The demand letter
A lawyer's letter, not a lawsuit. This is the cheapest room you will ever be in.
Where you are
Nothing has been filed. No deadline from a court. The whole map is still ahead of you and every exit is still open.
You can still end this here.
How settlement works →Cost so far
You are now at roughly 1× the cost of answering that first letter.
What this is
A demand letter is a lawyer writing on someone's behalf to say: here is what we claim you did, here is the harm, here is what we want, and here is when we need to hear from you. It is not a court document. No judge has seen it. Nothing has been filed.
It is also a test. The letter is written to find out what kind of defendant you are — whether you panic, whether you're insured, whether you'll say something useful, whether you have a lawyer. How you respond sets the price of everything that follows.
What it costs you
The smallest box on the map. Answering a demand letter properly costs a fraction of one round of discovery.
And this is the leverage: the money you spend here is the least expensive money in the entire dispute, and it is the only money spent at a point where you still control the outcome. Once a complaint is filed, you are on the court's calendar and the court's clock.
Typical time: days to a few weeks, depending on the deadline in the letter.
What you decide here
One question, and it is not "are they right."
Is it cheaper to resolve this now than to find out who's right?
Sometimes the answer is no. A demand that would set a precedent, invite the next claimant, or hand over something you can't give up is worth defending regardless of what defending costs. Sometimes the answer is obviously yes and the only reason a founder resists is that paying feels like admitting something. It usually isn't; a well-drafted resolution says so explicitly.
The mistake is not picking wrong. The mistake is picking without knowing what the alternative costs, which is exactly what the rest of this map is for.
What you actually do this week
Stop deleting things. The duty to preserve evidence attaches when litigation is reasonably foreseeable — a demand letter is about as foreseeable as it gets. Turn off auto-delete in Slack and email now. This is a litigation hold and doing it late is its own separate problem called spoliation, which can cost you the case independent of the merits.
Tell your insurance carriers. D&O, EPLI, cyber — whatever you have. Policies commonly require prompt notice, and late notice can forfeit coverage you paid for. Founders skip this because it doesn't feel like a claim yet. Notify anyway.
Do not respond directly. Not by email, not by phone, not to "clear it up." Anything you write becomes an exhibit. The instinct to explain yourself to a reasonable person is the instinct that produces the other side's best evidence.
Get it to a lawyer before the deadline in the letter. The deadline is theirs, not a court's, and it is frequently negotiable — but only if someone asks properly.
Find the contract. If there's an agreement with this person, it may already dictate where and how the dispute gets resolved — arbitration, a specific venue, fee-shifting. That changes the entire map before it starts.
Say nothing publicly. Not to the team beyond who needs to know, not to investors beyond your obligations, not anywhere near a keyboard connected to the internet.
The mistake at this stage
Treating the letter as a negotiation you can run yourself because you're good at negotiating.
Founders are often excellent negotiators, which is the trap. Commercial negotiation rewards candor, relationship, and creative problem-solving. Pre-litigation negotiation is a different game with different rules — what you say is discoverable, admissions bind you, and the person on the other side is measuring your responses for weakness. Being good at one does not transfer.
The second mistake: reading a demand you know to be false and deciding it deserves no response. Silence reads as either indifference or absence of counsel. Both invite filing.
You can still end this here
This is the exit with the best terms you will ever be offered, and the only one where the dispute stays private, stays off any docket, and never becomes something an investor's diligence turns up.
Not because the number is lowest — sometimes it isn't. Because everything around the number is cheapest: no filing, no public record, no discovery, no months of your attention. → How settlement works
Where Story fits
The first question isn't whether to fight. It's what this actually is.
A demand letter can be a real claim, an opening position, or someone fishing. On the page they look similar, they lead to completely different decisions, and a founder reading their first one cannot reliably tell them apart. Scoping that — what is actually being alleged, how serious it is, what it is likely to cost, whether you need a litigator at all — is general counsel work, and it happens before anyone bills you for a defense.
That assessment drives everything after it: which Alliance lawyer is right for this claim in this jurisdiction, and what the next twelve months look like against your runway. Meanwhile the hold goes on and the documents get organized — and if you are already running on Aegis, the data room that made you diligence-ready is the one that makes you discovery-ready.
The cheapest litigation is the one your contracts prevented. The second cheapest is the one you scoped correctly in week one.
This is general educational information from the attorneys who build Story. It is not legal advice, it does not create an attorney-client relationship, and it is simplified — litigation procedure varies significantly by jurisdiction and by case. Talk to a licensed attorney about your actual situation.
We're lawyers, remember? Please read this important note:
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