I meet a lot of lawyers. Some of them I really like, some, not so much. The ones I really like are those whose have true passion for helping people.
Enter Chris Harvey, startup lawyer, top Quora writer, and my good friend.
Chris primary practices business law and internet law in traditional business spaces including tech, fashion, media, food & beverage, coworking and professional services. He regularly handles convertible notes, corporate restructuring, independent contractor agreements, non-disclosure agreements, business contracts, employment agreements, trademarks, copyrights, and license agreements.
After an event in Santa Monica, I took the time to interview Chris about the work he does with startups in LA. Join me as he shares how he got started, some crazy startup stories and valuable resources you should know about.
Ryan Foland: I love startup stories. I am sure you have a ton of juicy ones. Things that are entertaining, tragic, but that we can all learn from?
Chris Harvey: Sure. I guess I’ll start with tragedy because that’s the easy one. I was harking back to these guys, twenty-two, twenty-three, just graduated from UCLA, USC — smart kids. They basically put a business plan together within a year, went to every event in LA, got a ton of names, and got a ton of people interested in what they were doing. When they were ready to launch, they needed money to actually launch the project. They went to an investor who they thought might want to pursue it, and the investor said, “Yes, under one condition: we use my lawyer, my terms, and we sign it within the week.”
Ryan Foland: Okay.
Chris Harvey: They said, “Great, we’ll get money, we got closure, we can move on with our business,” so they didn’t have an attorney look over what the investor gave to them. What ended up happening was, about 2 months after they closed, this investor, who became very active in the business, called the college kids into his office and said, “Hey, a couple things — Number one, I’m not happy with your performance. Number two, you signed this contract and said that you’d put $100 into the business. Well I’m the only one who’s put money in the business, and you haven’t put anything into it, so you’re no longer part of the business,” and kicked them out.
Ryan Foland: Wow.
Chris Harvey: Yeah, they thought that was a joke. One of them started laughing and was like, “Yeah, right.” And the investor just said, “I’m 100% serious, I have my lawyer here who’s going to escort you out, and if you have a problem, you can bring it up to him.” This guy had unlimited resources essentially, and said, “Even if I’m in the wrong, we’ll fight it out, and I’ll win, at least by draining your guys’ resources, if nothing else.”
Ryan Foland: Wow.
Chris Harvey: One of them settled for $30,000, went on, and actually did an incredible job at his next startup. Two of them just bided their time and actually hired me to look into it. The third guy just did his own thing as well, but it was really tough going through that with them because even though they were legally probably in the right, the problem was they had an arbitration clause in there. The arbitrator was going to charge $3,500 to $5,000 a day, and the expenses that they would have upfront were at least $60,000. For them, it just wasn’t worth it, and they decided to leave. That business is still growing and booming today, and when everyone talks about the company, I just shake my head thinking, That poor investor just took that business right underneath them. No one really talks about their struggle. It’s kind of sad.
Ryan Foland: What’s the big lesson there?
Chris Harvey: Always have a second pair of eyes look at something, preferably a lawyer if you can. If you can’t get a lawyer, then just have somebody that’s in the business look at it. That would’ve prevented what happened there. Maybe they wouldn’t have gotten funding from that person, but maybe that would’ve been a good thing.
Ryan Foland: How did you become a lawyer?
Chris Harvey: I went to University of San Diego – School of Law and graduated 2008, right when the market was tanking. I was lucky to find a job at a traditional law firm, where I worked my butt off for about 6 years. I got to the end of that rope and had to decide, do I want to the partnership track or do I want to do things on my own? So in 2014, I jumped into LA’s tech scene. At the time, that scene was “the next cool thing,” and even in the last 2 years, it’s really exploded. That’s where I picked my lane as an attorney, really to jump into the entrepreneurship community. LA is a really welcoming scene, so my entry point was representing co-working spaces. I represented Cross Campus, Ignitedspaces, and Expert DOJO.
Ryan Foland: Within the startup scene, are there particular industries that you enjoy working with, or that you try to work with? Or are you truly a startup generalist?
Chris Harvey: I have an affinity for tech. I’ve been on a computer since I was a kid, and even got into a little trouble when I was in middle school, little bit in high school, just fooling around in class. Our teacher in computer class would post with a main terminal, and say, “Hey, this is what we’re doing for the lesson today.”
Having been on a computer all my life, I was able to hack in and send a message to everybody — got a couple of detentions from doing stupid stuff like that. Anyway, it boiled into a little more serious stuff down the road, but gave me time to take stock of what I want to do with my life. Computers are definitely not where I wanted to be, but it’s something I was really familiar with.
