$4,824.13 for Legal Fees

The most common question about by Truemors post (besides “How could you be so dumb as to think this could be a real business?”), was about what I got for $4,824.13 in legal fees. The fees covered the following:

• Trademarking Truemors

• Drafting a Terms of Use

• Discussion of copyright, liability, infringement, IP, and insurance issues

• Organizational resolutions and bylaws

• Stock purchase agreements

You could do less legal work and do it cheaper, but if you ever want to raise venture capital much less go public or get acquired for more than scrap value, this is not the place to save a few thousand bucks. If you’re negotiating an investment or a liquidity event, you want someone who worked at Brobeck, Baker & McKenzie, and Wilson, Sonsini, Goodrich & Rosati—as opposed to your uncle the divorce lawyer from Penny, Wise, & Pound Foolish or myinstantincorporation4less.com—not only for her expertise but to show opposing counsel that you’re not clueless.

If you don’t use a law firm that’s “in the know” at the very start, you will probably have to undo or redo a lot of things. However, this time, you’ll be using $500/hour lawyers, so the couple of thousand bucks that you saved in the beginning is going to look mighty expensive. Lawyers are like oil filters: You can pay now or you can pay later.

---

By the way, you will enjoy this is a comment on the Truemors site regarding how I over-spent on the design of Truemors:

Yup, I am a webdesigner! I got a computer for my birthday and it has Frontpage and everything. I can design any page you need! Just leave me your mail and I will write you!

Comments

[Andrew]

Hi Guy,
I'm guessing that your lawyer didn't recommended any attempt at a Patent or Design Patent --- is that right?
Many Thanks,
-Andrew

[Victor Franqui]

I love how people start a business and just waste money in the dumbest things. Then one year later they have no business, and wonder what when wrong. Cash FLOW 101!!!! Marketing!!! 101

[Jeff the Great]

just curious...did you use any of these online law resources I hear about on the radio all the time?

I am sure you are too smart for that, but it would have been an interesting aspect of this whole experiment.

[Webman in AZ]

You paid how much for that website design??? Too bad the design company that created this for you hasn't heard of validation... To pay for a site that doesn't validate and has a very low accessibility scale seems quite the waste of time and resources, either you're rich or too ignorant for your own good. Design houses like the one you used give REAL web developers a bad wrap.

[Deepak Vinchhi]

Hello Guy,

I read your blog posts religiously and enjoy them. We are just launching our online business, and we need legal help. Can you provide the name of the firm you went to (or any other reputed firm)?

Deepak

[jonah]

If your business goes nowhere (as is likely the case here), you've wasted $4 or $5k. Worry about what comes up when it comes up. That's the REAL entrepreneurs way.

************

How many liquidity events have you gone thru?

Guy

[Dootz]

Well, I'd rather have lawyers doing this work than chasing ambulances or going after the makers of contact lens solution (the latest class action suit advertised on TV). $4800 keeps them out of trouble.

******
http://surfcountry.blogspot.com

[Red]

While I might agree that you don't want to mess up your legal documents, that doesn't make it "feel right". As an entrepreneur I find it disturbing that 1/2 of the early grub stake finds its way in the pockets of lawyers. Deferred or not, they are still bills to be paid.

Guy, here's a Web 2.0 idea with a steady market and a potential for a paradigm shift. Take the concept of Nolo press and make it easy for a web startup to get all the airtight legal documents they need at one low price.

Most of the stuff we all pay for (NDA's, consultant agreements, employment agreements, non-competes, option agreements, articles of incorporation, etc etc) is all boilerplate... Sometimes we don't need the entire document, but simply the boilerplate sections strung together bit by bit. Trouble is, we are all used to paying some paralegal at a reputable firm $200/hour to go through and find/replace hand-edit the Word document. But even a top tier firm like WSG&R can & will leave behind spelling mistakes or mess up your options pool!

There has got to be a better/faster/cheaper way to get these very same documents that cover 90% of your typical webco, but for a lot less. To make it a full service company, partner with a few firms for legal representation should such a need arise.

[wow power leveling]

people will only follow a person's reputation for so long; if nothing impresses, that good reputation will disappear pretty quickly. If you had said from the start this was an experiment in starting a site on the cheap, I think people would have been more patient.
My lack of protection allowed my business to be killed by a manager, clients who did not pay, and competitors. If I had spent a few thousand dollars early on for such things as non compete agreements, better service agreements with my clients, etc.

[Scott]

Too true. There are places to go on the cheap...legal advise is not one of them!

