If that is true, then surely the problem there isn't that the founders took legal advice, it's that they took advice from a bad lawyer?
I'm not an expert on US matters but familiar with the UK, and over here if you're getting someone to set up a new legal entity for your business, it will probably be an accountant rather than a lawyer. An accountant might therefore be better placed to advise on options for business structure in the early days, or you could join one of the specialist small business support organisations (FSB, PCG, etc.) and start by reading their standard guidance before you take formal advice from whoever else might be relevant.
I don't think it's a "good lawyer"/"bad lawyer" issue. I think that lawyers are paid to cover all the bases, and most of those bases don't need covering in the first 9 months of a tech company's life.
Interesting perspective. To me, a major benefit of consulting a lawyer is often that they can give me an informed opinion of when I need to care about which legal matters. Put another way, I'd say a lawyer who is covering all the bases even when some of them don't need covering now and missing them out won't create serious problems for later probably is a bad lawyer.
I think it's something about their professional ethics as they see it - do everything possible to protect the client, and only pull back when the client makes it clear that business needs overrides legal concerns. Lots of people don't realize that, and that's how some companies, or some part of companies, end up being effectively ran by lawyers.
The first time I consulted a law firm properly about setting up contracts for a new company, almost the first thing they said was that they could probably charge me tens of thousands to cover everything they could imagine, but in practice they recommended that I put together a basic contract that covered the essentials and leave the rest until there was enough value in the business and enough danger of losing it to take further steps. I don't think any lawyers I've spoken to since have contradicted that advice, either.
On the other hand, I'm in the UK, and our legal system has rather different foundations in some respects, particularly when it comes to being hostile toward fishing expeditions. If the real US business climate is half as litigious as it's reputed to be on this side of the pond, maybe you need lawyers who will default to covering everything from day one.
Interestingly, a lawyer is not allowed to advise on tax issues (except for tax lawyers), and an accountant is not allowed to advise on legal issues. Many still do anyway :)
My lawyer (used to) costs $500 for the S-corp/LLC formation, including the one hour consultation and all the registration fees. He also explains LLC vs. S-corp choice, the latter being a perfectly viable option in a large number of cases.
It is of course best to come prepared to make the most of your money.
You can get an LLC from Delaware almost as easily as taking a ticket at a butcher shop. It's a commodity product. That cheap-o Delaware LLC isn't a miracle cure for investment or employee equity or vesting issues, but it solves the core problem that incorporation is meant to solve: making it absolutely clear to your external business partners that they are dealing with a company, and not with someone and their home mortgage.