What can I expect to pay for legal services over the first year for a SaaS startup? Per hour rate? In total? Equity?

Thinking of things necessary to get the company off the ground in the right way: incorporation, founder's agreements, terms of service, privacy policy, contractor agreement, employment agreement, intellectual property assignment. Thanks!


We both know that hosting is very application specific, and that quality of service varies drastically between providers, yet you'll always find individuals who treat it as a mere commodity. The true value of the host isn't predicated just on their performance characteristics, but also their accessibility, knowledge, adherence to SLA, responsiveness, etc, especially when things go wrong - and things will always go wrong. And when your reputation is on the line, you want to make sure you're partnered with someone that shares your sense of urgency, and acknowledges the value of your reputation, especially as a service provider. This is no different than an attorney.

Is your car mechanic a commodity just because you can find the manual online? Of course not.

Are developers a commodity just because there are plenty of tutorials, example code and stackoverflow questions on the internet? Of course not.

The commoditization of legal services is a common mistake of neophytes, because they fundamentally misunderstand the value proposition of attorneys. Legal representation is more akin to a consultancy than bookkeeping, and you should bear that in mind when finding a partner to help you navigate the legal waters.

With that said, I am not suggesting that you go and find the highest priced attorney you can find. You need to find an attorney whose acumen reflects the sophistication of your venture, as well as your ambitions. For example, if you are planning on taking VC funding you'll need an attorney that has navigated those waters before, as there are both transactional and strategic considerations, especially at the formation level.

Another important consideration is industry. Certain industries have a strong regulatory apparatus, and as such, you'll require an attorney that is well versed in that arena. For example, HIPAA if you're in the medical industry.

In my practice, a vast majority of my clients took it upon themselves to handle their own formation. Many did this because of lack of resources, but most did this because they received the advice from others that legal services were just a formality, and that you could find form documents online that could be augmented to suit your purpose. Most of the issues that these clients now face could have been avoided if they had been properly advised to begin with and the liability the firm is now exposed to dwarfs the previous cost of proper representation. This is especially true in regulation heavy industries; you do not want to be on the receiving in of a cease and desist letter sent by the Attorney General.

When you hire an attorney, hire them for the long term. Don't hire them for this specific transaction. You want a representative that has grown with your company, speaks your language, and understands the challenges you face. As well, given the fact that you're a SaaS venture, finding an attorney that has technical proficiency can help greatly. The most important documents your attorney will help you draft aren't the formation docs, but rather those related to the operational integrity, and thus risk exposure, of your core service offering - client agreements, SLAs, IP protection, etc. The importance of your formation docs rests solely on the nature of your corporate structure: will you have investors? will you have different classes of stock? are you in need of any creative securities devices? what does your asset portfolio look like? will you be segmenting business units to try to insulate risk and liability? will you need to generate transfer costs between the business units? what kind of tax considerations are applicable? are there any ancillary considerations of formation (such as qualification as a HUB)?

The number of variables involved just with formation is almost boundless. The attorney's job is to act as a facilitator and intermediary between you and the law, mitigate your risk, lower your exposure and create a framework by which to handle unanticipated legal and operational issues. Most startup attorneys advise just as much on business issues as legal issues - these aren't mutually exclusive concepts.

I know you were probably asking for something more concrete, but I don't think you'd be well served being provided any definitive numbers without knowing your industry, what your short and long terms goals are, what your vision for your company is, and the risks associated with your venture. If equity supply is limited, and you're in an extremely straight forward industry with little exposure, then you could probably find an attorney willing to draft all of these for <$2,000 - however, if you're in a specialized industry, with more regulatory considerations, and want an attorney that will even help define your operational policies, you might pay well over >$20,000 and it'd likely pay solid dividends. Look at an attorney as an investment - judge them by their ROI, no different than any other consultant.

As far as hourlies go - transactional attorneys typically charge more than litigators, especially if they have specialized experience. As well, it completely depends on your market. An attorney in NYC is going to be 2-3x that of a one located in Oklahoma City. Without knowing the market, it's hard for me to give you any kind of accurate estimate. Furthermore, a "big firm" attorney is going to cost more than a solo practitioner or boutique firm, but has advantages of their own.

And don't forget: you should quantify your coefficient of risk, and include it in your discount rate when doing any valuation or due diligence work.

Let me know if you have any further questions.

Note: I'm a programmer and transactional attorney licensed in TX, NY and NJ who specializes in tech startups. I'm not trying to solicit a call with you. In fact, I urge you to find someone local, or at least someone within the jurisdiction where you'll be forming your company. I'm just trying to provide some perspective on the actual value of an attorney and what you should look for.

Answered 10 years ago

For everything you've listed above, I'd spend no more than $5k. Most of the docs you've described above exist in many places over the web in template form that you can modify.

You can spend your equity anyway you like, but I like to spend equity thinking of it being valued at the IPO or exit price. In other words, don't think about it as your current valuation, (let's call it $3m) but rather $300m valuation.

In that scenario, you gave away $500,000 of value to pay a $5,000 bill. Now of course, the odds for all of us are slim that that's going to happen, but I think being disciplined about how you spend your equity is crucial to building a big enterprise.

In the early days, the most important docs of what you describe above are the founders (shareholders & employee) agreements.

As a fellow SaaS entrepreneur and investor in other SaaS companies, I'm happy to talk to you about this or any part of the startup process.

Answered 10 years ago

You can expect to pay either $400 a hour on retainer or $up to $125 a month for unlimited conversations. I suspect you will prefer the $125 a month for unlimited conversations as you will not have to give up equity.

Answered 9 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2023 LLC. All rights reserved.