Using AI as Counsel: A Startup Cautionary Tale
- brooke4834
- Aug 13
- 2 min read
Bootstrapping? Every dollar counts. That’s why many founders hand legal work to AI — fast, free, always “on.”
The danger? AI can sound right while being dangerously wrong.
The AI-Written Contract
After a recent AI Circle talk on using AI in legal work (more info here), a client sent me a vendor agreement for review.
The vendor was implementing a privacy solution. The contract — clearly AI-written — was a mess:
A two-sentence confidentiality clause that didn’t protect anything.
A limitation of liability clause protecting the wrong party.
“Client” and “vendor” swapped in multiple places.
The Real Risk
The vendor likely has no lawyers. Their engineers? Probably contractors — without proper agreements. That means:
Your confidential info may not be protected.
You may not own the code they deliver.
Contractors could be deemed your employees.
#2 is the killer. If you don’t own your core code, your valuation — and your fundraising — are at risk.
Why IP Ownership Can Collapse
When raising money, you must prove you own all your code. Copyright law says:
Work is owned by its creator unless an agreement says otherwise before work begins.
The creator must be human.
If the vendor never got ownership from its contractors, it can’t pass it to you. And if AI wrote the code? There’s no IP to own — by anyone (details here).
The Investor Test
Put that contract in your dataroom and a savvy investor will spot the problem fast. If you can’t answer their questions, your deal — or your valuation — could take a hit.
Two Takeaways — and a Red Flag
Protect your IP — for key IP, this is non-negotiable.
Know when AI is safe — and when it’s a liability.
Watch for vendor sophistication — is this contract a glimpse into how knowledgeable they are about the things that matter to your business?
Bottom line: AI can speed up low-stakes legal work. But in high-stakes deals — especially where IP is core — it’s not your lawyer. And believing it is? That’s the most expensive mistake you can make.
The best lawyers for startups keep the dataroom in mind when providing guidance, focusing on what truly matters.