw some chips in the cart? Here’s where to find the guacamole that’s on sale.” A smaller hand-held smart basket could broaden Caper’s appeal beyond grocers (think smaller shops), though making it light enough to carry will be a challenge.

Gao says that with merchants already seeing sales growth from the carts, what keeps him up at night is handling Caper’s supply chain, as the product requires a ton of different component manufacturers. The startup has to move fast if it wants to be what introduces Main Street to autonomous retail. But no matter what gadgets it builds in, Caper must keep sight of the real-world stress their tech will undergo. Gao concludes, “We’re basically building a robot here. The carts need to be durable. They need to resist heat, vibration, rain, people slamming them around. We’re building our shopping cart like a tank.”

The rise of (societal) resilience tech

If you follow millennials on Twitter (and god help you), then you know that Anne Helen Petersen’s piece this past weekend “How Millennials Became The Burnout Generation” struck a deep chord for many.

It’s longform and detailed, but Petersen’s primary thesis is that my generation has been dumped into one of the worst moments for economic and social mobility in recent memory (global financial crisis, etc.), which has led us to massively over-optimize our lives to try to extract any value we can. Baby boomers could work at a big company for thirty years at 40-50 hours a week with stable and increasing pay (with pensions!), while millennials have to simultaneously hold down four gigs and make their Instagrams and LinkedIns look great lest they fail to land their next gig, all while operating under the pressure of horrific levels of student loans.

Nod or shake your head, but I also think Petersen is getting at a much tougher challenge for society, one that I think will be one of the richest areas for investment in the coming years for founders and venture capitalists.

That thesis is around wellness and resilience, but not just of the health/physical variety. It also encompasses the reliability of our products, the level of income we receive each week, whether a storm might knock out our power, and how we read the news. Modern life is complicated and also chaotic, jumping from crisis to crisis we can barely understand. The question then becomes whether there are solutions that can absorb some of that complexity and chaos to simplify and satisfy our lives.

This week, rivers of glistening ink flowed over Lambda School, a Y Combinator alum that is using income share agreements to fund tuition at its schools. ISAs as a financial model are reasonably simple: if you go to a school, you agree to repay that school a fixed percentage of your income over a set period of time (let’s say purely for ease 10% of income for 10 years). Lambda School argues that this provides incentive alignment, because the school wants its graduates to be as successful as possible, while the Twitterati snarks that the startup has invented “taxes.”

First, fuck the snarkers who don’t spend any time learning about new, innovative models for offering services.

That aside, Lambda School is really offering a pathway to a more resilient life. If the economy collapses, student debt today still has to be paid on a fixed schedule, regardless of employment opportunities. Yet Lambda’s take ebbs and flows with the changes in the macroeconomy, offering to absorb the complexity and chaos around us. Want to take a year away from a high-paying job to work at a non-profit? You can, and Lambda adjusts without you even having to make a phone call.

This resilience tech isn’t limited to just education — it touches pretty much every facet of innovation. Just take a look at some startups I have profiled in the past year. Gremlin is using “chaos engineering” to reduce downtime and increase software reliability for web applications. Even is building out a savings model so that anyone can plan for financial independence. Wild Type is manufacturing salmon that can provide more sustainability to our environment and absorb climate change shocks.

There has been an enormous academic debate for more than two decades about the meaning of GDP, and whether there are alternative models worth exploring like Gross National Happiness. There are deep intricacies in that debate, but I would offer you this conclusion: we can wait for top-down permission to make a more resilient society, or we can create bottoms-up solutions that take some of the complexity and chaos out of modern life today. In a world of constant change and disruption, it’s the startups that increase stability that will reap rewards this decade.

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What’s next & obsessions

After a bit of a hiatus from the holidays and avoiding CES, I am back. Arman and I are still exploring our obsessions from last year, including 5G deployments, China tech geopolitics, next-gen semiconductors, and GPS.

But the new direction we are going to spend some cycles on is this resiliency theme described above. How do we innovate for climate change? How do we handle the increasing complexity of modern life, whether it is educational/informational, financial, or health? What does water security mean, and how is the world going to adapt and innovate to ensure ten billion people have access to safe drinking water?

I love hearing from readers, so if you have thoughts, opinions, articles or books, share them with me:

Stray Thoughts (aka, what I am reading)

  • The Planet Remade – Oliver Morton takes an imaginative look at geoengineering and its potential to solve climate change. Recommended to me by futurist writer (and reader) Eliot Peper.I read the first two chapters last night, and I enjoyed Morton’s framework around innovation and climate change. He poses two key questions: 1) should we take serious action on climate change, and 2) do you believe that taking action is very hard? He posits that if you are in the “yes/yes” camp, then today’s solutions offer nothing that will slow let alone reverse the effects of climate change. Therefore, it is incumbent on us to start exploring alternatives — i.e. geoengineering. I found the framework and his explanations lucid and compelling, and I’m looking forward to sharing more notes in the coming days/weeks.
  • The melting pot of JavaScript – I found this essay by well-known JavaScript engineer Dan Abramov quite compelling. He argues that the messiness of JS is a feature and not a bug, representing the flourishing of human creativity rather than a militarized top-down “BDFL” model that you see in other languages. That leads to complexity and “fatigue,” but also to much more rapid innovation. He has some suggestions on how to ameliorate that complexity’s worst effects, including improving default configurations to reduce cognitive load on engineers. Sounds like resiliency if you ask me.
  • On a more personal front, I wrote a long list of my personal favorite reads and writes of 2018.

Reading docket

What I’m reading (or at least, trying to read)