Ryan Foland: In your experience, specifically from a tech startup perspective, what are some of the problems that you know they’re going to have, but they don’t realize they’re going to have?
Chris Harvey: That’s the beauty of being a startup — you go in with blinders on. You don’t quite know where the potholes are, so it’s like being young and brave again. The problem occurs, of course, when life hits. I’ve seen a lot of very smart, very driven individuals who got stuck in horrible situations. Kids that graduated UCLA or USC who put a ton of time into their startup, just to have an investor or one of their partners totally screw them over. The question you raise is, how do I impart my knowledge and what I’ve seen?
Ryan Foland: What are the top challenges you see tech startups face?
Chris Harvey: One is, what is the equity split, if you’re going to have an equity split? People get caught up in building a product without really taking hold and saying, “Are we going in this as equal parts, or is this going to be 50% for one partner, 10% for the others?” Getting an idea of where everyone’s role is and what contribution each person brings to the table can be more difficult than people think.
Ryan Foland: Are there any magic tricks for figuring that out?
Chris Harvey: Unfortunately not. Although, people have tried this thing called Slicing Pie.
Ryan Foland: I’ve read about that.
Chris Harvey: It was a noble experiment, trying to be egalitarian and accounting for everyone’s time that was put into the startup. It might work on a micro level, if you have 5 to 10 people. But when you’re trying to handle those kinds of situations while you’re growing as a startup, it becomes more of a burden than an asset. Besides slicing pie, you need to have a fair shake on it from the very beginning, then re-evaluate where you’re at over time. Make sure that everybody, including the original founders and anyone else involved in the startup, is on a vesting schedule. Obviously you know what a vesting schedule is, but should I elaborate?
Ryan Foland: Yeah. What is the skinny of a vesting schedule?
Chris Harvey: A vesting schedule says your equity in the company is earned over time. The typical startup vesting schedule is 4 years and 1-year cliff, meaning you work for the company for 1 year, and at the end of that 1 year, you get 25% of what you’re promised — it’s like an incentive for you to stay for that first full year. Now if you don’t make it to that first year, you don’t get any equity in the company, and the company can buy it back for a fraction of a penny.
Now, a lot of times people say, “How does that work if you don’t have any equity in the company? Who’s controlling it?” It still works that you have a certain amount of equity, it’s just not ‘vested’. You can still vote your rights, you can still operate the company, but you can’t cash in the stock that you have in the company because it’s not worth anything yet.
Ryan Foland: Okay, so handshake first, vesting schedule second, hustle third.
Chris Harvey: Yeah, hustle. There you go. It has to be the right kind of hustle.
Ryan Foland: Yeah.
Chris Harvey: I’ve had clients that say they’ve been a business for 4 years because they’ve been prototyping, researching and developing their crazy, super awesome project. It turns out that technology changes so quickly and so often that you can’t spend too much time focusing on what you’re going to do, you’ve just got to go out there and do it.
Ryan Foland: Is there a ratio between working on/building your business and selling your business that you would recommend?
Chris Harvey: In an ideal world, where resources were not an issue, working on the business would be 0% and selling the business would be 100%, right? Obviously, if you don’t have the resources to afford that, then you have to take stock on where your time is best spent.
Let’s stick with the ideal situation: You hire an attorney and you have an accountant. They give you the guideline, the term sheet, and what you need to look for to structure your business, but in the meantime, you’re out there selling the product. Often times, the best businesses have been sold before the product was made. You’ve heard the Richard Branson story, right, for Virgin America?
Ryan Foland: Actually, no! Tell me about it.
Chris Harvey: His idea for Virgin America actually came surreptitiously. He was heading to the British Virgin Islands, (he said “I was meeting a very beautiful lady there”) and his flight got canceled from Puerto Rico to the British Virgin Islands. He was stuck in Puerto Rico with a hundred other people who couldn’t get to British Virgin Islands to enjoy their holiday.
So Branson pulled out a chalkboard and wrote “BVI, Virgin, America, $39”. He jokingly took it around and he was like, “Would you sign up for this?” and people were like, “Yeah.” As it turns out, he got everyone that canceled their flight signed up for his joke flight, so he was like, “Oh shoot, I’ve actually got to go out and get a plane.” He went down to the charter house, chartered a plane, and took everyone with him over to British Virgin Islands.
He discovered the idea and thought, Well that’s actually a really good business model, why don’t I just do that? That’s how Virgin America sprang up. Point being, you sell things before you actually have them. That’s one way to realize that you have a true business model, and go from there.
Ryan Foland: I struggle the most with the contract side of things. What are your views and opinions on papering up, when it comes to contracts? Now with the internet, there are so many template services, or things that you can copy and paste. Is that okay for early startups, or is it still absolutely necessary to write out contracts specifically for your business? And how important is that contract?
