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Spark Capital will now pay their own legal bills

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Re: Spark Capital will now pay their own legal bills

#81

Post by markokocic »

mentat wrote: post #14
chipmunc56 wrote: post #11

Earlier quoted context omitted.

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.

Sentence containing only word 'this' is automatic down vote when I see it on HN. Even +1 adds more value IMHO.

Re: Spark Capital will now pay their own legal bills

#82

Post by [deleted] »

mentat wrote: post #14
chipmunc56 wrote: post #11

Earlier quoted context omitted.

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.

[deleted]

Re: Spark Capital will now pay their own legal bills

#83

Post by jacquesm »

jpeg_hero wrote: post #75
jacquesm wrote: post #50

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…

You mean VAT in EU?

Yes, in the EU this is VAT, mehrwertsteur, BTW or whatever it is called locally.

Re: Spark Capital will now pay their own legal bills

#84

Post by jacquesm »

argonaut wrote: post #65
jacquesm wrote: post #50

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…

I find this very interesting (and illuminating). I'm a little confused on what you mean by "getting back the sales tax" (probably because all I can think of is the sales tax I get charged when I buy something at the store).

For corporations it works a bit different, depending on your jurisdiction sales tax is either only added at the last stage (business to consumer) or it is added at every stage and returned back to businesses when they do their quarterly or annual tax filings.

Re: Spark Capital will now pay their own legal bills

#85

Post by jacquesm »

mhp wrote: post #68
jacquesm wrote: post #50

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…

Huh? I've paid a lot of legal fees and never remember seeing sales tax on them. I don't understand what you are saying.

I've paid a lot of legal fees as well and they always had sales tax on them.

HN seems to be a bit myopic in this sense, that if something hasn't happened to an individual therefore it doesn't happen.

But not everybody here looks at the data through the lens of a VC and that is what we're discussing here.

In this thread VCs are equated with a cartel, the truth is they're all continuously in competition with each other rather than colluding with respect to making terms sheets that are worse for the companies they invest in.

Terms sheets are negotiable on a per-case basis, if you can get better terms with a different VC then you should go for it, there is nothing that is 'always done this way' and any unspecified cost can be made into a certainty by either putting a cap on it or negotiating a lower investment with the other party accepting the fees to be paid to be directed to them if that gives you more peace of mind.

Re: Spark Capital will now pay their own legal bills

#86

Post by jacquesm »

skue wrote: post #71
jacquesm wrote: post #50

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…

While there are some US states that have considered taxing legal fees, this is certainly not the norm. Services are typically exempt from sales tax. From page 19 of California's guide to sales/use tax exemptions: > SERVICES—The sale of services where no tangible personal property is transferred or where the transfer of property is incidental, are not subject to sales and use taxes. Source: http://www.boe.ca.gov/pdf/p…

The world is a LOT larger than just California. I love it how HN lumps every VC and every lawyer into the same pile as though we all live in Silicon Valley.

Re: Spark Capital will now pay their own legal bills

#87

Post by jacquesm »

greghinch wrote: post #77
downandout wrote: post #41

Earlier quoted context omitted.

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.

Considering how much time and work (3 months of back and forth on DD is not uncommon) it takes you to get to the point of getting a term sheet, I doubt it. Doubled by the fact that, until this posting, every VC I've heard of asks you to pay legal fees. Now some add other fees on as well. This is considered less scrupulous and should be rejected. But to make things easy, ask about fees up front, not when you are getti…

It is very well possible to have a terms sheet ahead of the DD.

Re: Spark Capital will now pay their own legal bills

#88

Post by jacquesm »

tptacek wrote: post #64
jacquesm wrote: post #60

Earlier quoted context omitted.

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.

Sales tax?

In the EU sales tax (VAT, whatever) is added to every business-to-business transaction and later refunded. If your fund is classed as financial services sector then you may be sales tax exempt. This has certain tax advantages but really doesn't help when you start to receive substantial bills (such as legal fees on a transaction of this magnitude) with sales tax added to them because you can't deduct the sales tax on your own filings.

Re: Spark Capital will now pay their own legal bills

#89

Post by jacquesm »

mrkurt wrote: post #80
jacquesm wrote: post #61

Earlier quoted context omitted.

But did you expect them to do such background checks in the first place?

Yes, those weren't a surprise.

Good. Incidentally, the number of things popping up during such background checks that scuttle a possible deal is quite substantial.

It's not so much that there is stuff that was eye-brow raising, it is mostly a breach of trust in terms of disclosure. Sometimes founders are not honest with each other from the get-go, it wouldn't hurt for founders that feel they are in a position to hit one out of the park to have a 'full disclosure' session with each other so they know at least what if any skeletons there are in the various cupboards rather than to have a surprise late stage rejection. Those are generally bad for business.

Re: Spark Capital will now pay their own legal bills

#90

Post by codebeaker »

I always understood that the company receiving the money is supposed to pay it's own fees and use a lawyer that it trusts, without taking money from the VC on grounds that if you use the VC's money, to pay the VC's lawyer, on the VC's terms, you aren't necessarily getting a fair deal. I think paying your own legal fees to an impartial third party is a prudent investment. Perhaps I'm just naïve.
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