> For instance, no one reads the deal documents they’ve paid hundreds of thousands of dollars for (if not more) after they’re signed
The financing docs don’t costs hundreds of kilobucks, more like an outrageous 20K or so (with the investors’ lawyers’ bill coming out of proceeds — scandalous, as that’s what the 2% management fee is for!). An acquisition can cost a lot more.
And actually I do always read the deal book. Because they are huge piles of cut/paste & patch, they are inevitably full of inconsistencies, overlooked deviations from the TS etc. None of which matters to get the deal signed, but as you say: potentially fatal down the road if a situation comes up when you actually need to consult it.
Also notes were never a big deal to put in place; I used them on a deal just before COVID and it simplified a lot of things. SAFES are handy too, but I didn’t like the change to post-money which I find much less founder friendly.
> The financing docs don’t costs hundreds of kilobucks, more like an outrageous 20K or so (with the investors’ lawyers’ bill coming out of proceeds — scandalous, as that’s what the 2% management fee is for!). An acquisition can cost a lot more.
One distinction I should have mentioned - the vast majority of my deals use LLCs to raise capital. That increases the number of points that need to be negotiated by probably two orders of magnitude compared to an investment in a Delaware corp. Way more efficient to rely on the corporate code, fiduciary duties and non-waivable duties of care than to re-invent virtually every component of economics, governance and control on every deal. Yet here I am…
But of course, another part of the reason the bill is so high is because we’re not just copying and pasting disparate provisions - we’re making sure the doc matches up with the commercial deal. But yeah, you could half-ass an LLC agreement in an afternoon, and it’d be good enough 90% of the time probably.
You shouldn't need a partner for this kind of deal. In fact, startups should never have to pay for partner time and I never have at a company with less than about $50MM in revenue (even with firms like Gunder, Cooley, Wilmer, MoFo etc).
> The financing docs don’t costs hundreds of kilobucks, more like an outrageous 20K or so (with the investors’ lawyers’ bill coming out of proceeds — scandalous, as that’s what the 2% management fee is for!). An acquisition can cost a lot more.
for some debt financing structures the legal cost can be up to $500K:
Launching a Financial Product: How to Choose the Right Funding Structure
Well, for some specialized bankruptcy debt according to that page. But I have done venture debt (e.g. from someone like WTI or SVB) and never had legal bills as high as they talk about there. Then again they talk about $75MM in debt; the most debt I've taken on was about $25MM and it has always been cheaper than any equity financing.
In general I don't like to get creative on this stuff -- I leave that to the actual execution of the business.
Do you have the pre-money version? I wanted to reads the difference before I even saw your comment. I imagine it might be archived somewhere, but it's no longer on the main site.
The financing docs don’t costs hundreds of kilobucks, more like an outrageous 20K or so (with the investors’ lawyers’ bill coming out of proceeds — scandalous, as that’s what the 2% management fee is for!). An acquisition can cost a lot more.
And actually I do always read the deal book. Because they are huge piles of cut/paste & patch, they are inevitably full of inconsistencies, overlooked deviations from the TS etc. None of which matters to get the deal signed, but as you say: potentially fatal down the road if a situation comes up when you actually need to consult it.
Also notes were never a big deal to put in place; I used them on a deal just before COVID and it simplified a lot of things. SAFES are handy too, but I didn’t like the change to post-money which I find much less founder friendly.