Back to Blog. 
TL;DR: Managing legal expenses is critical for startups to avoid costly mistakes and set the foundation for growth. Engage the right startup-focused lawyer early to align legal strategy with your goals and prioritize legal needs based on your startup’s growth stage. Use fixed-fee services for predictability, maintain organized legal documents, and build a strong, trust-based relationship with your attorney to maximize value. Avoid DIY solutions and generalist lawyers; instead, partner with experienced startup attorneys who understand the unique challenges of scaling startups.
Consult with a startup attorney today!
Managing legal expenses can be one of the most challenging aspects of launching and growing a startup. Legal costs can quickly eat up your startup’s limited resources if not managed properly.
However, many entrepreneurs do not realize that the need for effective, efficient and experienced legal services is critical and inevitable—from forming the Delaware C-corporation, creating a capitalization structure and framework that enables future equity financing, protecting intellectual property, raising startup and growth capital using convertible instruments (e.g. SAFEs, convertible notes) and preferred stock, negotiating contracts, to navigating corporate governance and regulatory compliance.
Whether due to inexperience or hubris, some startup founders overlook or undervalue legal counsel until it’s too late and to their detriment. Hiring the right startup lawyers for your startup can be a game-changer, but maximizing their value requires strategy and foresight.
As experienced startup attorneys, we share below specific strategies that you can use to manage and even lower your startup’s legal expenses effectively.
1. Choose the Right Legal Partner Early
Startups often delay engaging legal counsel due to budget constraints or the perception that legal issues can wait until they solidify their business plan. However, selecting the right legal partner early in your startup journey can prevent costly mistakes and unnecessary legal expenses. Your legal counsel should be knowledgeable, experienced in startup law and best practices, and aligned with your business’ vision. Seek recommendations from other founders, investors, or startup accelerators to find a startup lawyer who understands your industry’s unique challenges and opportunities and is familiar with local and state requirements.
Despite what you might hear, your startup does not need a full-service international law firm, especially at incorporation, and may never need this type of legal service. While we recognize that there are excellent attorneys practicing in large, full-service law firms, their fee structures (e.g., $750 per hour for first-year attorneys, $1500+ for experienced practitioners) and incentives (e.g., annual compensation tied to hours billed and fees collected) simply do not align with the unique requirements of startups, many of which are bootstrapping and raising seed rounds of funding. Also, in today’s legal marketplace, your startup law firm should be able to refer you to other boutique law firms and lawyers for specialized expertise when needed (i.e., patent and trademark counsel).
2. Prioritize Legal Needs (and Legal Expenses) Based on Stage of Growth
Not every legal issue requires immediate attention. Startups typically go through several stages, each with different legal requirements. In the early stages, focus on essential legal tasks like forming the company correctly so that it will attract investment, negotiating and closing seed funding rounds on company-favorable terms, onboarding your team using equity compensation and protecting your intellectual property through proprietary information agreements and other contractual provisions. It is critical to set the proper legal foundation during the Start stage of your startup – focus first on the essentials and then selectively move on to other legal projects as needed.
As your startup moves to the Fund and Grow stages, its needs will expand to include more complex financing and commercial contracts, employment agreements, various forms of equity compensation and more legal and regulatory compliance. It’s important to understand which areas are most critical at different stages of your startup’s growth. For instance, protecting intellectual property might be a priority for a tech startup, while a healthcare services company may need to focus more on data privacy laws. Knowing your startup’s specific needs and priorities over time will help you allocate legal resources more effectively and avoid overcommitting to legal services that are not yet necessary. Work with experienced legal counsel who can assist your startup with prioritizing tasks based on urgency and impact based on their experience.
3. Leverage Fixed-Fee Legal Services
Traditional hourly billing can be unpredictable and costly, especially at large, full-service firm rates, where legal expenses can rack up quickly. Instead, consider startup law firms that offer fixed-fee pricing for various services that startups require, such as incorporations, stock option plan formation, stock options and restricted stock grants, NDAs, consulting agreements, offer letters, advisory board member agreements, annual board and stockholder meetings, proprietary information agreements, etc. These fixed-fee services provide more predictable costs to help startups budget more effectively and often result in faster project completion.