Chris Harvey: Some of the largest deals out there are done without a contract — they’re done on a handshake. You ask me, how does that work in modern day business? How do people work like that? The answer is trust. What I always tell my clients is, “Do business at the speed of trust,” because if something goes wrong and it’s your best friend or someone you’ve known for twenty years, you guys can probably work things out. If it’s a vendor who you’ve never met before, who is somewhere in a different country, who doesn’t maybe have the same value system as you, then what’s the likelihood that person’s going to follow through with your deal? That’s the high level.
The answer to your question is, there are a lot more form contracts out there that you can pull down, and I’ll just give you a few examples. If you go on docracy.com, there’ll be open-sourced contracts that people can download and use. If they can’t afford an attorney or some other third party professional, then it’s the next best alternative. Upcounsel.com also has available forms on there. Quora’s a great resource as well.
Ryan Foland: Tell me about Quora, because you’re using Quora as a place to build your personal brand and you’ve established yourselves as one of the top attorneys for startups in Santa Monica, let alone LA. If somebody hasn’t heard about Quora, what is the value position for them?
Chris Harvey: Quora is a place where knowledge is spread and ideas can be exchanged. Quite simply, it’s a question and answer format website. They’ve finally started to get mass adoption, probably in the last couple years. They’ve been around, really, since Facebook. The guy who started it, Adam D’Angelo, was actually the third employee of Facebook, and he left to start this company. People want to use Quora because it’s, in my opinion, the number one site for anyone asking a question and wants an answer that’s not a Wikipedia type response.
Wikipedia’s good, it’s a crowd-sourced encyclopedia. But I’ve heard a lot of complaints from people who say that because they strip down the color behind any fact or truth, you get a sterile answer on things. Quora is the place where you fill in those gaps and holes, the stuff that is lost on Wikipedia.
Ryan Foland: Tell us about your experience on Quora. You were just named the Top Quora Writer. Did you just stumble on that by chance, and find passion for answering questions?
Chris Harvey: It wasn’t by chance, but there is a good story behind my Quora journey. An investor by the name of Terrence Yang was classmates with Barack Obama at Harvard. Terrence is an angel investor and along with his wife Vivy, they have a small angel investing firm called Yang Ventures. He actually befriended Barack and they took a Summer internship in Chicago together, and that’s where Barack met Michelle. I remember reading one of his answers and being like, “Wow, this guy’s really fascinating.” He’s a Harvard alum, he’s this amazing angel investor, he was managing director of Morgan Stanley, and he was the guy who actually created the CDO that the stock market crashed on. He was down in LA and I went to see him talk at General Assembly — he just blew me away.
We went to dinner afterwards, him and his wife, and a few others, and he was talking about Quora. This was about 3 years ago, maybe longer, and he told me, “You’ve got to get on there,” and so I went on and saw some of his answers and thought, Wow, this is really incredible, so I started writing more often. Quora’s one of those places where you can just write, and write, and write, and not get recognition, and it was only this year that they awarded me that Top Writer position, but I had been writing for about 3 years before, just trying to build my following.
Ryan Foland: Nice. Do we just search for you?
Chris Harvey: Yeah. I’m Chris Harvey. Obviously it’s a common name, but I’m definitely the only lawyer for entrepreneurs on Quora.
Ryan Foland: Who are some people in the startup space that people should know about?
Chris Harvey: Brian Mac Mahon of Expert Dojo. Oh yeah. He is absolutely killing it right now. They’re about ready to move into a much bigger space than they are now. You’re part of this program too, so you tell me. They’ve been pleasantly surprising in the number of clients they’ve been able to pick up, the engagement that it had in the community, and spreading the word in other cities.
Ryan Foland: Yeah. What I think is glorious about that is, it all started with a pay-it-forward mentality.
Chris Harvey: Totally true.
Ryan Foland: He really tried to bring the community together so they could help each other, and it’s true to that axiom that ‘in order to help yourself get what you want, help others to get what they need’.
Chris Harvey: So true.
Ryan Foland: I think Expert DOJO is a startup helping startups. That is one of the reasons why Santa Monica is hitting that critical mass because prior to, there really wasn’t as much of a centralized support system, and LA is a big town, so I think people were spread out.
Chris Harvey: I totally agree. You know what? It wasn’t easy for him, but when he went from the pay-it forward mentality — you know Brian, if he could, he would give everything away for free his whole life, but he’s got a kid and a wife to support, and bigger dreams. When he moved in from the pay it forward …
Ryan Foland: The Victorian Hotel, just renting that out, one time at a pop.
