How to Determine Legal Quality
Short answer: it's really difficult. Here's why.
The market is broken.
Amazingly, most startups have serious problems with their formation paperwork that require a lot of time and money to fix. This is true for legal paperwork from just about any popular online service, and even from many lawyers.
You might think that if there were serious issues with an online service or lawyer, there would be angry customers complaining about them and they'd be sued out of existence. That doesn't happen.
Why? Two reasons.
First, as a founder, it's practically impossible to directly determine the legal quality of an online service or lawyer. You can easily tell if an online service has a good UX and content marketing, or if a lawyer is friendly and responsive. But you'd need a startup attorney to identify most problems with legal paperwork. There is no correlation between good marketing and legal quality, so you can't use that as a shortcut either.
The second phenomenon is that you can't rely on the market for this information either, because there is no feedback mechanism. Most startups fail, so the vast majority of problems are never discovered in the first place. The startups that survive will probably discover their problems at some point (or their lawyers will, at least). But the people that would know about the problems – company management, lawyers, investors, and acquirers – typically have an interest in keeping everything confidential, and little rational incentive to be punitive. As a result, the market rarely finds out if there are problems with a lawyer or online service.
There's no good answer.
There's no good answer.
The best way to get the information you need to make a good decision is to talk to the people who end up fixing the problems startups have with their legal paperwork – high quality startup attorneys. Many may be hesitant to recommend any online service, precisely because they have seen so many cause problems. If that happens, ask them which online service they would recommend if they had to pick one. It's important to ask them discreetly, because there could be relationships or other factors that would lead them to answer differently in public.
Of course, for the same reasons described above, it's practically impossible for a founder to directly determine whether a startup attorney is high quality or not. They could easily be one of the ones causing problems for their clients!
What can you do?
What can you do?
To work around this, the first step is to determine whether a lawyer is a startup attorney, never mind a good one. A lot of lawyers claim to be startup attorneys, when they actually have very little relevant experience. Try to find attorneys that are doing at least a handful of Series A or later stage venture capital financings a year, as a heuristic. Now that you can determine who the real startup attorneys are, we suggest talking to as many of them as possible and asking them which other startup attorneys they respect. Within a given geography, it shouldn't take too long to hear some names come up repeatedly. An added bonus is that you'll also end up with a good list of startup attorneys to work with in the future.
We realize that this is all a lot of work, and may not even be possible for many founders. A lot of founders live in regions without any good startup attorneys at all. Unfortunately, this is the only good suggestion we have at this point. We're always trying to think of better ways for founders to be able to do this though.
While this probably wasn't the answer you were hoping for, we hope it will at least help you cut through some of the marketing out there. If you have any questions, please don't hesitate to reach out to us at email@example.com.
Common approaches, and why they don't work.
For most software, a good approach is to look at the website for the products you're considering so you can see what the differences are. When it comes to online legal services, that can also be a good way to compare features as well – as long as the feature is not the quality of the legal paperwork.
Why is this? With most features, it is easy to directly verify whether or not a feature exists and how well it works. This is absolutely not the case when it comes to legal quality though. If a service tells you their paperwork is high quality, you don't have a way of verifying that for yourself on your own.
Reviews and testimonials can be a good way to learn about what it's like to use a service or work with a lawyer – from a non-legal perspective. But because it's practically impossible for founders to directly determine legal quality, reviews and testimonials aren't going to be helpful for determining that either.
Sometimes, a review might mention that a lawyer reviewed the paperwork and indicated whether or not there were issues. While this is often useful information, there are often instances where this is not. We've seen plenty of cases where lawyers have missed or downplayed issues, and plenty of cases where lawyers have pointed out issues that didn't actually exist, whether intentionally or not.
Talking to other startup founders in your network is a great way to get candid information about what it's like to use a service or work with a lawyer, or to get recommendations about services or lawyers to use. But as with reviews and testimonials, talking to other startup founders is unlikely to yield any useful information about legal quality because it is nearly impossible to judge legal quality without experience as a startup attorney.
Because investors and advisors are typically not startup attorneys, recommendations from them are typically only indicators of how popular an online service or startup lawyer is, or in the worst case, which ones they have relationships (whether personal or professional) with.
Some online services partner with one or more law firms they claim have a leading startup practice. The implication is that the partnership means the service has sufficient legal quality. While this has obvious intuitive appeal, the reality is that these partnerships have not been enough to prevent serious legal problems with the service, from what we have seen.
In some situations, the law firm involved does not actually have a strong startup practice. Most startup founders don't follow the legal industry close enough to be able to realize this is the case.
In other situations, the law firm has a strong startup practice, but probably doesn't have enough influence over the product to force legal quality to be prioritized over everything else. An additional issue could be that the law firm is not involved in the product development process enough to know about all the potential problems they need to advise on.
Because the market is broken, there is no inherent correlation between how popular an online service is and the legal quality of that service. In fact, the only other online services we have seen consistently produce paperwork without legal issues, are ones that virtually no one has heard of.
There is a slight correlation between how popular a startup lawyer is and legal quality. However, we have seen very popular startup lawyers lack the basic knowledge and judgment required to help their clients avoid legal problems.
Clerky has used forms considered extremely standard in Silicon Valley from the beginning, so we understand why this is important and why it is appealing.
Unfortunately, it is easy for an online service to claim they are using standard forms, but fairly difficult for someone to verify that unless they're a startup lawyer. We have seen online services make this claim, when they in fact use forms that are considered extremely unusual (at least in any startup ecosystem we know of). The startups that we've seen use this service have had to completely redo all their legal paperwork before raising money.
On top of this, even if an online service uses standard forms, getting paperwork done correctly involves more than using the right forms. It is entirely possible, and perhaps likely, for an online service to misuse standard forms in a way that causes substantial legal problems for their customers. We've seen it happen to hundreds of startups that didn't use Clerky, unfortunately.
At first blush, looking at the incentives a lawyer or online legal service has to care about quality seems like an effective approach. After all, if someone is incentivized to make sure their clients or customers didn't have issues with their legal paperwork, why wouldn't they make sure of it?
The problem with this approach is that it is entirely possible for someone (or an organization) to care deeply about legal quality but simply lack the expertise to identify possible issues. Not only that, but they might even be completely unaware that they lack this expertise, and earnestly believe they are doing what's best for their clients or customers. One area we've seen this come up a lot in is when online legal services are started by or run by people who aren't top-tier startup attorneys (or attorneys at all!).
Now that we've written about these issues, it will be relatively easy for other online services and bad lawyers to figure out how to write about it themselves. We fully expect it, though it's always possible they'll read this and decide not to!