We wanted to share with you some thoughts on the legal costs of Series A. More often than not startups get sticker shock about the price of the Series A. We have nothing to hide and you have the right to know how pricing works.
In general, the price for company counsel legal work in the Series A ranges between $20,000 and up. If the series A is with experienced founders and friendly VCs legal costs can fall below $20,000. With the right internal processes, a law firm with experienced founders can squeeze a Series A in a budget of $15,000. As a rule of thumb the startup legal cost is usually 1.5 X the cost of the lead investor in the Series A.
Law firms will usually give you an estimate that sometimes does not hold up, because underlying assumptions of the startup and the law firm were incorrect about the dynamics of the Series A process. Our law firm uses various technologies (CRMs) to reduce the legal cost of producing and closing the Series A. Wasting time during the Series A negotiations also hurts law firms.
Many firms decide to cap their legal fee at certain thresholds and/or exclude certain items from their fee (due diligence, employee stock option plans or post-closing matters). In general law firms work to make the budget work for you and build a long-term relationship with the startup. Fees for the Series A can be deferred most of the time by law firms (including us) to the closing of the Series A.
Factors that can influence the legal cost of the series A:
- Experience of founders with Silicon Valley venture deals (reading Brad Feld’s book does not count)
- Number of markups and comments on the documents (usually 2 rounds are enough)
- Cooperation and good faith of series seed investors
- Cap table management and modeling of the proforma
- Employee Stock Option Plan
- Due diligence request and clean ups of incorporation documents
- Reincorporating a foreign startup in the US and doing a Series A
Legal cost includes preparing for due diligence of the company, negotiating the series A documents, coordinating closing logistics, making securities filings and preparing post-closing. Legal cost is exclusive of filing fees in Delaware for registering the charter.
Founders should be aware that startups usually pay the legal fees of the lead investor and usually there is a cap on the legal fees of the lead investors. Language about this is in the series A term sheet.
Finally, we wanted to point out that convertible notes/Safes negotiations with multiple investors range between $3,000 — $7,000. Again, this is not the price of the forms but time spent with founders finalizing terms with bridge financing investors. Also, based on our experience equity (priced) seed rounds with micro VCs and angels range between $10,000 to $15,000. Documents are less complex and negotiations can be expedited.