Fund managers also don`t think it`s unfair for founders to shoulder some of the burden, as it gives the manager the ability to operate without having to charge more management fees, which can be seen as a mismatch of interest with their LPs. As a former founder or someone who sympathizes with his lot, you think that startups that pay the legal fees of their VC are absurd. New statistics from Leading Silicon Valley law firms show that new startups spend about $80,000 on legal fees. Statistics from top law firms regularly show that new startups spend a lot of their money on legal fees. The legal fee for series A financing would be between $40 and $60,000, or about half to 70% of that amount paid by investors, depending on how your agreement is negotiated. If investors are not represented by a lawyer, as is the case with some angel finance transactions, the company`s legal fees can be significantly lower (partly due to the lack of negotiations between legal teams) It is a fact that starting a new business and getting it out of the ground is a major challenge for most entrepreneurs and it only becomes more difficult with restrictions of capital. Seed funding helps get things done before the business generates revenue. It is an effective solution for start-ups and growth companies, as it provides much-needed early financial support. It can cover everything from infrastructure costs, marketing and development costs to the cost of initial hiring.
Investments are the fuel of any business and seed financing is the first drop of that fuel. As seed capital becomes an indispensable cash reserve or working capital, one of the main reasons for failure is not to have it. There are several other reasons why seed funding is important: 1. Cover insufficient funds 2. Reduces the risk of founder in the company 3. Bring strategic partners to table 4. Access to working capital 5. Easier scaling and accelerating growth If you raise less than $1,000,000, it`s best to create a convertible note where you use a standard document for convertible notes and really no more than a few thousand (if at all) for attorneys` fees. When it comes to attorneys` fees, a lot depends on your geographical location. Traditional law firms located in large cities usually cost more than those in smaller towns.
An average range of legal fees for an angel-stage startup can range from $5,000 to $20,000. The more complex it is (e.g. transfer of intellectual property and number of investors), the higher the costs. The legal advisor plays an important role in the financing transaction. The process can be quite complicated and the lawyer helps negotiate the deal, as well as create the appropriate documents. The start-up will always have advice. In a round table, it is not common for investors to seek advice. In a Serie A round, it is very common for the investor to also have advice. Frank objected again, so I made him an offer: if his client promised that he would not charge more than $15,000 in legal fees, we would agree to use the NVCA forms. Frank agreed, but on the condition that we design the forms. In general, the price of Series A legal advice ranges from $20,000 to more. If Serie A is with experienced founders and friendly VCs, legal fees can fall below $20,000.
With the right internal processes, a law firm with experienced founders can squeeze a Series A into a $15,000 budget. Typically, the start-up legal cost is typically 1.5 times the cost of the Series A lead investor. Another option is to use edit notes. A convertible bond is essentially a short-term bond that is converted into shares. For example, your family and friends give you money and it is automatically converted into preferred shares when you complete your Series A round. This is attractive for early-stage investments because you don`t have to deal with valuation negotiations and it`s much faster to complete them. Not to mention, these are just a few pages of legal documents that can cost between $1,500 and $2,000 in legal fees. In our first launch call, the topic “What legal forms should we use?” was addressed. Since this was an easy to normal Series Seed chord, I suggested Series Seed documents originally designed by Ted Wang/Jason Boehmig during his time at Fenwick. The lead counsel (let`s call him Frank) disagreed. For most financings, the majority of legal fees come from legal due diligence and cleaning up of company records, not back and forth between lawyers arguing over the terms of a contract sheet or share purchase agreement in detailed documents.
