Lawyers are expensive. Like really expensive. You can run up a legal bill in the tens of thousands of dollars pretty quickly while setting up your business.
Drafting contract forms (standard templates), managing compliance, creating your stock options plan and so on. It can be a lot of work.
One place where many startups are able to get a little discount is on an initial round of funding. For, let’s say an Angel or Seed Round.
How it works.
There are a number of law firms that specialize in working with Venture Capital backed startups. These law firms are set up to serve the most basic needs of startups and have lawyers specializing in contracts, employment law, general corporate, M&A, Intellectual Property, etc.
You, as a VC backed startup, need all of those services. Once you close a round of funding, you will start racking up hours with the law firm for those services. Therefore, giving you a small break on the initial round of funding’s legal fees just helps them to get your foot in the door.
You can expect legal fees for an initial round of Angel or Seed funding to cost between $5 thousand to $15 thousand.
Don’t get used to it.
Subsequent raises will be costly. Here, you will not only pay legal fees for your law firm, you will also pay the legal fees for the lead investor.
You can expect to pay between $20 thousand and $50 thousand each for your law firm and your lead investor’s law firm for subsequent rounds. Don’t forget to budget that in: I would put $75 thousand to $100 thousand in that bucket.
Here is a pretty good article about legal fees and startup law firms for more detail.
For more insight or help managing startup expenses contact me at me (at) katiebronnenkant.com.