Why does it cost $50,000 or more to do a round of financing?

Friday, October 19, 2007

Fred Greguras, Fenwick & West, http://www.fenwick.com/

The corporation receiving investment pays the legal fees of both its legal counsel and the investors counsel. The total tends to be higher than $50,000 in most Series A financings because of the number and complexity of the financing documents and the rate structures of the large law firms that tend to represent both sides in these deals.

You can manage these costs to a certain extent by having a clear and complete financing term sheet that covers all key points. The business people on each side should address the “tough” issues (such as founders vesting and option pool size) at the term sheet stage and make decisions on such issues rather than have lawyers argue over business issues which increases legal fees. A vague term sheet may avoid confrontation for the moment but it is likely to cause larger legal fees.

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