Background Reading: Checklist for choosing a startup lawyer. 

The market for law firms that represent emerging companies (startups) can be split up into 3 categories, in order from smallest to largest: (i) solos / tiny firms, (ii) boutique firms, and (iii) large firms (BigLaw). Similarly, the overall cost of the services that law firms charge can be split up into 2 categories: (i) compensation, and (ii) everything else (overhead).

The first category of law firm costs, compensation, plays the largest role in determining the quality of service. Great lawyers, just like great developers, engineers, doctors, etc., expect to be paid well for their talent. There is no getting around that, and it sets a floor on what law firms employing talented lawyers can charge. The second category, overhead, is often related to law firm size, as discussed below.

Solos / tiny firms (1-5 lawyers) are typically the cheapest on an hourly basis, because they have so little overhead. For clients whose work does not require a lot of team coordination and scalability, they are a good fit. The problem is that higher-growth startups do require those kinds of resources, and we regularly see them run into issues like slow response times, and errors resulting from rushing, when using tiny firms. For that reason, solo and tiny firms are much better suited for “small businesses” than true startups.

BigLaw (>100 lawyers) is on the opposite end of the spectrum. The majority of what large, international law firms charge is not actually going to the lawyer you are directly working with, but to pay for the very high-cost, complex infrastructure needed to represent billion-dollar companies on IPOs, international mergers, etc. For companies on what we could call the “unicorn track” and who expect to raise very large, very fast rounds and eventually go public or have a billion-dollar valuation, this type of firm is the best fit, because any other kind of firm will not be able to scale at the level needed to manage the work.

Boutique firms (about 5-75 lawyers) represent a middle ground between tiny firms and BigLaw. Their smaller size allows them to eliminate a significant portion of the overhead that inflates the cost of BigLaw services, while serving clients that need more scalability than a tiny firm can provide.

Egan Nelson (our firm) is a high-end boutique firm. We take lawyers from top-tier BigLaw tech firms and place them on a lower overhead platform, using technology and process efficiency, to drop their rates by hundreds of dollars an hour, without changing their compensation. We also drop their annual billing requirements, to improve their quality of life; which we think makes them better lawyers. Our profile client is a startup for whom a $25MM to $250MM exit would be considered a win. For a better discussion on the philosophy behind the kinds of clients we typically represent, see Not Building a Unicorn. 

Historically, entrepreneurs in startup ecosystems have believed that if their company intended to achieve any level of scale, they needed BigLaw. Given the SaaS revolution and availability of new low-cost software/technology for running firms and collaborating among different firms, the emergence of the high-end boutique ecosystem has made that no longer the case. If you’re building a unicorn, yes, you probably still need BigLaw. But the “middle market” of startup ecosystems now has much better, more right-sized options.