[Funding] Company Covers Investor Legal fees : Yes - capped at $30K
The startup covering (a portion of) legal fees of the investor. 🤷🏼♂️🚩
When I received my first ever investment term sheet this was a section that raised red flags in my mind. But turned out be totally industry norm. Its one of those things that look weird coming from the outside but normal to insiders.
So, what is the market norm for a company to cover the investor's legal fee for an early investment round?
Yes with a cap (up to $30K)
There is some obvious pushback from startups, but also from some investors. But there seems to be consensus that this is the "norm".
- it has become common practice for startups to be required to pay the legal fees of their investors. - Westaway
- So be it. Move on is my advice - Jason Lemkin (Saastr)
- Investors should pay their own legal expenses. But, investors routinely put a clause in the term sheet for the financing that says...... - K9 Ventures
And the norm seems to be to impose a cap.
- founders can manage the legal fees by putting a cap on them. In early-stage deals, a cap of $10K–$25K should be acceptable - holloway
- Propose a cap between $10K-$20K and let them make the case for a higher limit - VentureHacks
- the unwritten rule is founders must pay for their own attorneys’ fees, plus their VC’s legal fees, up to a negotiated cap. - Chris Harvey(LI)
Anecdotally, the cap is what you can expect to pay in behalf of the investor. Comments like "I've never seen an investor legal bill go below the cap" seems common.
There's an interesting take on "WHY" this is the norm. Tax code
- [is it common for investors to charge startups for legal fees?] It is, and you can mostly thank your tax law. - BetaKit
So in all, how much can you expect the pay in legal fees for a round (in total)?