How to Navigate Legal Challenges as a Startup

One of the biggest issues I see when completing People Operations Organizational Diagnostics for early-stage startups? A lack of foundational legal documents to ensure compliant employment and mutual employer/employee protections in each employee’s country and/or state. Here’s a bare-bones checklist 🦴 of what you must have in place: 📜 Employment & Legal Essentials Team Handbook + location-specific addendums CIAA/PIAA agreement tailored to local laws Compliant I-9, 1099, and W-8 BEN documentation process 💰 Contracts & Compensation Standard consulting/contractor agreement Stock option agreement (if issuing options) Separation agreements (customized by location, supervisor status, RIF/non-RIF, etc.) 🌍 Payroll & Compliance A reputable payroll provider or PEO that handles multi-state compliance Employer of Record (EOR) or a global payroll process if hiring internationally If you don’t have—or don’t know what—some of these are, call an employment attorney. You need one. This isn’t legal advice—just the musings of an HR consultant who’s seen some scary stuff. 🫣 What’s been the hardest compliance challenge for your company? ___ 👋 I'm Melissa Theiss, 4x Head of People and Business Operations and advisor for bootstrapped and VC-backed SaaS companies. 🗞️ In my newsletter, “The Business of People,” I share tips and tricks that help founders, COOs, and Heads of People take their tech companies from startup to scale-up.

I've spent $2M+ on legal fees and worked with 15+ law firms building fintech. Most founders know how to work with engineers but are lost when it comes to legal/compliance. Here's the untold truth about building fintech startups. The reality most fintech founders face: You raise money on an amazing vision. Build a waitlist. Ready to launch fast. But then you hit the legal wall: • Hire expensive lawyers • They say it's never been done • Give complex advice • Kill your innovation • Delay launch by months Your investors get impatient. Sound familiar? Here's what actually works: 1. CEO mindset Regulatory compliance needs to be the CEO's top focus. More important than product or engineering. Why? No fintech has succeeded without great regulatory and compliance. Even Stripe's founder John Collison said hiring great counsel was crucial to their success. 2. The Art of Managing Lawyers Most lawyers excel at one thing: Making everything sound like an existential risk. Not because they're malicious. It's how their brains are wired. They have to cover all bases. But don't fall into the "everything is a risk" trap. 3. Hiring the Right Firm Look for these qualities: • Deep specific experience • Understanding of regulatory goals • History of creative solutions • Track record of simplifying products • Asking the right questions on day 1 • Focus on making progress Bad lawyers push paper. Great lawyers unlock innovation. 4. Getting Results (Without Slowing Down) Remember: You're in the driver's seat. If a big-name lawyer isn't working, you can always find a bigger one. Key principles: • Never ask for yes/no answers • Don't outsource your thinking • Keep product strategy in-house • Focus on probability, not possibility • Start simple, then add complexity • Study competitor implementations 5. The Hidden Truth Most lawyers will give you 10 reasons why everything needs to be built from scratch. But here's what they won't tell you: • Most solutions already exist • Risk levels are often exaggerated • Creative alternatives are available • Progress matters more than perfection 6. Making Hard Calls As CEO, you'll face tough decisions with high uncertainty. Sometimes that means: • Not following lawyer advice • Firing firms that slow you down • Taking calculated risks • Trusting your instincts It takes courage as a first-time CEO. But that's what separates successful fintech founders from the rest. The winners aren't those who avoid all risk. They're the ones who: • Understand the regulations • Make informed decisions • Move fast despite uncertainty • Build amazing products Don't let legal fears kill your innovation. Find lawyers who help you build, not just avoid risk. The future of fintech belongs to founders who master this balance.

