Dear SaaStr: Does The VC Fund Pay for Legal Fees After The Term Sheet is Signed?
The traditional practice is that VC funds have the startup pay both their fees and the VC’s legal fees in the financing.
A lot of folks get upset about this — but my advice is Be Zen and let it go. It doesn’t matter in the end. It’s just a condition of the funding.
If you are saying raising a $2m round and you have to pay $30k in the VC fund’s legal fees, well … it’s like you raised $1.97m. So be it. Move on is my advice.
Why is this the practice? In part because while VCs do have a fair amount of “management fees” to pay for expenses, those fees also pay their salaries. So the money to pay these legal fees doesn’t come out of the corporate bank account in many cases. It comes from the VC’s own pockets.
In a truly tiny financing (<$500k-$1m) or SAFE notes and the like, however, any investor-side legal fees are often just paid by the investors. Not always but often. There, the thinking is, the amounts both should be small, and can be material relative to the round size.
That’s what I do. If I lead a round with a million+ investment, I have the startup pay SaaStr Fund’s legal fees, I just put it in the term sheet. If it’s < $1m or a SAFE, or I don’t lead, I just pay.
(You Pay image from here)