Chris Harvey: Yeah, exactly. When he went from that model to where he’s at today, I heard a lot of flack from the community. I heard a lot of people talking behind his back, saying that he would fail and saying what an idiot he was. I heard that and I was shaking my head, because you would hope that some of these people would be supporting Brian and trying to build the community up, but you get a lot of naysayers on the way up. Look at where he’s at today, people are absolutely shocked. I’m not. Initially, I saw his vision. You’re not either, I’m sure, but it’s pleasantly surprising to see where he’s at today and where the naysayers were when he started, and he’s bigger than they are now.
Ryan Foland: How ‘bout them apples?
Chris Harvey: Absolutely.
Ryan Foland: I think that it goes to show the value of the unselfish mindset, or that pay-it-forward mindset, because in the startup community, you have to rely on support of other people when your resources are so scarce. The amount of help that you’re willing to give usually transcribes to the amount of help that you’re able to get. I think that the more startups work together, again, collaboration beats competition most of the time.
Chris Harvey: I totally agree with that. I’m a big believer in that mentality, and personally that’s why I started writing on Quora — I was answering questions repeatedly on a similar topic. I started saying, “Why don’t I put it to a central location, so that people can see, even if they’re not my client. They can see what the answer is, so that might help them either go in the right direction, or it might answer their question.”
I don’t get paid to go on Quora, no one pays. I won one knowledge prize, but it was a pretty small amount. The reason why I do it is, by giving answers to the people who are searching for those questions, especially if it’s an easy enough question to answer, there’s no reason they should hire an attorney for $900 an hour to have a simple question answered. It should be out there. That’s not my job, to nickel and dime people. By educating other people too, they’re more reliant on themselves to bootstrap it, and they don’t necessarily need a high level expert to handle pretty simple things.
Ryan Foland: What’s the number one question that you get asked?
Chris Harvey: “How much does it cost to form a corporation in Delaware?” I answered that on Quora, and that’s now number one. I think if you search on Google, that link will come up as number one or number two on the result. It’s a simple question, it should be a simple answer, but it’s not really. Startups are often forming businesses. I don’t like to form businesses because it’s low-level work and I don’t get my mind exercised by doing it.
The beauty of where we’re at today is that technology is starting to replace a lot of low-level attorney work. It’s still early and it’s not like it’s in other parts of the job market, but there are three companies that are really competing for that incorporation service. It’s not Legalism, it’s not Rocket Lawyer, it’s not Harvard Business Services. It is number one, Clerky. Have you heard of Clerky before?
Ryan Foland: No.
Chris Harvey: Clerky.com. Clerky was put together by, originally, a few Wilson Sonsini attorneys. They actually went through Y Combinator to perfect the product they were trying to sell. They found that big law firms are charging $5,000 to $10,000 to form a company, and it’s total BS. The incorporation part is not very difficult. It could be time consuming, but it’s not difficult. Big law firms were still charging that amount, regardless of the difficulty of it because that’s the price that the market was willing to bear, and no one had fulfilled that need.
Clerky came along and said, “We have automated services that can do this, and we could probably knock that down to a very low amount,” and they hit it out of the park. It works really well for a start up that, A. is going through a Delaware C-Corp, and B. has at least a limited intermediary knowledge of what they’re doing. It’s not good for the first-time entrepreneur, it’s not good for someone who has no idea what a corporate document is, but for someone who understands the very basics, it’s a really good service.
The second one is called, Gust. Gust is run by an angel investor in New York, New York, called David Rose. David Rose is actually a big contributor on Quora. He sacrifices a lot of his free time and goes on Quora to answer questions about angel investing and venture capital. He’s one of those guys that has a stellar reputation, character — he’s such a good guy. I know he is definitely doing that because he wants to give back. He created a platform called Gust, and it’s one of the largest platforms for startups looking to raise funds and want to go privately raised. Not equity crowdfunding, but if you will, private, accredited investor raising.
First one’s Clerky, second one’s Gust, and then the third one is called Stripe Atlas. You’ve heard of Stripe Atlas before, right?
Ryan Foland: Yeah, they’re the guys up in San Francisco. 60 Minutes did a special, the Irish kids?
Chris Harvey: Yep, that is the one! Stripe Atlas, and it’s probably the cheapest of all three, but you have to apply to get in, so it takes a little while.
Ryan Foland: Cool.
Chris Harvey: That’s the question I get asked the most, and that’s the response. I’ll usually send them to my Quora page because that’s a little bit easier than explaining all that.
Ryan Foland: Thanks dude. Tons of great info. So much that my brain hurts. How about we go get a beer.
Chris Harvey: You are reading my mind buddy. Let’s go.
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