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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

#11

Post by chipmunc56 »

msandford wrote: post #5
pg wrote: post #2

Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.

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.

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.

Re: Spark Capital will now pay their own legal bills

#12

Post by pg »

msandford wrote: post #5
pg wrote: post #2

Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.

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'd both get paid out of the amount invested. But if the VCs have to pay their lawyers out of their own management fees, they'll instruct them to make the negotiations fast and simple, which will in turn decrease the billable hours on the startup's side as well.

Re: Spark Capital will now pay their own legal bills

#13

Post by larrys »

DanBC wrote: post #4

Doesn't paying the legal bills for the other party create some conflicts of interest or other weirdnesses for the lawyers? And why do VCs expect people to pay the legal bills? Who buys the coffee when they go for drinks? --- Also, I'm using Chrome on Win Vista. Here's a screen shot. ( http://imgur.com/5DP7C0e ) If that's how they wanted it to look, well, fair enough. But I don't think it is. I wonder how much time an…

"Doesn't paying the legal bills for the other party create some conflicts of interest or other weirdnesses for the lawyers?"

This happens quite frequently in insurance defense situations. Say a Physician is hit with malpractice and the insurance company is paying all legal costs. (Or even auto insurance as maybe a better example).

The important thing to remember, is that you are the client ("the insured") and even though the person paying the bills will attempt to get you to use an attorney that they have already worked out rates with it is within your right (going along the lines of the point you raised) to get another attorney, within reason, price etc. (The price doesn't have to necessarily be the same either.)

Re: Spark Capital will now pay their own legal bills

#14

Post by mentat »

chipmunc56 wrote: post #11
msandford wrote: post #5

Earlier quoted context omitted.

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.

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.

Re: Spark Capital will now pay their own legal bills

#15

Post by larrys »

patio11 wrote: post #3

This is going to be one of those wonderful games of iterated group prisoner's dilemma, in which one member of a formerly functioning cartel has just publicly announced an intention to always play Defect.

Could also be that the tea leaves (or winds) were reading (blowing) in this direction anyway and they decided to draw first blood in order to make the biggest splash.

Re: Spark Capital will now pay their own legal bills

#16

Post by pg »

larrys wrote: post #7
pg wrote: post #2

Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.

Before the other VC's are in that awkward position this would have to reach some kind of critical mass or tipping point. Not only that but different sellers, vendors, sides of business transactions, typically offer different terms, features, benefits. The standard procedure when someone brings up something someone else is willing to do, is to bring up your strong points and why that particular feature shouldn't matte…

That would be true if this were morally neutral. But when you're fixing an abuse that's justified by all participants as being standard practice, the right metaphor is not critical mass but a crack in dam.

Re: Spark Capital will now pay their own legal bills

#17

Post by msandford »

pg wrote: post #12
msandford wrote: post #5

Earlier quoted context omitted.

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…

Okay, so I got it half right. They've made the consumer of services and payer for services the same (themselves) and thus they have the proper incentives. This is a bigger win for the startup ecosystem than I had previously thought.

Re: Spark Capital will now pay their own legal bills

#18

Post by tlrobinson »

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.

Re: Spark Capital will now pay their own legal bills

#20

Post by Retric »

chipmunc56 wrote: post #11
msandford wrote: post #5

Earlier quoted context omitted.

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.

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.

Technicly this also lowers valuations. Which assuming the percentages stay the same is generally a good thing.
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