How To Legally Incorporate Your Startup (Quick Answer: Get a Good Lawyer) - A Conversation with Yokum Taku
One of the best things about Silicon Valley is that almost anyone will meet with you for a cup of coffee provided that you're reasonably intelligent and not an axe murderer. My intelligence aside, I'm not an axe murderer, so Yokum Taku, partner at Wilson Sonsini Goodrich & Rosati, was kind enough to meet with me on Friday.As people who read Hacker News know, I consider Yokum's Startup Company Lawyer blog indispensable for budding and active entrepreneurs. There is a wealth of information on all stages of a startup company's legal needs, free for the reading from one of the Valley's most esteemed lawyers. Yokum most recently helped bring WSGR's termsheet generator to life and drafted the publicly available Series F documents for Adeo Rossi's Founders Institute. Wilson also drafted YCombinator's "open sourced" Series AA angel financing documents. In addition to Wilson Sonsini's work, Cooley Godward drafted a set of angel funding documents released by TechStars and the NVCA also has publicly available venture funding documents, which were led by Sarah Reed of Lowenstein Sadler. While we did discuss Dawdle, Yokum was kind enough to talk to me about a question I've been asked plenty of times: "how do I get started if I don't get into YCombinator/TechStars/LaunchBox/pick the clone of your choice?" This actually ended up being a rather fascinating discussion, and with Yokum's permission, allow me to share with you what we talked about. (Quotes are from handwritten notes I took during the conversation. No recording was made.) I presented the following hypothetical to Yokum: you have two people who want to create a startup. They're convinced it has the potential to be a billion dollar company, and one of the founders was able to convince her parents to seed the company with $50,000. The other founder has an uncle who's a small-town lawyer who's willing to create and file the paperwork to set up the company for free. Given this situation, and incorporating Yokum's knowledge of financings and exits backwards and forwards, the question was "what set of documents should the founders give the uncle as a basis to form the company?" After thinking about this hypothetical, Yokum responded "I don't think those docs are out there." He volunteered that it would be "better to use [the YCombinator Series AA] docs than anything else [he] could think of", since there's "not much [the lawyer] could really screw up if he was reasonably intelligent." But Yokum did volunteer that the ideal would be to have an experienced startup attorney at an established firm draft documents for the company given the firm's standard documents. Surprised, I asked Yokum if he knew of any firm using the open sourced documents since they were available for free for anyone to use. He said there was not a lot of actual use that he knew of since every investor already has their own set of documents with their preferred terms. Yokum stated that the documents serve to "give entrepreneurs a chance to look at [sample docs] before getting educated [by] their attorneys," who ostensibly charge for the privilege. The documents effectively serve to educate startup founders for free rather than actually replace seasoned counsel doing incorporation work. Given that Yokum's advice was to forgo the free attorney and seek out experienced counsel, I asked "where does a startup founder find this counsel?" Yokum responded with a list of regions: Silicon Valley, Seattle, Austin, Boston, New York City, and DC. I joked, "not Chicago?" and he responded "well, I was just giving you a list of cities where [WSGR] has offices." (A quick one, that Yokum.) In fairness, Wilson Sonsini does not have a Boston-area office. But upon discussion, I agreed that experienced counsel would naturally arise in areas that had active levels of investment, which Yokum characterized with two things: venture investors, and "companies that 'throw off' rich people to be angels." Yokum volunteered that he only knew of one or two venture firms in Chicago, and I named a couple more in town. He then asked about angels, and I had to concede that I knew of no active Internet angels in Chicago or the Midwest as a whole. However, the list of areas that did have counsel that Yokum termed appropriate was higher than I thought it would be, meaning that there are a number of lawyers at a number of firms in a number of cities from which to choose. I asked "well, how does someone find such a lawyer?" and Yokum responded, simply, with "an introduction." He elaborated, saying that even the largest firms still do startup incorporation work, but that not every "bakery and restaurant" needs this sort of counsel. Introductions provide a filter for hard-working partners to signal that a company is worth representing. That said, Yokum was very clear: "any [WSGR] partner [in any city] is happy to sit down for coffee and chat" with founders. Yokum made the further point that any startup "[has] to network to be a successful startup company" anyway, so it wasn't unreasonable for partners to want some sort of filter to meet for coffee. I then asked "well, where should founders network to get this introduction?" Yokum, being extremely patient with me, explained his thinking: in any startup hub, there are numerous events where startup founders meet. Anyone can stick out their hand, introduce themselves to another founder, and strike up a conversation. Startup founders are generally thrilled to recommend their lawyers to another founder (if they like their counsel), so it's actually rather easy to get a name or three. Then the new company can do a little internet research and ask the founders they met at the event to do a quick e-mail introduction to the lawyer(s) they might want to represent them in their new venture. Founders should meet for coffee with those partners before they make a final decision on representation - again, any Wilson Sonsini partner will meet with you as long as you have a warm introduction. (And although it may sound like just talk, since WSGR is "Google's lawyer and Sun's lawyer", they still do startup incorporation work. As Yokum quipped, "once upon a time, we did Sun's incorporation paperwork".) I found this conversation extremely valuable: Yokum acknowledged that any set of open sourced documents wasn't appropriate to use as a "fill in the blank" template, but he also didn't state that only a small handful of Valley firms were qualified. There are a number of firms in a large number of cities that have partners that not only "do" this work, but have the requisite experience to not make the simple errors that prove costly down the road. I personally would recommend Wilson Sonsini to any potential founder given my high esteem for Yokum and his colleagues, but there are partners at other firms in all these regions that may be a better fit for your given situation. Please note that you are looking for a good fit with a particular partner, not just the "name" of the firm. Even though each firm's documents are "off the shelf" and an associate - or paralegal - will do most of the work, having a good relationship with the partner is critical for quick and accurate answers to your well-researched questions.
[EDIT: Apparently YC may make their incorporation documents public, which may specifically address this issue by giving the "lawyer with a shingle" a fill-in-the-blanks template that would work: http://news.ycombinator.com/item?id=579872 ]