The Un-American Rule on VC's Legal Fees
lawofvc.substack.com
The Un-American Rule on VC's Legal Fees
1–10 of 61 posts
Re: The Un-American Rule on VC's Legal Fees
#2I haven’t read the full article but this feels like a very American thing to me, a more powerful and wealthier party taking advantage of a weaker, dependant party to save the VC partners some money. I’m sure I’ll get downvoted first this, and I know it’s not quite what the title means but yeah paying my VC’s legal fees and having no choice over the firm they used really wound me up.
Re: The Un-American Rule on VC's Legal Fees
#3I liked this. 3 is really 2 things, where the last applies to all and is so important --
3a. The American Rule - good imo for seed/preseed. The VC is funding, so going unamerican when standard terms are available is lazy, mean-spirited, and net destructive valuation hijinx. It comes out of the negotiated deal value either way, so a VC is being loose with how much of the company they are freely giving away.
3b. Do what you agreed. A founder is essentially negotiating the rules for a new boss for the next 1-10 years, and this is one of the last and easier hurdles. So it's also a quick canary in the coal mine. Breaking faith on something so early + mundane that hits on trust, alignment, experience, and empathy right before then is such a warning sign!
Re: The Un-American Rule on VC's Legal Fees
#4[deleted]
Re: The Un-American Rule on VC's Legal Fees
#5“it’s strange how legal fees are just under the cap or way over the cap with copious discounts, but we never see legal fees significantly under.”
Correct. My own experience: whatever value you negotiate the legal cap on your term sheet, that’s the bill you get.
Re: The Un-American Rule on VC's Legal Fees
#6Honestly, if I ever start a SaaS company, I'd rather just bootstrap from a developing country than deal with the hassle of messing with VCs. It doesn't seem worth it unless you are in an industry that requires a heavy capital investment to get off the ground.
Re: The Un-American Rule on VC's Legal Fees
#7It's a cuck test. They want to know up front that you'll take abuse. If you "fail", by standing up for yourself, then they'll just work with some other interchangeable would-be founder who's more of a "culture fit".
Legal fees are a rounding error to these companies. It's all about the "power move". They don't want to work with people who'll stand up for themselves over "a measly" $50K.
Re: The Un-American Rule on VC's Legal Fees
#8I haven’t read the full article but this feels like a very American thing to me, a more powerful and wealthier party taking advantage of a weaker, dependant party to save the VC partners some money. I’m sure I’ll get downvoted first this, and I know it’s not quite what the title means but yeah paying my VC’s legal fees and having no choice over the firm they used really wound me up.
This is in reference to the American standard business practice ("American Rule") whereby each party to a transaction pays its own legal bills. It is not necessarily connected to the more general American work culture (which I agree is as you characterized it, although I hope that changes with the recent defeat of the final boss of Boomer capitalism).
Re: The Un-American Rule on VC's Legal Fees
#9It's a cuck test. They want to know up front that you'll take abuse. If you "fail", by standing up for yourself, then they'll just work with some other interchangeable would-be founder who's more of a "culture fit". Legal fees are a rounding error to these companies. It's all about the "power move". They don't want to work with people who'll stand up for themselves over "a measly" $50K.
I’m laughing too much at this. Agree “I’m making a $15mm investment I need you to cover my up to $100k in legal fees. If you can’t do that, deal off.” Has always sounded funny to me.
But if you need money it’s just one of those things you have to do.
I think what should happen is the whole syndicate should share in total legal fees pro-rata or something. That way the lead isn’t wearing all the legal fees.
Also think this is based some in the standard practice of banks passing through their legal fees to those they lend to.
Re: The Un-American Rule on VC's Legal Fees
#10In both cases VC money is being used to pay the VC's fees. If the startup pays the fee, then the VC funds the startup and the startup writes a check. If the VC pays the fee, then the VC will negotiate a slightly different deal for the same amount of equity. VCs prefer the first option because they can show lower operating costs to their fund investors. Some startup founders prefer the second option because they don't like the appearance of paying for someone else's legal costs. In both cases the costs of the deal are borne by the deal participants; the question is merely which company's financial statements show the costs.