Jun 2 2007 by Jason

What Are Standard Legal Fee Arrangments For Un-Funded Startups?

Q:  My question is “What is a reasonable compensation package for a startup lawyer/firm”?  I’m now starting a company in Seattle and have been talking with an attorney in Seattle.  After 2-3 meetings, we got around to his compensation proposal and I was a bit shocked. I thought it would be a reasonable equity piece (0.5 – 1.0%) in exchange for deferred/reduced compensation.

The proposal was:

* A max monthly fee ($4k/month, if expenses warranted, with excess carried to future months)

* 2.4% Equity, vesting monthly

He told me that both were negotiable, and that the 2.4% was usually for people where he’d need to make all of the funding introductions, and where the founders were less experienced. But, still, it makes it hard to negotiate.

If there’s a standard/reasonable level, I’d love to know what it is, to save time on this point and get to the important matters (quickly raising angel round, and building product/shipping gauging customer interest)

Thank you for any/all help,

A: (Jason).  This is shocking – I agree.  I took the liberty of checking in with a Senior Managing Partner at a major Silicon Valley firm (which presumably has higher costs of operations, not lower) and her was his response:


First, $4k max a month is hardly much of a deferral. That is a pretty high legal run rate for a non-VC backed (presumably Web 2.0 or 3.0) early stage company.

My package is usually the following:

If you are looking for VC money to get it started, don’t incorporate or incur any legal costs (hence no deferral needed) until you get a term sheet. Then, standard rates, no deferral.

Assuming you are self-funding/angel-backed for a while and are really tight on cash, and I think you are worth the risk:

1. Fixed fee for incorporation, founder issuance, all initial stuff $5k.

2. Actual costs, usually not more than $3-4, for the angel bridge note financing.

3. Deferral of up to a set amount, perhaps $15-20k, until the earlier of a VC financing, sale or some future date, usually 9-12 months out.

4. In exchange for the deferral, we get 0.30-1.00% of the fully-diluted equity, at founder price.

5. If we need to continue to defer after the set date arrives, agree in advance that they will give more equity 6. Also get right to invest alongside the VCs.

VC introductions, thoughts on the business plan are included, obviously.”

– So it looks like your lawyer is above market.  The person who sent me this note competes with all the other big named silicon valley firms and knows what the competition charges as well.