

Ask HN: $10k in legal fees for a seed round – is that a joke? - adamzerner

I&#x27;m reading http:&#x2F;&#x2F;venturehacks.com&#x2F;articles&#x2F;debt-benefits (cost section) and http:&#x2F;&#x2F;www.startupcompanylawyer.com&#x2F;2007&#x2F;05&#x2F;13&#x2F;who-pays-legal-fees-in-a-convertible-note-bridge-financing-and-how-much-does-it-cost&#x2F;.  What I&#x27;m getting is that you&#x27;d be <i>lucky</i> if you paid under $10k in legal fees for your seed deal.  Is that a joke?!!!!!<p>I&#x27;m a student at Pitt, and am starting a website (http:&#x2F;&#x2F;www.collegeanswerz.com&#x2F;) to make better college reviews.  I&#x27;m looking to raise about $60,000 in the next few weeks so I could pay people to answer questions.  It seems <i></i>ridiculous<i></i> for me to pay 1&#x2F;6 of what I&#x27;m raising in legal fees.<p>Am I missing something?  Are these sorts of fees typical?  If so, how does that make sense?
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timr
They used to be, and still can be -- if you have a bad investor who wants to
play hardball (hint: don't play that game). It doesn't take much to run up
$10k in legal fees if you have a problematic negotiation.

That said, there are a lot of resources out there now (convertible note
generators, "standardized" series AA paperwork, etc.) that can lower this cost
substantially if you try. Wilson Sonsini has a note term sheet generator [1],
and there are probably others.

Also, keep in mind that many reputable, startup-savvy lawyers will work on a
deferred fee for this kind of thing. You can also negotiate prices for simple
contract reviews.

[1]
[http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/t...](http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet-
convertible.htm)

~~~
adamzerner
What is the least amount of money that you could get away with? Do you even
need a lawyer for a seed round if you're not doing anything fancy?

~~~
daegloe
You don't technically _need_ a lawyer, but I would advise you to retain one.

Even if raising money with a convertible note, and using the community
documents, you'll still need someone to file your Form D, prepare your board
consent, and ensure all i's are dotted and t's crossed. You don't want to run
afoul of the SEC.

Is your corporation established? Are you authorized to sell shares?

If you bring your own paperwork, you should be able to get away with <= $5k
via a negotiated fixed price or cap on the legal work.

Some firms are also willing to defer payment up to a certain amount and/or
until you raise additional funds down the line.

~~~
adamzerner
So do most people invest a couple thousand dollars in legal fees? What about
kids for whom that would be over half of the money they have to their name?

~~~
timr
This is not uncommon. Incorporation alone will cost you around $1-2k, after
all filing fees, services, etc. are included in the cost, and you need to do
that before anything else.

I recommend using something like clerky.com for incorporation and post-
incorporation setup. They might also be able to help you with the later parts
of the process.

As far as the cost goes...you gotta spend money to make money. Don't do any of
this until you're absolutely sure that you have committed investors, and
you'll minimize your risk.

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mikeyouse
There are several alternatives to paying expensive lawyers for what should be
a very simple deal. The best two in my (non-lawyer) opinion:

* Techstars has free documents to use - [http://www.techstars.com/docs/](http://www.techstars.com/docs/)

* Fenwick and West (Prominent SV law firm) have posted their version of startup docs on GitHub - [http://venturebeat.com/2013/03/06/fenwick-west-github/](http://venturebeat.com/2013/03/06/fenwick-west-github/)

Just get your investors to agree to a standard, simple deal and everyone will
be better off.

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gruseom
We used Clerky for something recently. They took a process that would have
been complicated, costly, and fraught with anxiety in the past and made it
near-effortless for a ridiculously low price—really a commoditized price. I
can't imagine what challenges they must face figuring out how to scale that in
the market, but the benefit to customers is so huge that if they pull it off
it will be the rare thing that deserves the term "disruptive". You might want
to check whether they offer what you need.

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anandkulkarni
You should be using Clerky for a convertible note financing. It should cost
you just a few hundred dollars total and won't require lawyers.

~~~
adamzerner
I see that their convertible note financing is in beta. Could I still use it?
And I think I'd still need to do some incorporation paper work, but it seems
like with Clerky, this all could be done for under $1,000. True?

~~~
swampthing
One of the cofounders here - feel free to shoot us an email and we'll see if
we can help you out! The company formation stuff (which should be done before
you issue any notes) will be a little under $700 including third-party fees.

~~~
adamzerner
I plan on doing so when I get closer to raising money, which will be in a few
weeks. I was just doing some preliminary research today and got scared when I
thought I'd have to dump all my savings into this, but it's reassuring to know
that you guys are around!

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super-serial
My startup is at the same stage as yours... I need seed capital to take it to
the next step. (I'm building an HTML5 competitor to GoAnimate.com/PowToons and
need to pay for artwork)

My plan is to do contract work to pay for artists. Since you don't live in the
Valley and you don't have a team of ex-Googlers working with you... you either
need to show off paying customers, or get ridiculous amounts of traction to
have any chance of getting funding. Otherwise people might not take you
seriously.

But maybe that's just my opinion, and other people have different experiences.

~~~
adamzerner
Good luck with your startup! I like the need you're meeting. Videos are
important, and they're not easy to make. It's something I've thought about
before, but I don't have the technical skills to implement it.

I actually think I'll be fine getting funding. 1) I'm confident that I have
something people want (better college reviews). 2) I plan on offering $100 to
the best answerer, and $20 to the 5 next best answerers, and doing this for
every school (I've exhausted the methods of getting kids to do it for free,
and it's not working). I'm pretty sure kids will be willing to answer
questions with this incentive. I'm gonna use my own money though to test it at
5 schools to prove that this method works. 3) 2) shows that they could fill
out my website's content by giving me a $60,000 investment. If investors
believe in 1), then success should be pretty simple.

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esalazar
I know that some larger law firms have processes to give you "free" legal
representation. I have worked with a large law firm before that was willing to
take on promising start ups in exchange for a note (converted during the next
round). The additional benefit of this type of arrangement is that their
Rolodex is usually pretty deep, and they have business analyst that will match
you up with investors that "fit" your startup best. If you want more info
about what the details of my arrangement where email me.

~~~
daemon13
FYI - you do not have e-mail visible in your profile. You need to put it in
the About textarea.

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notjustanymike
I'm pretty sure the juvenile spelling of "answerz" will end up costing you
more than $10k.

