Ed Reitler: ‘Challenge to Startup Lawyers’

Fred Wilson, Union Square Ventures, posted a challenge to startup lawyers  & I quote from Above the Law ‘he discusses a recent investment his fund closed, a seed round. The parties used standard form documents, without negotiation, and the investors had no counsel: “We just signed the standard documents, which were tweaked to reflect the round size, share price, and board provision in the term sheet.”  The legal fees for this rather straightforward deal came to $17,000. That’s pocket change for a successful financier like Fred Wilson, but he still wasn’t happy about it. Given how little work was involved, couldn’t the legal bill have been even lower.’  Do you agree Ed & could you give a little feedback about the issue of these costs?

If you really want to get the legal costs down to $5k, you have 3 choices:

1) Use Convertible Debt Financing

2) Use Common Stock with some basic contractual rights surrounding it


3) Come to our firm we will do the seed financing in preferred stockform with the $5k cap

It’s a loss leader for us but we won’t lose as much as larger firms.  In our case we’re hopefulof developing a long term relationship with the entrepreneur.

Ed Reitler (summary)

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