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Ask HN: My lawyer has asked for 5% equity. Is that fair?

44 points by serialguy ↗ HN
I'm about to launch our site for my funded startup.

I've worked with a senior lawyer on a previous project. Now he's asking for 5% and $1k per month retainer. We need some facilitation in negotiating with the investor, shareholder agreement, founder agreement, site terms, site privacy policy, single contract for all suppliers. He's also offered to give off the cuff thoughts on matters as they arise. We don't need per-supplier or per-client contracts.

He's indicated he's open to a lower %. What's fair? What do other startups give and what do they get in return?

38 comments

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pallian
I've never heard to lawyers take equity for their services - is this common?
asabjorn
A top law firm took 0.25% pre-funding with no retainer in a previous startup I launched, and with that they agreed to delay all bills until a funding event so they took on risk for that price. His ask is way too high and it would in my opinion be irresponsible for you to commit 5% + 12k/year as a retainer.
pbiggar
I was under the impression most top law firms would defer all bills for free.
asabjorn
I am sure that depends on your leverage and the terms. The equity can be used as leverage to avoid personal liability in the case where your track record is not strong enough to defer bills for free.
nmbdesign
I wouldn't give more than 2% personally
scottydelta
5% equity is high and unusual for a lawyer.
esquivalience
If you do go this way, don't forget registering your trade mark and employment contracts.

If he will be available for a certain number of hours per month during the time that he is a shareholder, that could be quite valuable.

pm24601
No. Don't do it. He is asking for money - which shortens your runway AND a significant chunk of equity. In other words, he is extracting money from the business and asking for equity for the privilege of doing so.

The items you listed are not worth having a lawyer at all.

Look on places like docstoc for standard boilerplate agreements that will work just fine.

Look at wordpress.com's TOS https://en.wordpress.com/tos/ which they have made available under CC license.

If you really feel like you need a lawyer to draft a document or two. Pay for it with cash and get it free and clear.

Ask yourself this: Which is more valuable, a lawyer which will not build the business or a sales person or a marketing person or.. or a developer.

A lawyer is the least valuable profession to bring on board. An accountant would be better. But a lawyer for standard legal agreements, examples of which are freely available? No.

But if you feel inclined to pass out money foolishly let me know; I could use some.

cactusface
Ask how much he wants per month with no equity. If you give him equity, you have a strong incentive not fire him. Well, that sucks if down the road you want to fire him. Also, retainers usually cover billing by the hour and are not paid as a salary. There's more than one red flag here.
pbiggar
No, this is lunacy. Unless he's also providing a serious discount.

If the lawyer is also going to be an advisor, a typical advisor grant is 0.1% - 2% (depending on stage of company). Even then it would vest over typically 2 years.

I would find a new lawyer. As in, I wouldn't trust this lawyer, since he asked for this.

pbiggar
To reassure yourself that this is true, there's a dollar amount he's asking for here. If your company has $1m valuation, that amount is $50k. So he's asking for $50k as a signing bonus, in an arrangement in which he'll give you maybe 50 hours of advice over the year. In addition to fees. (And your valuation is likely higher, in which case his "fee" is too).

Run, dont walk, away from this dude.

Also, I heard advice somewhere to never ever give equity to vendors.

bsjolund
It's quite common for a banker to have a % success fee tied to raising a round of funding. Retainers are also quite common during these proceedings. You have to way the options of taking him on as a shareholder vs. paying him an up front % for the success of raising a round with his help (if he's involved with this).

5% equity does sound like a lot, but then again it might be cheaper in the long run if you get a solid contract stipulating exactly what services (hours per month/for how long..) this will include. Beware of the 'I'll help you out every now and then" type of agreements.

interesting_att
These terms seem absurd to me. 1k/month retainer for a startup alone seems awfully high. 5% equity is absurd. Get a new lawyer. If in SF, there are some great tech lawyers who won't rip you off.
[dead] TerryADavis
God is my lawyer. DOn't laugh. He doesn't just kill people. God will argue. Moses said to get Aaron to talk.
jmedwards
Unless you are getting into a business that would require constant specialist legal/compliance consultancy, and assuming it is for regular start-up type legal advice along the lines of what you've listed, that's absolutely outrageous - stay clear of the shyster.

A good way to think about may be this: if you were to raise an angel round of $100,000, how much of a stake would you be selling: is that in proportion to what the lawyer is asking for?

When answering that question, I would also keep in mind: (1) is the lawyer's advice going to open up as much opportunity value as the angel coming on board ($1 != $1), and how much of a stake it would indirectly cost you if you were to simply raise an angel round and pay the lawyer money instead (which shouldn't be a huge amount; the kind of work you cited sounds like junior level work not much more than tailoring off the shelf agreements).

jbverschoor
Just find a different lawyer. How are you even gonna sell this to the shareholder?
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bsaul
Unless the site has deep legal ramifications, the fact that someone just think about giving equities to a lawyer is a symbol of how rotten to the core the legal system is in the US.

The whole patents mess plus a huge culture of suing people and companies would make me want to think twice before creating a business there.

tddfuckwitz
Can't blame him for asking. He has obviously sized you up correctly, given you didn't say no to him straight off the bat. Unless you expect lawyer cannons to be fired broadside at your startup on an hourly basis, how much involvement would you really need? There is your answer. Now, about my ten percent equity for the above advice...
kzhahou
What would be appropriate for taking care of incorporation, pre-funding?
onoyoudont
Wilson Sonsini took 1% back in the heyday of the dot-com bubble.

Things might be different now, but it's a Silicon Valley data-point.

hippieheadcase
Don't give any equity to your lawyer. If you do, you'll have a shareholder with a huge conflict, and with the power to self-deal. Remember this is the person who's going to actually read the stuff you sign. I got burned by this. Your lawyer is the one person you want to pay in cash. And that's all.
meric
Are you starting a patent troll company and need a lot of lawyering? If not, then that's too much lawyer you're paying for.
fpalmans
If this lawyer is in the south-bay area, I might even know to whom you are referring. Unlikely though that might be, I wish to repeat the tone in the many comments you have received and strongly advice you retain different representation!

All the best with your venture! Frank

mdekkers
No this isn't fair. Get a professional.
brador
No skin in the game = no equity. No exceptions.