Next post is on tactics for creating demand ….

Let’s look at what most lawyers in the venture space will do at different stages.

1. Startup, most will do standard paperwork (shareholders agreement, employment contract, NDA etc…) for partial if not fully deferred comp. Some will even do it for equity. Most of this work is fairly standard and its basically spending an hour understanding the business and another hour and an hour or two customizing documents, nothing usually very fancy to be done here.

Average cost: Between $1500 - $10,000 depending on the firm and the level of customization. Some lawyers will do 100% deferred until Series A and others will do partially deferred. Some lawyers will also take equity, I’ve seen anywhere from 1-3% for all legal work up to Series A.

Series A funding: A funding round can be very expensive to raise. Why? Negotiation is a pain in the ass. Further it is almost never a good idea for a founder to represent himself. The founder can easily say something stupid that kills the deal while a lawyer (or banker) can get away with saying things and can negotiate harder because it is expected of them and because they are a step removed from the company. Some companies may get 20 term sheets, that’s 20 separate potential negotiations and others may have the lawyer run the entire fund raising round (making introductions, following up, negotiating terms etc…).

Average cost: A round can cost anywhere from $25k – 100k +. Some law firms will cap fees for the round ($35-50k) which is great if you can get it. It’ll end up with a lot less sticker shock after you’ve raised the money and wondering where it’s all going.

Now how should you negotiate with your lawyer? First start off by asking what is their standard for startups or for capping rounds. Then present what a competing firm is doing (I don’t recommend bullshitting about this) and see what happens. I wouldn’t really negotiate, just present peer options and see what they come back with. Usually costs end up around the same as long as you have a good relationship and have clear goals starting out.

With that said, Paperwork should be a placeholder to state the deal terms, not a weapon to screw with people. Whatever deal you do, have a PERSONAL lawyer who represents YOU involved, not just a company lawyer or a friend review it. Have someone who is beholden to your interests representing you.

I’ll share a few stories that illustrate the point.

So there’s a company I co-founded that I signed paperwork with a bunch of times but I keep getting the short end of the stick and the paperwork keeps getting used against me. I brought a huge amount of business and value and have seen almost nothing from it. This is a situation where paperwork didn’t help, it just continues to haunt me. But what did I learn from this? Taught me a good lesson about trust and that if people overcomplicate paperwork and then use it as a weapon against you its not people you should be working with. If they can’t keep themselves honest and have to resort to legal trickery then it’s a big red flag.

Another situation I was in was with a good friend and I had wanted a signed contract from the beginning but never pressed it and we got the deal done but he tried to optimize the deal for himself and failed and then tried to cram me down. He had a valid point, I ended up contributing less towards closing the deal than I thought I would – but that wasn’t our agreement. He actually said “next time you know to make sure I sign an agreement so you can hold me to it” which I respect and I know for next time. An agreement would have helped here and I probably would have agreed to renegotiate it anyway but learned an important lesson/

The situations that work the best are the ones with simple paperwork, simple shareholders agreements and simple goals and structures for everyone. Peoples’ responsibility needs to be clear otherwise problems will ensure.

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1. Market using email to your customer database
2. Allow customers to get a new product feed via RSS & Email
3. Have a newsletter
4. Do targeted promotion to just your top spending customers
5. Do SEO (permanent pages so they get indexed with proper tags)
6. Have a testing system so you can optimize your landing page and order pages and always be testing, always.
7. Start an affiliate program. If you have a single product to sell or continuity program there are a lot of large affiliate companies that would love it.
8. Allow people to share their products via social media
9. track twitter and whenever someone mentions your company direct message them
10. Listen to customer feedback. Not ecommerce but always works. Then after you’ve listened test it out to see if the customers knew what hey were talking about.