61–70 of 114 posts
The number and types of bills we got after closing an A-round was ... illuminating. Background checks on founders, in particular, was not something I would have guessed we'd be billed for.
Doesn't this just mean Spark will have a little less money to actually invest, thus will need to invest at slightly lower valuations to get the same returns, and companies will accept those lower valuations because they no longer have to pay the legal bills? Of course that's a huge simplification, and I'm in favor of reducing sneaky terms that can take entrepreneurs by surprise, so I'm not complaining.
I think it's also likely to reduce total legal expenditures. The investors previously did not see the legal bill and so their lawyers had less incentive to minimize fees.
Earlier quoted context omitted.
If you were in a position to read / sign such a terms sheet then you may want to ask why it specifies that before you reject it out of hand. And you should scour all the paperwork regardless of whether or not that clause was present, even better, have a lawyer that you pay (preferably a competent one) help with the scouring.
Of course anyone would use a lawyer in such a situation. I'm just saying that it is indicative of a hair-splitting, underhanded mentality that would raise immediate red flags about doing business with them in the first place.
Earlier quoted context omitted.
Well put pg. It isn't that the money was that material, it just felt wrong and petty that it was being done in the first place so we wanted to fix it. Just feels silly we didn't do it a lot sooner.
Is your fund sales tax exempt? (In other words are you able to deduct sales tax from your earnings before taxes?) If so you may just end up making the tax man happy and reducing the amount you can invest by whatever sales tax applies in your location. Depending on your process costs and deal-flow this could add up over time.
One simple reason why most VCs don't do this is because they are sales tax exempt and so end up losing up to 21% of the bills to a bookkeeping quirk. So it's easier to pay a bit more out of the fund and end up with a deductible on the side of the company invested in than with a freebie to the tax collectors. In numbers: if a complete process costs $100K and the investment is 2M the fund is out 2.1M. If they pay the b…
Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.
Not that a traditional VC will ever hand me a term sheet (I wouldn't approach one), but if one did and it specified that I had to pay their legal expenses, I would reject it on principle. It's rather underhanded, and I would immediately begin scouring the paperwork to see what other sleazy tactics they were employing.
One simple reason why most VCs don't do this is because they are sales tax exempt and so end up losing up to 21% of the bills to a bookkeeping quirk. So it's easier to pay a bit more out of the fund and end up with a deductible on the side of the company invested in than with a freebie to the tax collectors. In numbers: if a complete process costs $100K and the investment is 2M the fund is out 2.1M. If they pay the b…
Earlier quoted context omitted.
Of course anyone would use a lawyer in such a situation. I'm just saying that it is indicative of a hair-splitting, underhanded mentality that would raise immediate red flags about doing business with them in the first place.
> indicative of a hair-splitting, underhanded mentality I believe you may be wrong about that. But it appears you've now found a good match in Spark! On the down side, it may then be the only game in town for you, there are good reasons for the 'company pays fees' rule, see elsewhere in this thread for one possible reason.
Earlier quoted context omitted.
That's the problem cited, though. Hacker News, as a community, has developed a comical, pathological aversion to any sort of agreement. Every nit must be picked – otherwise the discussion fails to be "intelligent."
indeed. https://news.ycombinator.com/item?id=5603986