Comments on: Should I pay my investor’s legal fees? http://venturehacks.com/articles/investors-legal-fee Advice and introductions for entrepreneurs. Mon, 08 Sep 2008 08:20:06 +0000 http://wordpress.org/?v=2.5.1 By: Suzie Dingwall Williams http://venturehacks.com/articles/investors-legal-fee#comment-2608 Suzie Dingwall Williams Sat, 22 Mar 2008 02:56:15 +0000 http://venturehacks.com/articles/investors-legal-fee#comment-2608 I get busy for a few months, and what happens? You go and post things that prompt replies that make me crazy. Yokum is right - if you've done enough Series A deals, counsel are more than capable of committing to an estimate as a cap on fees. Where he and I differ is on quantum. Investors' counsel should not charge more than $10 - 15k in legal fees for a Series A deal. Period. There is no shortage of pro bono time that has been spent by the NVCA working groups creating model Series A documents. Virtually nothing is written from whole cloth by VC lawyers for a Series A round, and the legal due diligence requirements are modest. VC counsel generally generate the bulk of fees from their VC clients through fund formation and LP management, anyhow. Fund work gives VCs more than enough leverage to enforce a fee cap at the Series A stage. I have no problem with committing (as company counsel) to a cap on company legal fees, either. If I am asked by my client to take a haircut on my fees, I will, if : (a) I secure a commitment to all future legal work for a meaningful period of time, and (b) I believe that the business has high-growth potential. This isn't a new approach: in fact, I learned it from Yokum's firm at the height of the dot-com boom. I get busy for a few months, and what happens? You go and post things that prompt replies that make me crazy.

Yokum is right - if you’ve done enough Series A deals, counsel are more than capable of committing to an estimate as a cap on fees. Where he and I differ is on quantum. Investors’ counsel should not charge more than $10 - 15k in legal fees for a Series A deal. Period. There is no shortage of pro bono time that has been spent by the NVCA working groups creating model Series A documents. Virtually nothing is written from whole cloth by VC lawyers for a Series A round, and the legal due diligence requirements are modest. VC counsel generally generate the bulk of fees from their VC clients through fund formation and LP management, anyhow. Fund work gives VCs more than enough leverage to enforce a fee cap at the Series A stage.

I have no problem with committing (as company counsel) to a cap on company legal fees, either. If I am asked by my client to take a haircut on my fees, I will, if : (a) I secure a commitment to all future legal work for a meaningful period of time, and (b) I believe that the business has high-growth potential. This isn’t a new approach: in fact, I learned it from Yokum’s firm at the height of the dot-com boom.

]]> By: Steve http://venturehacks.com/articles/investors-legal-fee#comment-1847 Steve Wed, 26 Dec 2007 19:19:05 +0000 http://venturehacks.com/articles/investors-legal-fee#comment-1847 <p>There is one reason that they do this:</p> <p>Because they can.</p> <p>Do you think that Facebook paid their legal fees? Doubt it. Why? Because Facebook had so much leverage.</p> There is one reason that they do this:

Because they can.

Do you think that Facebook paid their legal fees? Doubt it. Why? Because Facebook had so much leverage.

]]> By: Yokum Taku http://venturehacks.com/articles/investors-legal-fee#comment-1790 Yokum Taku Sat, 15 Dec 2007 09:34:21 +0000 http://venturehacks.com/articles/investors-legal-fee#comment-1790 The statement "Most caps include the fees for both sides" is not accurate. Term sheets typically only say that the company will pay reasonable legal fees of investors' counsel, capped at $X. (I also disagree with $10K - $20K as a reasonable cap to propose with straight face for investor counsel.) Of course, you can try to discuss a fee cap with company counsel, but almost all competent counsel will not agree to a cap. However, most experienced counsel can provide estimates based on actual data from previous similar transactions. Companies often have neglected corporate cleanup that needs to be fixed in connection with a financing (similar to not going to the dentist for years and paying the price later). In addition, there are always things that occur in financings that are difficult to predict (such as arguments among founders). Finally, capping company counsel fees is a disincentive to provide services after the cap is exceeded. The statement “Most caps include the fees for both sides” is not accurate. Term sheets typically only say that the company will pay reasonable legal fees of investors’ counsel, capped at $X. (I also disagree with $10K - $20K as a reasonable cap to propose with straight face for investor counsel.) Of course, you can try to discuss a fee cap with company counsel, but almost all competent counsel will not agree to a cap. However, most experienced counsel can provide estimates based on actual data from previous similar transactions. Companies often have neglected corporate cleanup that needs to be fixed in connection with a financing (similar to not going to the dentist for years and paying the price later). In addition, there are always things that occur in financings that are difficult to predict (such as arguments among founders). Finally, capping company counsel fees is a disincentive to provide services after the cap is exceeded.

]]> By: Anonymous http://venturehacks.com/articles/investors-legal-fee#comment-1770 Anonymous Thu, 13 Dec 2007 15:25:33 +0000 http://venturehacks.com/articles/investors-legal-fee#comment-1770 I always thought it had something to do with the taxation of the corporation versus that of the venture partnership. I always thought it had something to do with the taxation of the corporation versus that of the venture partnership.

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