7 ms·
Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.
by pg 13y ago
Impressive move by Spark, who have now put other VCs in the awkward position of explaining why they don't do the same.
- msandford 13y agoThe net effect is that they're being more honest about how much they're actually willing to invest, correct? They don't magically have more money and the lawyers have to be paid anyhow. At least it puts the onus on them to keep their negotiations to a minimum.
- chipmunc56 13y agothis. If I give you $8 and ask you to pay me $2 for expenses, or I give you $6 you don't much care. This would only apply to entrepreneurs who don't know that term sheets are less attorney fees.
- mentat 13y agometa: in the interests of continuing intelligent discussion on HN, please just say what you mean instead of "this". It's an infection that's been spreading for at least a few months here.
- danilocampos 13y agoAs long as we're being meta... You responded with 32 words to a 37 word post so that you could quibble about a single word, or 3% of that post. While preaching on the righteous subject of "intelligent discussion," no less. So if we're going to complain about empty calories, I'm pretty sure you're winning that game.
- FuzzyDunlop 13y agoI think you win that, with 54 words nobody needed to read.
- danilocampos 13y agoBut I love empty calories. Look at my comment history.
- icebraining 13y ago"This" (noun): same as "I agree."
- danilocampos 13y agoThat's the problem cited, though. Hacker News, as a community, has developed a comical, pathological aversion to any sort of agreement. Every nit must be picked – otherwise the discussion fails to be "intelligent."
- jacquesm 13y agoindeed. https://news.ycombinator.com/item?id=5603986 https://news.ycombinator.com/item?id=5603986
- danilocampos 13y agoSaid Twain, "never argue with a fool, onlookers may not be able to tell the difference."
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- deleted 13y ago[deleted]
- SkyMarshal 13y ago"This" (noun): superfluous unoriginal internet meme language. Better way: just use your own words, be authentic. Pretend like you're Steve Jobs, and each word you write is your next product.
- vidarh 13y agoI love how you suggest that people should stop behaving the way they are in order to "use your own words, be authentic". How is altering their behaviour in order to satisfy someone on a forum being authentic and using their own words?
- markokocic 13y agoSentence containing only word 'this' is automatic down vote when I see it on HN. Even +1 adds more value IMHO.
- deleted 13y ago[deleted]
- Retric 13y agoTechnicly this also lowers valuations. Which assuming the percentages stay the same is generally a good thing.
- harryh 13y agoThis is exactly right, but I prefer the $6 case because it makes it much more obvious what is going on. We should make the truth obvious whenever possible. Hopefully (as pg points out) the next thing to go is the weird way that employee option pools are handled.
- yebyen 13y agoThe truth is that lawyers are being paid, whether it comes out of your pocket or mine. It's very generous but as a person who has never received a term sheet at all, one way or another I see it as turning another part of the process more opaque. What if I never have to pay another lawyer?
- nwenzel 13y agoActually, that's not entirely true. If lawyers bill inappropriate charges, you don't have to pay those charges. Inappropriate charges include excessive hours, administrative tasks, overhead, or other charges you disallow based on your agreement (commonly called Billing Guidelines). Based on data I've worked with (insurance companies, financial services company, real estate firms) those inappropriate charges are anywhere from 5-15% of the total. Usually 5-10%. The advantage of having the VC pay the legal bills is that they are a bigger fish and can more easily put in place and enforce the legal billing guidelines. Also, as a much more likely repeat customer, the VC will likely get better bills to begin with.
- yebyen 13y agoInteresting... sounds like a problem that might apply too outside of the legal profession.
- pg 13y agoThere are two groups that benefit, portfolio companies and the VCs' LPs. The former get to keep more of the money that's invested, and the latter are no longer being charged for expenses in addition to the management fees they pay. In practice, the startups' own legal expenses will probably also be lower. In the bad old days, lawyers on both sides would engage in a leisurely and expensive back and forth, knowing they'd both get paid out of the amount invested. But if the VCs have to pay their lawyers out of their own management fees, they'll instruct them to make the negotiations fast and simple, which will in turn decrease the billable hours on the startup's side as well.
- msandford 13y agoOkay, so I got it half right. They've made the consumer of services and payer for services the same (themselves) and thus they have the proper incentives. This is a bigger win for the startup ecosystem than I had previously thought.
- not_that_noob 13y agoAbsolutely. Kudos to Spark and I hope the others follow. And PG, thanks for changing the world. You made the currents swirl in a way that in some small way influence all the ripples like this downstream.
- nwenzel 13y agoThe bad old days are still alive and well in insurance and banking. Bankruptcy is even worse. Eight years in the insurance world has shown me that the two biggest law firm "bad behaviors" are excessive billing and multi-party meetings. Both of which, as noted, VCs will be in a stronger position to refuse to pay. I call this version of the principal-agent problem the "new boat problem." When a partner wants a new boat, she/he bills more hours. Even more pumped for YC interview on Sunday after reading the comments.