[R. Titus]

I've made both mistakes, skimping on legal, which cost me a ton when an employee (or from my perspective an independent contractor) and I disagreed on his employment status when I decided his services were no longer required.

I've also, this was on an entertainment deal, spent $100,000.00 on four separate law firms in five countries and then not done the deal because the transaction costs were going to suck all the upside out.

Guy is right, have a professional do the professional stuff, especially when that stuff is the basis for the asset(s) you are building.

I always have two law firms these days. One is cheap and I can call them whenever I want and get my "deal therapy" (you know you all do it) and the other is a white shoe firm who's stationary puts the fear in people and who do everything rock solid. The model works for me, though I'll never confess to either who is who.

[100 Dollar Website]

quote : "In the long run I had a business that was doing very well, valued at a couple million dollars and soon thereafter I lost it all".
Too bad, man !

I have just started a company that makes cheap websites, and would like to know what steps to take for legal protection. Please post a detailed article about this.

[hindustan.mobi]

How did you spend so much on domain registration ?

*********

VISA card. :-)

About 55 domains, 52 of them auto forwarding, via Network Solutions mainly. Trumours, truemors, you name it.

Guy

[Mobfather]

Like water drops on Gore-tex, all you haters roll off his shoulder like you never existed. "Guy Kawasaki!" Say it! Now replace your names with G.K.'s and repeat...

See. It doesn't have the same effect, does it? Your names sound like a winnie balloon deflating.

Thanx for sharing your experience. And for having a cool name. Guy Kawasaki! Can you feel it?!

[jgonzz]

$4824.13?! That's not bad at all. I often think I'm paying my lawyer $10,000 just to scratch his ballz. But alas, there are things in the beginning of any great venture that require a sharp eye towards the smallest detail, the slightest minutia, for not doing so may lead towards shocking disaster. I am amused by the number, 4824.13. Why not just round up to $4900.00? Is he/she trying to give you a warm-fuzzy feeling of value? Did you have a coupon from the 'Sand Hill penny Saver'?

[Malagent]

I can speak from experience that not spending the money on legal fees is a tremendous mistake. I had a business that started off slow so I did not spend money on proper legal protection. In the long run I had a business that was doing very well, valued at a couple million dollars and soon thereafter I lost it all. My lack of protection allowed my business to be killed by a manager, clients who did not pay, and competitors. If I had spent a few thousand dollars early on for such things as non compete agreements, better service agreements with my clients, etc. I would not have lost a $2 million a year business.

[Volker]

An old saying: If good counsel is valuable, then good counsel is not expensive.

[joe]

In your original "by the numbers" post, you mention the dev firm that did the development, but not the legal firm that did the legal. Mind sharing who they were? Do you recommend using them again?

Thanks,
Joe

[DIY PR Builder]

How about getting a lawyer on the Board of Advisers who can do the legal work for you? They have an incentive to see the company grow - if it does you will need more legal work done and if it doesn't you're not out of pocket $4,824.13 or more.

[Dan Schawbel]

It's certainly worth the investment like anything else.

Risk and reward.

[Danny]

I can't tell you how right you are. It is amazing how many startup companies skimp on legal fees early and then later have to spend 5x what they saved getting un-f@#$ed.

Lawyers often have flat fees and/or flexibility with incorporating a startup. They don't often have that when they're trying to clean up a mess because it's difficult to know the extent of the mess.

If you can get deferred fees from a lawyer, do it. If not, just suck it up and pay for it. With lawyers you almost always truly get what you pay for.

[K]

I skimp on a lot of areas
but not on legal.
The only people who can afford to skimp there
are people with nothing to lose.

Still loving the comments.
If Guy With A History Of Success Kawasaki
gets so much flack about his start ups,
think of what the average entrepreneur
deals with.
Way more haters than fans.
Always.

[SorenG]

The good news Guy is that if you start something, many people will take a look. The bad news is that they will look expecting something pretty darn cool, not something done on the cheap. But as an experiment for you to understand "the other side" I think it is great that you did this site. As a feasible business, however, I have my doubts.

Still, people will only follow a person's reputation for so long; if nothing impresses, that good reputation will disappear pretty quickly. If you had said from the start this was an experiment in starting a site on the cheap, I think people would have been more patient.

[Jim Rudnick]

You're right again, Guy! Skimping on legals is a fool's idea...you MUST be correct on everything from terms of use to privacy policy to anything and everything else. I'm just surprised that the bill for same was less than $5k US....up here in Canada the same work cost about $15k CDN....