I recently had a call with a startup team (let’s call them Startup XYZ) that brought up some critical "startup entity structure" lessons every founder should know. Here are a few takeaways from the conversation: 1. Get the Right Legal Support Early: Not all attorneys are equipped for the nuances of startups. A true venture attorney understands key topics like QSBS (Section 1202) and Rule 83b. The litmus test for a venture attorney is asking, ‘Do you know about Section 1202?’ If they don’t, you’ve got the wrong person. Needless to say, Startup XYZ was using an attorney that was a family friend. 2. Understand Your Entity Type: The founders of Startup XYZ had both an LLC and a C-Corp at different points in the history of the company, leading to confusion and missed opportunities. If you’re aiming for venture funding, start as a C-Corp. The tax advantages of QSBS can save millions but only apply to C-corps. You need to Google 'QSBS, section 1202' and read up on it. 3. Clean Up Before You Scale Up: Investors dig deep during diligence. Issues like unclear ownership of intellectual property, incomplete cap tables, or poorly defined equity agreements can be deal-breakers. Startup XYZ from the call had intellectual property that wasn’t properly transferred from their C-Corp to their LLC, creating potential legal risks. As a founder, you don’t want anything coming back where shareholders from a dissolved entity make claims if your company becomes a hundred-million-dollar success. 4. Be the Benevolent Dictator: As a founder, it's your job to own your cap table, structure, and decisions. Startup XYZ had previously raised some funds and the lead angel investor was managing the cap table, creating governance risks. The founder of a startup needs to own and take over cap table management—the benevolent dictator. It’s your responsibility to ensure clarity and fairness, not your investor’s. 5. Every Action Compounds: Building value on a shaky foundation only magnifies the cracks. Before signing new customers, hiring employees, or taking additional investment, ensure your structure is solid. The team from Startup XYZ was adding value by signing customers and making hires without fixing all these foundational issues. Don’t create more value until items like these are fixed. The more value you build on a shaky foundation, the harder it becomes to clean up. These things may be nit picky and may seem minor now, but they can make—or break—your company later. Especially as you move into fundraising.

When you're building a startup, it's tempting to cut corners early on. But skimping on these two external partners is like building a house without a foundation: 1. 🧾 Outside Accountant 2. ⚖️ Attorney In the early days of Sauceda Industries, I handled our books myself. I thought I was saving money, but I was really costing us in the long run. Without clear financial data, I couldn't make informed strategic decisions or secure the financing we needed to grow. An outside accountant is your financial navigator. They provide: 1. 🧭 Clarity: Regular, accurate financial statements give you a true picture of your business's health. 2. 🌍 Perspective: They help you see beyond the day-to-day, identifying trends and opportunities you might miss. 3. 🚧 Risk Mitigation: They ensure you're compliant with tax laws and financial regulations, helping you avoid costly penalties. 4. 📈 Strategic Insight: With their help, you can make data-driven decisions about where to invest and where to cut back. I eventually brought on a great accountant, and it was a game-changer. Suddenly, I had the financial clarity I needed to steer Sauceda Industries in the right direction. Similarly, a startup-savvy attorney is crucial, especially when you have partners. It's easy to wing equity conversations over a handshake, but without clear rules around decision-making and dispute resolution, your company can become paralyzed. Your attorney will: 1. 📝 Draft Ironclad Agreements: They'll ensure your partnership agreements, client contracts, and vendor deals are airtight. 2. 🤝 Structure Equity Deals: They'll help you navigate the complexities of equity splits and vesting schedules. 3. 🛡️ Protect Your IP: They'll help you safeguard your most valuable asset - your intellectual property. 4. 🚨 Mitigate Risk: They're your first line of defense against lawsuits and liability. Investing in these partners early on may seem like an expense you can't afford. But trust me, it's a lot cheaper than dealing with a partnership dispute or a client lawsuit down the road. Your startup is your baby. Give it the strong legal and financial foundation it deserves. Your future self (and your stress levels) will thank you. \#entrepreneurship \#startupadvice \#finance \#legalmatters

