How To Evaluate and Choose a Fractional Counsel

Table of Contents

Introduction

One of the common challenges our founders face is choosing the right attorneys. There are stellar lawyers who operate within corporations across the globe, but they are difficult to find without a focused search.

Information Asymmetry: The market for legal services involves information asymmetry: lawyers know their own capabilities, qualifications and track records, but prospective clients have limited information to vet attorneys. The market for lawyers involves greater information asymmetry than many, because lawyers’ track records are opaque: the attorney-client privilege shields the outcomes of many representations from public review. On top of that, the bar for competent representation is low from a legal ethics perspective: the legal profession is not going to ensure you receive the optimal representation for your purpose.

When’s right time to find a legal advisor?

Despite the difficulty of finding and engaging talented counsel, founders should make finding counsel a preliminary step on the product development roadmap. The legal issues in regulated industries are complex: projects often involve building technology into an environment with uncertain and antiquated laws and regulations. Product considerations often generate serious legal considerations; and these factors require strategic legal planning.

Too often, legal and compliance considerations are an afterthought, and, as a result, teams find themselves re-tooling their products to account for those considerations when they could have been dealt with from the beginning. Undoing the consequences of inadequate legal attention is likely to have financial and time costs that are multiples greater than the upfront cost of appropriate planning. Having trusted counsel to help engineer compliant paths to success creates a competitive advantage for founders whose rivals may fall into traps that are expensive or impossible to remedy. Blindly following the mantra to “move fast and break things” can lead to breaking the company. Move fast in the right lanes and be clear-eyed about the legal risks you’re taking.

Step-by-Step process

1. Pre-work: Organize your facts

In order to evaluate prospective counsel, founders should have a ready grasp of the details that lawyers need to know to give an informed view. At a high level of generality, lawyers process facts based on their legal knowledge and reasoning to deliver an opinion of how clients can accomplish their goals and reduce risk. If you approach an attorney without a clear statement of what your business is and what you are trying to accomplish, you risk engaging them to do the fact discovery you could have done on your own. You also do not get to the most important aspects of your prospective engagement: the quality of their legal analysis.

Here are some questions and details to reflect upon that can help you identify your needs before you look for counsel.

What am I building, specifically? Deliver a blueprint: be clear and complete. Translate the super-technical speak. Don’t use acronyms or lingo that glazes over the nuanced details. You see this often in niche industries and it often leads to issues in communication and things left unsaid. If you have not fully developed your product roadmap, work to describe a handful of possible paths the product could take. Just as you will need to rely on the lawyer for legal analysis, the lawyer will need to rely on you to deliver the product vision.
How do I plan to build? The process can be as important as the outcome for attorneys. Break down the workstreams involved in creating your product and identify who is doing the work and where they will be located. Consider whether there will be different types of contributors and what forms of compensation they will receive. Think about the likely ways in which you will scale: you might contract for some services and hire some people outright; you might rely on protocols or software to accomplish certain tasks. Think of the people and tools you will need to help you build and note how you rely on them and how they rely on you.
Who will use what I build? Lawyers want to know about commercial relationships. Give the characteristics of the people or businesses who will use your product. Note whether they are identified, identifiable, or anonymous. Consider where they are located, how they will find out about your product, and how they will access it. Think about how users can change or exploit your product and how the relationship can go wrong.
Where is the money coming from and where is it going? Whether you are taking on investments or reaping profits, money flows have critical regulatory implications. If you are fundraising, gauge how much you are looking to raise and from whom. Knowing the profile of your investors and how many you will have can be important for structuring your legal entities. Think about how capital ultimately returns to those investors. Think about how your product monetizes and what you do with the proceeds. The pathway that money (in whatever form) takes to enter and exit your account or ecosystem can signal meaningful regulatory and tax implications.