- larrys 13y agoBefore the other VC's are in that awkward position this would have to reach some kind of critical mass or tipping point. Not only that but different sellers, vendors, sides of business transactions, typically offer different terms, features, benefits. The standard procedure when someone brings up something someone else is willing to do, is to bring up your strong points and why that particular feature shouldn't matter that much as a differentiator. And the truth is how much does this really matter vs. the benefits of the particular VC firm?
- pg 13y agoThat would be true if this were morally neutral. But when you're fixing an abuse that's justified by all participants as being standard practice, the right metaphor is not critical mass but a crack in dam.
- nabeel 13y agoWell put pg. It isn't that the money was that material, it just felt wrong and petty that it was being done in the first place so we wanted to fix it. Just feels silly we didn't do it a lot sooner.
- jacquesm 13y agoIs your fund sales tax exempt? (In other words are you able to deduct sales tax from your earnings before taxes?) If so you may just end up making the tax man happy and reducing the amount you can invest by whatever sales tax applies in your location. Depending on your process costs and deal-flow this could add up over time.
- tptacek 13y agoSales tax?
- darkarmani 13y agoMaybe for catering all of the multiparty meetings?
- tibbon 13y agoIs there any compelling reason (aside from money...) that others won't make the move as well?
- johnrob 13y agoRelated question: will not making this move affect a firm's ability to get good deals? I don't know the answer but it's what the firms should ask themselves.
- downandout 13y agoNot that a traditional VC will ever hand me a term sheet (I wouldn't approach one), but if one did and it specified that I had to pay their legal expenses, I would reject it on principle. It's rather underhanded, and I would immediately begin scouring the paperwork to see what other sleazy tactics they were employing.
- jacquesm 13y agoIf you were in a position to read / sign such a terms sheet then you may want to ask why it specifies that before you reject it out of hand. And you should scour all the paperwork regardless of whether or not that clause was present, even better, have a lawyer that you pay (preferably a competent one) help with the scouring.
- downandout 13y agoOf course anyone would use a lawyer in such a situation. I'm just saying that it is indicative of a hair-splitting, underhanded mentality that would raise immediate red flags about doing business with them in the first place.
- jacquesm 13y ago> indicative of a hair-splitting, underhanded mentality I believe you may be wrong about that. But it appears you've now found a good match in Spark! On the down side, it may then be the only game in town for you, there are good reasons for the 'company pays fees' rule, see elsewhere in this thread for one possible reason.
- downandout 13y agoAs previously stated, I have never and would never approach a traditional VC in the first place for a host of reasons, this being one of them. There is no VC game in town for me, and I am perfectly content with that.
- tptacek 13y ago
- fredwilson 13y agoHi Paul i would prefer to eliminate legal fees entirely by using standard docs and not negotiating them on either side. we have done that many many times and it works great. all you need to do is use a standard template. most law firms have them. this is what i propose on every seed and series A we do. most entrepreneurs take us up on it. and then we don't even use a lawyer on our side. however, there are cases, like one you and i have exchanged emails on recently, where a legal issue comes up that is created by the entrepreneur's counsel, that requires a lot of work and sometimes we end up getting stuck with the bill on it. in situations like that, i like to have the discussion of who should pay the bill up front and on a case by case basis
- fghh45sdfhr3 13y agoHi Fred and Paul! You don't know me. I just wanted to be able to tell people I said hello to you two once :)
- ganeumann 13y agoAs an angel investor, always investing through a syndicate, it's just far easier to have the company pay the bill. But keep in mind that they're paying with the money that the investors give them, and that this is the EXPLICIT deal. When I lead a syndicate deal, I am the person that works with the investors' lawyer to get the deal done. But I'm never the majority of the round (or even the largest single investor.) But being the person who retained the lawyer for the investor group, I am on the hook for the bill. I'm happy doing the work of getting the deal papered, but I wouldn't be happy if I had to pay the whole legal bill when I'm only putting in 10-20% of the round's money. There are two ways to share the expense: 1) I pay the lawyer then go around to the other investors asking them to pay me their piece. Anyone who has ever been saddled with being the payor of the bill for a large group of people at a bar or restaurant knows how this turns out. Some people forget, some people argue that they should pay less, and it's a huge logistical hassle creating nothing but bad feelings. I suppose I could get each investor to sign something saying they would pay me their share, but that's just more legal expense. 2) We up-front tell the company that they are paying the investors' legal bill (last time I did this, the bill was $6k, the cap was $10k: I don't do fancy deals.) The company factors this into their calculation of whether the investment structure is one they want to accept or not. Number 2 is nothing more than a structural convenience. But without it I wouldn't take on the burden of leading deals: it would be more trouble than it's worth (note that, as lead, I get the exact same economic terms as the rest of the group, so I'm essentially doing free work when I'm leading and the other investors get the benefit.) So I'm sticking with having the company pay the legal bill. If we're negotiating a deal and this (or any other term) seems unfair, we need to sit down and talk about it. Once my money is in your bank account and a couple of your stock certificates are under my mattress we're on the same team. We both have a huge incentive to make sure neither of us feels like we've been taken advantage of.