41–50 of 114 posts
Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.
It's a sign!
For a more substantive comment, moving the legal bills into the hands of a "bigger fish" is bad news for law firms. VCs are less likely to be willing to pay for over-billing, unnecessary tasks, and other bad behavior. (shameless plug) VCs, especially those that use my team's software, can save a bundle on legal fees with very little effort.
Interesting read, I never knew the founder(s) had to pay VC legal bills just to get the paperwork all situated. Can you...pay the legal fees with the money the VC gave you? :)
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The net effect is that they're being more honest about how much they're actually willing to invest, correct? They don't magically have more money and the lawyers have to be paid anyhow. At least it puts the onus on them to keep their negotiations to a minimum.
There are two groups that benefit, portfolio companies and the VCs' LPs. The former get to keep more of the money that's invested, and the latter are no longer being charged for expenses in addition to the management fees they pay. In practice, the startups' own legal expenses will probably also be lower. In the bad old days, lawyers on both sides would engage in a leisurely and expensive back and forth, knowing they…
And PG, thanks for changing the world. You made the currents swirl in a way that in some small way influence all the ripples like this downstream.
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As long as we're being meta... You responded with 32 words to a 37 word post so that you could quibble about a single word, or 3% of that post. While preaching on the righteous subject of "intelligent discussion," no less. So if we're going to complain about empty calories, I'm pretty sure you're winning that game.
I think you win that, with 54 words nobody needed to read.
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The net effect is that they're being more honest about how much they're actually willing to invest, correct? They don't magically have more money and the lawyers have to be paid anyhow. At least it puts the onus on them to keep their negotiations to a minimum.
There are two groups that benefit, portfolio companies and the VCs' LPs. The former get to keep more of the money that's invested, and the latter are no longer being charged for expenses in addition to the management fees they pay. In practice, the startups' own legal expenses will probably also be lower. In the bad old days, lawyers on both sides would engage in a leisurely and expensive back and forth, knowing they…
Eight years in the insurance world has shown me that the two biggest law firm "bad behaviors" are excessive billing and multi-party meetings. Both of which, as noted, VCs will be in a stronger position to refuse to pay.
I call this version of the principal-agent problem the "new boat problem." When a partner wants a new boat, she/he bills more hours.
Even more pumped for YC interview on Sunday after reading the comments.
More progressive still would be funding startups that disintermediate lawyers and the billable hour system.
Insurers are reporting significant savings. Law firms that get the work are happy. The rest... not so much.
While I've never raised money from traditional VCs, I have raised millions of dollars from angels. Out of more than a dozen angels I've worked with, never once has anyone even contemplated having the company pay the legal fees of the investor. If this is the norm, I'm glad I dislike VCs enough never to have approached them.
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this. If I give you $8 and ask you to pay me $2 for expenses, or I give you $6 you don't much care. This would only apply to entrepreneurs who don't know that term sheets are less attorney fees.
meta: in the interests of continuing intelligent discussion on HN, please just say what you mean instead of "this". It's an infection that's been spreading for at least a few months here.
In numbers: if a complete process costs $100K and the investment is 2M the fund is out 2.1M. If they pay the bills from the fund directly they're out 2.1M without a sales tax return, if they pay 2.1 to the company and the company pays the bills the company gets back the sales tax so effectively this saves 20K or in this example about 1%. Not much but also not nothing, and if a fund does a lot of smaller deals this sort of thing adds up.
Not all funds suffer from this (likely Spark isn't one of them) so the ability of other funds to match this is dependent on whether or not they have classed themselves in such a way that they are sales tax exempt.
I'd imagine Spark to be able to offer exactly the legal fees less for the same amount of stock in company 'x' compared to some competitor that does it the usual way so effectively this shouldn't matter but it is excellent publicity for Spark.