Anyone who is interested in the future of the legal profession should read this article from the New Republic. Of course, it’s not news that the legal profession is in a state of crisis to some degree. There is severe overcapacity, clients are spending less and those lawyers who have jobs at the larger firms are terribly unhappy. The article focuses on Chicago’s own Mayer Brown as a case study, and it’s dark reading.
Of course, capitalism is all about “creative destruction,” in the phrase made famous by Joseph Schumpeter. Some smaller practices, like goodcounsel, are trying to creatively reimagine what a successful law practice looks like in the 21st century.
Now that the “fiscal cliff” has come and gone, cliffs are less frequently in the news. In startup circles, however, a different kind of cliff is always popular: the vesting cliff.
Typically, vesting of founder or employee equity happens in even increments, daily or monthly. If you graphed that vesting schedule, it would obviously look like a straight, upward-sloping line, starting at zero and finishing at 100 percent vesting. Nearly as typical is to see the first year of vesting subject to a “cliff,” meaning that the first year of vesting happens not incrementally but all in one pop, at the end of the first year. A graph of such a vesting schedule is pictured below, with the vertical line representing the cliff.
In our practice, we represent both companies and individual co-founders and employees, giving us a balanced perspective. My message to all of these parties today is: don’t use one-year cliffs. I know that this defies conventional wisdom, but here conventional wisdom is simply wrong. Read the rest of this entry »
On a mini-run of non-legal posts here, but I have opinions and I have a blog, so look out…
The news of the day is 400 — carbon dioxide (CO2), the main “greenhouse” gas responsible for the warming the earth, has surpassed the 400 PPM milestone. As the New York Times notes, it’s really an “odometer moment,” 400 being a nice round number, but it’s been increasing for a long time, so no one should be surprised, except I suppose for the deniers of man-made climate change.
Having nothing at all to do with the practice of law…
I finished watching something on TV at about 10 last night, and before I turned off the TV, I happened to tune by all of the major local newscasts – WBBM, WLS and WMAQ – right as they were coming on with their top stories.
What were those top stories? A woman who died at Wrigley Field from choking on a hot dog, and more lurid details about the treatment of the girls who were kidnapped in Cleveland.
I stopped watching local news years ago, and this vividly reminded me why that is.
As those of you who know me know that part of what I enjoy the most about having my own legal practice is finding ways to innovate, including using technology more intelligently in the practice. I like practicing law, but the creative part of me really enjoys playing with new technologies or finding ways to apply existing technologies to my practice.
The difficulty, of course, is that as the principal lawyer in my busy practice, if I spend too much time innovating, I am not getting client business done. In other words, finding the time to invest in innovation is challenging for the smallest firms. Read the rest of this entry »
Co-founders are always struggling to determine the “right” equity split. In my view, it is a question with no “right” answer. Like much else in business, it’s about negotiation and bargaining power, and also about relationships, entrepreneurial style, and other factors.
Still, entrepreneurs often being software geeks, it was inevitable that someone would try to make art into science. Here’s an admirable, though in my view ultimately flawed, example of an effort to quantify how much equity each founder should receive, based on objective criteria.
Chicago-based entrepreneur Mike Moyer has also brought to my attention his version of a “dynamic” model for quantifying founder equity, which he lays out in a book called “Slicing Pie.” Here’s a video introduction to how his approach works. Mike was kind enough to send me an excerpt, which I look forward to reading in the near future.
I have no problem with any of these approaches, if people find them helpful. I do have reservations about spending too much mental energy up front on this, since an entrepreneur’s time is quite limited and there are other important issues to deal with. (If you don’t build a viable business, the equity split is meaningless.) Any approach to splitting founder equity needs to be practical from a legal perspective, i.e., must be simple enough to document, not create tax problems, etc. But the important thing is to get to a split that feels right for everyone, and then quickly move on.
Roy Strom, of the Chicago Daily Law Bulletin, was kind enough to interview me about legal services for entrepreneurial technology companies. The article is now out. Link below.
Okay, I’m being cute with this title. (But not as cute as if I had titled this post “Cover Your Saas.” Sorry, I could not help myself.)
Why am I being cute? Because if you are a provider of Software as a Service” (meaning that you provide services over the internet but don’t actually deliver code to you customers), then the agreement you have with your customers should not involve the word “license” at all.
I was going to explain this in some detail, but alas, David Tollen over at The Tech Contracts Blog beat me to it by, oh, about a year and a half. Tollen explains it well, though, so I thank him for saving me the time and effort.
If you are a founder or executive at a SaaS company, I think it would be helpful to understand the distinction that Tollen lays out.
“If I just want to raise some seed capital from friends, I don’t have to worry about any legal issues, right?”
Ah, if only life (and the law) were that simple.
In the recent edition of goodnews, goodcounsel’s newsletter, we discussed what you need to think about when you think about taking investment capital from family and friends.
Was that the goodcounsel logo on the back of that dude’s bike shorts?
Yes it was.
I’ve previously written about why everyone should hire lawyers that ride their bikes to work. So perhaps it won’t come as a surprise that goodcounsel is now a proud sponsor of the Play It Again Sports amateur cycling team, which trains and competes around the Chicago area.
Look out for them on the road, and give them a thumbs-up and plenty of room.
