I was recently asked for my advice to marketplace founders when hiring their first lawyer. Specifically, I was asked:
How to validate whether a lawyer has experience with marketplaces;
What is a reasonable fee range for marketplace lawyers; and
I've been practicing law and working with startups for nearly 20 years, and I have seen just about every horror story one can imagine. I often play cleanup when inexperienced lawyers wreak havoc on my soon-to-be clients, so I'm sharing my thoughts on these questions in a blog post to help marketplace founders navigate these waters more easily.
When vetting lawyers (but also insurance brokers, consultants, etc.) ask very direct questions. I would start by asking, "How many marketplace startups have you worked with?" And, "Exactly what did you do for them?" A lawyer (broker, consultant, etc.) who has worked with marketplaces will name-drop (even though in many cases they shouldn't reveal clients). If they can't give you names, just ask the industry or the vertical. They should be able to articulate their experience in language that marketplace founders understand. I would also ask for references. Even if you don't contact the references, you can look them up to see who they are and if they have operated marketplaces.
The first red flag when hiring a lawyer for your marketplace is when you have to explain what a marketplace is or how the business model works. You may get questions about monetization, payment processing, screening, etc., which is fair game (especially because not all marketplaces operate the same way). But, any quizzical looks or confusion about marketplace business models is a red flag. Keep in mind that e-commerce clients are not the same as marketplace clients. Certainly a Venn diagram with a lot of crossover. But, there are unique laws, regulations, and defenses for marketplaces that don't apply to all of e-commerce.
In terms of fees, it depends on the scope of the project and where you are located (geography often dictates rates), as well as how big of a firm the lawyer practices at (the bigger the firm, the more overhead, which can translate into higher hourly rates). I would always encourage marketplace founders to ask that projects be done on a flat-fee basis so you know exactly what it will cost and so there are no surprises. Otherwise, hourly billing can get out of hand and it's hard to argue with it since you don't know how long it took the lawyer to complete the project. Good lawyers who have worked with marketplaces extensively will be able to gauge very quickly how much time a project will take and what it will cost.
Here are some tips on some of the basic early legal requirements...
Incorporation is the first step. If you have no money for incorporation, do it yourself or use an online incorporation platform. I've used Harbor Compliance successfully and incorporation starts at $99. Most founders will incorporate as an LLC, S-Corp, or C-Corp in Delaware - it's easy. Otherwise, pay to have it done for you. I also work with some lawyers who can do it VERY cost-effectively - for a few hundred dollars.
Next, you need a set of documents that you will use with anyone you engage - employees, contractors, vendors, etc. Specifically, you need a solid nondisclosure agreement, an employment agreement (with confidentiality, noncompetition, IP assignment, nonsolicitation, etc.), and a contractor agreement (with the same terms, at a minimum). NO MATTER WHAT, DO NOT SHARE INFORMATION OR PAY ANYONE FOR ANYTHING UNLESS THEY'VE SIGNED ONE OF THESE DOCUMENTS. Startup lawyers should charge you a nominal fee for these documents since they are templates that have been used 100 times before. I give them away to my clients because I'd rather they be protected than make a quick buck.
My offer to any founders navigating these waters - contact me and I will give you my thoughts and advice to help you find the right lawyer, and it costs you nothing. I find that good legal representation is essential for the success of a marketplace, and I am always happy to help founders get off the ground quickly and cost-effectively. I can be reached at firstname.lastname@example.org.
About the author:
Jeremy Gottschalk is the founder of Marketplace Risk and a 20-year practicing lawyer. He regularly counsels entrepreneurs, startups and scaling marketplaces and digital platforms.