4. Build a Long-Term Relationship of Trust, Transparency and Communication
Your startup legal counsel is not just a service provider; they are a strategic partner. Building a relationship based on trust and transparency will allow your startup attorney to provide more tailored (and ultimately more effective) legal advice. It’s important to be open about your business goals, challenges and plans. The more context your startup lawyers have, the better they can protect your interests and guide your startup through potential legal pitfalls. Legal services can be expensive, so optimizing communication with your lawyer is essential. Being clear about your expectations, deadlines and preferred communication methods can facilitate strategic and efficient legal counsel relationships. This collaboration will help reduce the back-and-forth and keep legal costs under control.
Most importantly, talk often (pick up the phone and call rather than send emails) and go to lunch. Your relationship with your legal counsel should be seen as a long-term investment. As your startup grows, the complexity of its legal matters will increase. Having a trusted legal partner who understands your business history and goals can provide continuity, excellent outcomes and peace of mind. You should include your startup lawyer in high-level strategic discussions to ensure that your legal strategy aligns with your overall business objectives.
5. Keep Legal Documents Organized
Disorganized legal documents can lead to unnecessary legal expenses. To avoid a messy “legal house,” you should make sure all your corporate records, contracts, intellectual property filings, and compliance documents are stored securely, named properly and easy to access. Many legal issues arise because of missing or poorly drafted documents, leading to costly corporate cleanup and even legal disputes. By keeping your legal house in order, you can prevent these problems and lower your legal expenses. This organization will be invaluable when it is time to finance or sell your company. An experienced startup lawyer can help you get organized early on so that your startup is ready to move quickly on various opportunities.
6. Experience Matters
While “big law” is not the answer for startups, neither is a do-it-yourself (DIY) legal template software service such as LegalZoom, Clerky or Carta, which are quick to disclaim any notion that they are providing legal advice and provide zero accountability. Similarly, lawyers who claim to “do it all” (e.g., a “door” lawyer who takes on any project that comes in the door) do not have the experience or skillset needed to provide effective legal advice and support for startups. In almost all cases, the corporate structuring and legal work these attorneys do will require a major reset. These attorneys also tend to freeze once the deals, agreements and legal issues become more complex. They love to “issue spot” without providing actionable advice and practical solutions. Remember: switching law firms can be very disruptive and result in extra legal expenses, so it’s important to start with the right legal counsel early.
Not surprisingly, there really is no substitute for an experienced startup lawyer who has taken startups from incorporation to exit. Your best solution for high-value, startup legal services is to find an experienced startup lawyer who has formed hundreds of companies, cleaned up many corporate dumpster fires, negotiated countless financings and M&A transactions (from both sides of the table), created complex financing models for preferred stock financings and M&A liquidation waterfalls, done the heavy lifting on multiple disclosure schedules and negotiated and drafted complex agreements with many moving parts.
This kind of startup lawyer will spot issues that you won’t see and provide practical guidance that can only be honed and focused after working with a variety of startups and founders for tens of thousands of hours. This startup lawyer knows how to handle complex deals and the “big law” lawyers on the other side of the table. They also have staying power because they will have the experience to guide your startup through the Start, Fund, Grow and Exit stages.
The challenge is finding this startup lawyer in a boutique or small firm setting. Shoot us an email – we happen to know a few.
Conclusion
Managing legal fees doesn’t mean cutting corners—it means being strategic about where and how you allocate your resources. By choosing the right legal partner, prioritizing your legal needs, and fostering a collaborative relationship, you can ensure that your startup is well-protected and positioned for success. In the competitive world of startups, a well-managed legal strategy can make all the difference between scaling successfully and running out of runway.
Consult with a startup attorney today!
Clients Also Ask Us:
How can my startup reduce its legal expenses?
Engaging a startup-focused attorney early on can help avoid costly mistakes while keeping your legal expenses down. Attorneys who focus on assisting startups are uniquely positioned to guide your startup efficiently and cost-effectively.
Do I need to hire a big law firm for my startup?
Not necessarily; boutique firms and startup-focused lawyers often provide the specialized expertise you need at a lower cost, with more personalized service.
How can I find a startup lawyer to help reduce my legal expenses?
Look for attorneys experienced in startups through referrals, local startup networks, or accelerators, and prioritize those offering transparent, value-based pricing models.
Which legal expenses are most critical for my startup?
You can expect to spend legal expenses on these critical areas: incorporation, raising money, hiring your team, intellectual property protection, regulatory compliance and key contract drafting.
How do I budget to start a business?
Outline fixed and variable costs, prioritize essentials like legal, marketing and operational needs, and build in a financial buffer to handle unexpected expenses.
