Startups and Unmet Legal Needs

Abstract

To foster innovation, we must find solutions to provide effective, affordable legal services on a large scale to early-stage companies from all backgrounds, while ensuring that companies have the opportunity to receive individualized and accurate advice. Otherwise, legal issues will continue to be a strong impediment to responsible and sustainable startup formation.

Using survey data collected from the Startup Legal Garage — our client-based education program at UC Hastings College of the Law that brings startups, students, and supervising attorneys together to resolve legal needs for early-stage startups — we explore the extent of the legal issues facing startups and the burden these issues place on growing companies.

We find that almost 90% of the legal matters addressed by Startup Legal Garage teams fall within the categories of general corporate formation, contracts, and non-patent intellectual property. We also discovered that startups generally had difficulty identifying their most pressing legal needs. Startups identified fewer than half of the issues eventually addressed through our program, and over 70% of companies received assistance with at least one issue not listed on their intake application.

Most importantly, we find that addressing legal needs, while necessary, presents a costly burden for emerging companies. As a proxy for the expense of ground-level legal work for a startup, we estimate that Startup Legal Garage services are worth between $17,000 and $23,000 on average. Considering that the startups in our sample typically have very limited outside funding, these costs represent an enormous and exclusionary obstacle to growth.

Keywords: legal needs, startups, entrepreneurs, incorporation, employment contracts, intellectual property, immigration, technology