4 ms·

Not 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 wo

Not 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 14y ago
If 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 14y ago
  Of 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 14y 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 14y ago
      As 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 14y ago
    Having done this, and, um, other things: legal fees for an unremarkable deal go to high five figures easy; sometimes they go much, much higher.
- mjn 14y ago
  It would be particularly odd to reject it over solely that, because it's just a fixed-dollar difference. One easy way to overcome a finite difference in one part of a term sheet is to offer more dollars in another part. All Spark is doing here is offering to cover the first $25k of legal expenses. The startup is still liable for anything above that. That's an offer worth at most $25k in additional implied investment, relative to the case where they asked the startup to cover all legal fees. Actuarially, probably somewhat lower than $25k. So maybe you should value the offer at $15k. Not nothing, but not worth overriding everything else.
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tptacek 14y ago
You'd be rejecting most deals, then, because what Spark is doing is unusual.
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greghinch 14y ago
Considering how much time and work (3 months of back and forth on DD is not uncommon) it takes you to get to the point of getting a term sheet, I doubt it. Doubled by the fact that, until this posting, every VC I've heard of asks you to pay legal fees. Now some add other fees on as well. This is considered less scrupulous and should be rejected. But to make things easy, ask about fees up front, not when you are getting a term sheet.
- jacquesm 14y ago
  It is very well possible to have a terms sheet ahead of the DD.
wpietri 14y ago
It's not underhanded if everybody knows its coming. I was shocked the first time I saw this, but I called around and discovered that it's one of the things VCs do because they can. Since our VC was no worse than anybody else, I put it in the "fine, whatever, fuck you, but fine" category of things. It didn't end up even being in my top 10 things I'd change about traditional venture capital operations. If you object to every fucked up thing about the system you're in, it's very hard to get the power to reform the system. I'm perfectly happy to beat my head against a wall, but I try to pick the walls that are ready to break. As Confucius said: "The Historiographer Yu was truly of straight character. When the government was just, he was like an arrow. When the government was unjust, he was like an arrow. Chu Po Yu is definitely a Superior Man. When the government is just, he will have a position in it. When the government is unjust he can roll up his principles and keep them in his breast." So bravo for Spark for being the leader on this. It's really nice to what entrepreneurs turned investors are doing. I'm glad Nabeel didn't turn down that VC money on principle back in the day, or he might not now be in the position to try to fix this.

jacquesm 14y ago

If 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 14y ago
Of 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 14y 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 14y ago
    As 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 14y ago
  Having done this, and, um, other things: legal fees for an unremarkable deal go to high five figures easy; sometimes they go much, much higher.
mjn 14y ago
It would be particularly odd to reject it over solely that, because it's just a fixed-dollar difference. One easy way to overcome a finite difference in one part of a term sheet is to offer more dollars in another part. All Spark is doing here is offering to cover the first $25k of legal expenses. The startup is still liable for anything above that. That's an offer worth at most $25k in additional implied investment, relative to the case where they asked the startup to cover all legal fees. Actuarially, probably somewhat lower than $25k. So maybe you should value the offer at $15k. Not nothing, but not worth overriding everything else.

deleted 14y ago

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tptacek 14y ago

You'd be rejecting most deals, then, because what Spark is doing is unusual.

deleted 14y ago

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greghinch 14y ago

Considering how much time and work (3 months of back and forth on DD is not uncommon) it takes you to get to the point of getting a term sheet, I doubt it. Doubled by the fact that, until this posting, every VC I've heard of asks you to pay legal fees. Now some add other fees on as well. This is considered less scrupulous and should be rejected. But to make things easy, ask about fees up front, not when you are getting a term sheet.

jacquesm 14y ago
It is very well possible to have a terms sheet ahead of the DD.

wpietri 14y ago

It's not underhanded if everybody knows its coming. I was shocked the first time I saw this, but I called around and discovered that it's one of the things VCs do because they can. Since our VC was no worse than anybody else, I put it in the "fine, whatever, fuck you, but fine" category of things. It didn't end up even being in my top 10 things I'd change about traditional venture capital operations. If you object to every fucked up thing about the system you're in, it's very hard to get the power to reform the system. I'm perfectly happy to beat my head against a wall, but I try to pick the walls that are ready to break. As Confucius said: "The Historiographer Yu was truly of straight character. When the government was just, he was like an arrow. When the government was unjust, he was like an arrow. Chu Po Yu is definitely a Superior Man. When the government is just, he will have a position in it. When the government is unjust he can roll up his principles and keep them in his breast." So bravo for Spark for being the leader on this. It's really nice to what entrepreneurs turned investors are doing. I'm glad Nabeel didn't turn down that VC money on principle back in the day, or he might not now be in the position to try to fix this.