This is a question that comes up a lot. And it’s an understandable question. Costs for every factor of the startup—including startup legal fees— is something that most founders consider. In this post, I’ll go through the numbers, discuss them, and give some recommendations.
Median Startup Lawyer Hourly Rates in Houston and Dallas
Business Law Practice Area:
Houston, The Woodlands, Sugarland Metro Area: $300 (N=240)
Dallas, Fort Worth, Arlington Metro Area: $300 (N=282)
Securities Law Practice Area:
Houston, The Woodlands, Sugarland Metro Area: $400 (N=26)
Dallas, Fort Worth, Arlington Metro Area: $375 (N=23)
Source: State Bar of Texas Department of Research and Analysis
Now let’s talk about these numbers and what they mean. First off, these numbers are from 2015. We are in 2019. Statistics have shown that each number rises about $18-20 per year. So add each figure by about $80. These figures are for business law practice area and securities law practice area. Startup law is a blend of different practice areas. It is business law. It is securities law. That makes the numbers more difficult to ascertain.
Additionally, startups have a lot of variance. There are a number of startups and businesses that are small, don’t survive very long, and die pretty quickly. These startups don’t rack up the startup legal fees. However, there are plenty of startups that have run through the course and are growing rapidly and commanding large amounts of dollars from the marketplace and become large companies. They actually are hitting their strides and that hockey stick curve is seriously being realized. The startup legal fees for these companies tend to be higher—not necessarily when considering an hourly fee but when blended in with fixed fees, capped fees, etc.
Regarding the data above, note that these are median hourly rates. Median is the middle value in a list of numbers. So do not think that the median numerical value will be the same numerical value that you will pay your startup lawyer. Even though we have the data scoped to business law or securities law, there is still a wide degree of variability. This is true for a lots of types of attorney fees data. For example, you may see immigration law practice area hourly fees rates for N sample number. However, there are many niches in immigration law where there is room for variance. The number serves to give you a rough idea. So while it may be difficult to ascertain a particular amount for a particular law practice area, a broader picture can be realized even if that picture may be inaccurate in some circumstances.
So how much will you pay for a startup lawyer in Houston or a startup lawyer in Dallas?
Use the information above (the fair market value) and adjust the number up or down based on a number of factors in order to get to a number that is reasonable.
The reason why adjustments are appropriate is because the data does not and furthermore cannot capture the host of other factors that are applicable on an individual basis. I will make a point here that this adjustment mechanism is not something to just consider when it comes to attorney fees. It comes in with the price of ALL THINGS. The more business deals you negotiate, the more frequently you will have had to use adjustments on FMV in order to strike a deal.
Thus, here are the most important types of adjustments to make in thinking of how much to pay your startup lawyer:
Experience of lawyer
The more experienced your attorney is the more that number will go up. The less experienced your attorney is, the more it will go down. If the lawyer is fresh out of law school the rate will be lower. If the lawyer has been doing this for some time (e.g., 7+ years), then the rate will be higher. Self-explanatory.
Expertise of the lawyer
This is more important than the above experience category because within it is the idea of applicable experience. And instead of expertise, let’s call this factor by another name and call it for what it is—and that is skill. A number of attorneys have experience in the sense that they have been around for a long time. That’s all well and good and it definitely means something. But the more important consideration, or the more scoped consideration is SKILL. It comes with not just practice, but a deliberate practice. You may have heard this term in a psychological context or other area. You want a sharp knife that cuts through issues with exacting precision. You also want a person who is able to see with a broad-mind and understands the big picture at hand. One of the best I have ever seen at this was my boss at a law firm in Tokyo. He was a much older Japanese lawyer from pre-WW2 days. The precision he had was unbelievable and he really instilled this idea and also the idea of open-mindedness in all he worked with.
The point is that the more the lawyer is skilled—the more of an expertise he or she has—the higher the price will be.
Focus of the lawyer
Focus of the lawyer is highly related to the skill of the lawyer. What does focus mean here? It means what law areas does the lawyer practice. There are plenty of lawyers out there that practice in a number of areas of law (think: general practice). Some do everything. While this has its merits, it also has its drawbacks. The top individuals focus on just a few things and really crush it in those areas. The rule of thumb is that the more focused the lawyer is on one, maybe two, subsets of law, the more expensive that lawyer will be.
Complexity of your legal needs
Complexity of your legal needs don’t necessarily change the hourly rate the startup lawyer charges you, but they do have a hand in the factors which determine how much you’re actually going to spend. If your startup operation size is larger, if the general operations are more complex in nature, if there are more moving parts, more people, more assets, more IP involved, etc. then your legal costs will be higher. It changes what kinds of caps will be in place, what types of fixed fees are in place, etc. If your matter is complex, think higher numbers, not necessarily in terms of hourly, but what you will end up paying.
Geographic Region
In this article I touch on Houston and Dallas and you will note a bit of difference, but not much. If you’re reading this and don’t live in one of these areas, realize that the number may be higher or lower depending on where you are.
The general, but not always, rule of thumb is that the bigger of a city you are in, the higher the rate will be. For example, the 2015 median hourly rate for lawyers practicing in business law in West Texas (where there aren’t too many big cities) is $225 compared to $300 for a business lawyer’s hourly fees in Houston and Dallas.
Recommendations on Startup Lawyer Fees
1. Spend money
You will have to spend money to grow.
If you want your company to go any where, you will have to shell out for startup legal services—there’s not much you can do about that. It’s just one of those things. That doesn’t mean to go overboard. The unfortunate thing is that in order to make money you will have to spend money. Remember what I said earlier—it’s all about raising money and growing raising money and growing. So yes, you have to spend money to grow. The important thing is to do it wisely. Use this article as a guide for understanding reasonableness.
2. Discuss fees before being billed
As I mentioned earlier, I get it—for some founders legal fees are a real consideration at the beginning stages of a company. Make sure you understand the policies and the billing structure of your startup lawyer early in the process. Don’t just have the lawyer do all of these tasks until you understand what’s going on.
3. Actually talk to a startup lawyer
Doing too much research on the legal fees is a waste of your time beyond any type of intellectual curiosity. That is not to say it’s not important. But if you really want to know startup fees and this and that, just talk to a lawyer and see what the situation is. I’ve noticed that a lot of individuals, particularly the younger, more inexperienced founders, are hesitant in talking to others (forget about lawyers, I mean talking to anyone). It’s a bad tendency that they will have to snap out of.
All that being said—talk to your lawyer. It’s possible they have fixed fee or unbundled fee, capped fee option they can do for you. There are a number of mechanics that can be utilized that can make startup legal fees more digestible or more scoped to what you are doing.