Jim

[Greg]

Great post on consideration of the legal aspests up front.

The music industry give the best example of people who did not retain counsel or take care of the legal details in the beginning, only to have it come back and bite them.

[Jon]

Thanks for breaking down your "legal fees" but in all honesty, you got nothing to prove nor justify to anybody (including those criticizing your idea). Your public persona is a success in every meaning of the word... we should all be this lucky! I really look forward to seeing how this goes!

Jon

[Marc Duchesne]

Guy : please continue to share with us your own " Art-Of-The-Start-In-The-Web2.0-Age-Per-The-Book " feedback.
This Truemors Experiment is a an incredible piece of real-world/hands-on experience for every ' Web 2.0 ' entrepreneur.
Pretty interesting : how you put yourself into Average Joe's shoes (e.g. the logo) whilst in the meantime leveraging on your own * VC kind of matter * experience (e.g. the legal stuff).

BTW : aren't you also the guy behind FSJ Fake Steve Jobs ?...

[Rik]

Guy, I think it's heartening to see the (apparent) ease with which you deal with all the criticism about truemors. It'll be really interesting where this non-business business of yours is going, which would probably be the point of the whole exercise.

Good luck, and you know what they say: 'seek criticism, not praise.'

[Catdaddy]

I don't agree with your justification here, Guy. I've been on the acquiring side of a few deals within a very large tech company - we've seen a lot of ugly legal agreements put together by less than spectacular attorneys hired by the acquired.

It doesn't matter. Most of those things get handled in the integration process. Very rarely do these things block deals, at least in my experience.

[sabat]

"Trademarking Truemors"

Not really necessary. You have prior use.

"Drafting a Terms of Use"

Huh? That's lawyer-speak for "I just said some big words; gimme yer money."

"Discussion of copyright, liability, infringement, IP, and insurance issues"

Unnecessary discussion. Blogga, PLEASE.

"Organizational resolutions and bylaws"

Whahh? the company corporation, $100

"Stock purchase agreements"

Blogga, PLEASE. You're not going public. I don't care what happens, you are NOT going public. And a purchase by another company surely does not require a stock purchase agreement other than boiler-plate bullshit.

To summarize: blogga, PLEASE.

[Bodenseepeter]

I agree to all points but this one, because it seems to apply only in the US.

[Hooshyar Naraghi]

Guy, congratulations on your first web site launch. Even though Truemors.com is a simple web site by your own yardstick of "DICE," hopefully you now get a realistic feeling what the real DICE-operated start-ups go through. I love people who are courageous enough to put themselves in the other one's shoes for a change.

I like to comment that for what you got, you paid less for legal fees than what I paid for our start-up. We paid 5K+ just to cover bullets 4 and 5 in a reasonably solid way. Our law firm is not in the WSGR tier, but an experienced one in Palo Alto, yet he is not an expert in bullets 1 through 3, which I intend to cover through another law firm on a deferred fees basis.

My only reaction about your relatively inexpensive, earth-shattering, paradigm-shift-moving, changing-the-world Web site is that some Web 2.0 start-ups do require 1 million dollars in order to be viable in the space they intend to survive and flourish. Some projects, however, don't need that much money. Based on what I have seen so far on the truemors.com Web site, $12K was about the right amount of money, of course with the exception of the logo that could be designed by Joe in one hour and all that coding that could be done by Jack in one or two days!

PS. That "!" is for the humor-impaired.

[Nate Klaiber]

That last quote pretty much sums up your whole Truemors venture. Trying to get in on something you know very little about. But hey - you have a computer, cheap logo, cheap developers, and a name you made for yourself 20 years ago. You are now Web2.0!

[Stavanger]

Any advise for recoveries if you haven't done this yet, but your 2.0 site isn't so big as of now? Is it possible to do the legal stuff after you launched your site for some times?

[Sam Davidson]

I agree with Guy on the legal fees. The one thing we haven't cut corners on in starting CoolPeopleCare has been what we've paid the lawyers to trademark everything and get our documents in place. Well worth it.

[Andrew Fife]

I agree that Skimping legal fees is a really bad idea, but most of the top firms will defer fees until after the first funding event. All of the firms that you mentioned will do this for bootstrapped companies that they believe have a reasonable chance of raising capital. In fact, I think the law firms provide a useful litmus test for a startups readiness to raise capital… since their bar is lower than VCs, if you can’t get the lawyers to defer fees, you probably aren’t ready to speak with investors.