Was recently chatting with a founder of a successful Series B company who is looking to hire their first lawyer. Having done it three times and advised many founders on what to look for, thought I would share my general thinking on it: 1. Do it earlier than you might initially think you should. Don't wait until your outside counsel spend exceeds what you would pay an in-house lawyer, that's the wrong way to think about it. When you find the right lawyer to join you, they will immediately add tremendous value. By accelerating contracting cycles, eliminating or reducing white hot risks, and generally adding smart, capable bandwidth to your team. 2. Hire for risk tolerance and business sense, not specific subject matter expertise. You'll never find a lawyer who can do all of the areas that you may need help on well (contracting, commercial, privacy, product counseling, regulatory, employment, IP, etc.). Whoever you hire will need to have great judgment about what risks are really worth spending time on, and how to address those. They'll build a bench of outside counsel with appropriate expertise in the various subject matter areas you care about, and will eventually build a team with the right level of specialization. But if you get it wrong on risk tolerance and business sense, it's hard to recover from that. 3. Source from your networks first. There are a lot of bad lawyers out there. And also many lawyers who are good or even great in the law firm, government, or big company setting that simply won't translate to a startup. Get trusted recommendations. 4. Find someone you trust to help you vet candidates. Most founders (especially first-time founders) and startup teams don't have a ton of experience hiring or even working with in-house lawyers. Find someone who does who can help you review profiles and screen candidates. (For any founders who are in this process, I'm always happy to help with this.) 5. In terms of where to hire folks from, the highest likelihood of success is finding someone who has been in-house at a tech startup before, ideally the first or second lawyer. Law firm lawyers are a huge gamble for this first role, and it's very hard to screen for how someone will adapt to the startup setting. If you are going with a law firm lawyer, look for strong signal in the interview process that the person has an entrepreneurial bent, high risk tolerance, and comfort with ambiguity and volatility. Lawyers from the really big tech cos can bring useful insight from having seen scale, but they are likely similar to law firm lawyers (they are used to working on established teams with thousands of lawyers and clear, narrow roles), so screen carefully. And the most important rule, despite having written all of the above, find someone that you will deeply enjoy working with and trust your gut.

I had the honor of being asked to speak at Women Tech Meetup's San Francisco meeting last week on how legal can help a start up scale. Here are a few of the tips I shared that I've learned as I've built and scaled legal functions: (1) Focus on process before adopting legal tech Throwing legal tech at something will not fix the problem. And you probably don't even need it when you're at a small scale. Which leads me to number 2... (2) Look at your existing tech stack to see what you can leverage before you're ready for legal tech There are so many fantastic tools that are free/low cost and your company may already be leveraging tools that will work perfectly for creating a legal front door to manage intake, task management, and to start gaining some data around the work you're doing. This can also help you manage outside counsel and verify legal invoices are correct until you have an FTE in legal. (3) Make sure your contracts are in order You do not want to be scrambling ahead of a financing round or an acquisition. It seems like an easy administrative task to deprioritize while you're wearing so many hats with so many competing priorities, but trust me - this is stress you do not need on your plate and future-you with thank you. (4) Outside counsel is expensive, but it's likely more expensive to have to fix something down the road. The legal field is much more flexible than it was even 5 years ago. There are many firms that specialize in supporting start ups. There are also many firms and solo practitioners that offer alternative fee arrangements such as project-based billing and fractional subscription models that may fit better with your needs and your budget. Any other legal tips you'd share for early stage startups? #startups #legalprofessional #scalinglegal #legalops A big thanks to Lawformer and Startup Grind for making this happen!

This founder received a $100k bill from a big law firm for his SAFE financing and asked me how to avoid paying it. Here’s how 👇 First, here are the things that will NOT work: - Flexing your connections, saying you know Garry Tan and a16z general partners won't help because those big law firm partners likely know them too. - Offering to promote the law firm on Twitter for a $100k discount on the bill. That's just arrogant and likely won't be taken well. Big law charges so much because they already have the brand people trust. What to do instead? First, ask for a discount and a payment plan. Emphasize that you are a startup, and would love to pay because you value and appreciate them and want to build a long-term relationship. Make them feel that you will stay with them for your M&A or an IPO (that's when they will make money on you). Ultimately, if you have the money, you should pay because you hired them and they did provide value. Big law is expensive; you pay for high quality, speed, and brand. If you can't afford Hermes, do not go to a Hermes store trying to get a Birkin for $2k. Big law is overkill for many early-stage startups, and you will likely get better value working with an experienced ex-big law startup lawyer. However, if you have already been charged, I recommend paying and then switching law firms. It's too late to complain about being charged $100k for a bunch of templates. Your long-term reputation matters. Second, if you can't pay the bill—for example, if your lead pulled out and the round did not happen—you need to be very humble, accept responsibility (it’s not your fault, but it’s your company, so own it), and ask for help. Big law is not going to put founders out of business; they have a reputation to uphold and they know that as a founder this company might not be your last, so maintaining a long-term relationship with you is important for them. The key here is to behave as a long-term player—do not do the things I've mentioned at the beginning. Do you have a horror story about a huge legal bill? Share it below. #startuplawyer #startupfounder