We're excited to lead your Series A. There's just one small administrative requirement. This is a horror story that as a VC, I've heard multiple times.. A founder in my network came to me with this story. Her startup had strong traction and multiple competing term sheets. The lead investor's offer seemed straightforward: $12M at a fair valuation. Then came the "standard" closing requirements. "You'll need to cover the legal fees for due diligence and documentation. It's typical for the company to handle this." What seemed like a minor closing cost turned into a $100K nightmare. The VC's law firm billed for every email, every phone call, every document review. Partners charging $1,200/hour for routine tasks. Associates billing $800/hour to format term sheets. When she questioned the escalating fees, the VC said: "Complex deals require sophisticated legal work. This is what institutional fundraising costs." The founder realized too late: Her "investor" was systematically extracting money through legal fees before the deal even closed. Beware: This is the legal fee trap that VCs don't want you to understand. After seeing this pattern across my network: Some VCs structure deals so founders pay inflated legal costs - often to law firms the VCs have relationships with. The manipulation: - Frame legal fees as "standard company responsibility" - Use preferred law firms with inflated billing practices - Encourage extensive due diligence to maximize billable hours - Present no alternative - "this is how deals get done" - Extract value before equity even transfers The most insidious part? These fees come out of company cash, not the fund's money. When VCs control both the deal structure and the legal process, founders could become cash extraction targets before they even officially become partners. Beware of VCs who mandate specific legal processes and refuse alternatives. Your Series A should fund growth, not their legal expenses. Simplest solution to this - Ask the VCs to cap their legal fees. They probably will. If they don’t, think twice about taking their money. #VentureCapital #LegalFees #FounderAdvice #VentureCapital #HiddenFees #FounderAdvice
Some UK funds are even worse, you could be looking at 100k GBP in legal costs AND 50-80k GBP from the fund itself on even a 2.5m USD raise. #nosesinthetrough
This is a nightmare I see way too often. Founders need to push back and demand transparency—and never let legal fees drain the very runway they’re fighting to build. Raising capital shouldn’t mean paying for your investor’s billable hours. Wise advice to ask for caps or walk away. 💥
Brilliant advice - absolutely agree on a cap.
Contrary opinion here...from a venture lawyer. Investors in venture deals have fiduciary duties to their LPs. Part of this is ensuring the legal architecture of every PortCo investment is solid. If a VC has to go back to their LP pool and explain that an investment returned less than it should have because of legal structural issues, this opens up the VC to lawsuits. Legal fees in venture deals protect against 3rd and 4th order consequences that aren't obvious on the surface, but have major impact on both the PortCos and VCs.
How can a founder spot this before its too late?
More rare insights in VC needed.
I agree with the principle (companies shouldn’t be paying for the VC’s legal fees) but, in practice, it’s a very difficult fight to have. Since this practice indeed became the norm (even with top-tier “founder-friendly” VCs) and since there’s so much in stake in these deals, it’s not a hill most founders will want to die on. What can still be practically done which does seem to be working? Adding a cap to the fees (so the company pays only up to a predefined amount). Beyond limiting the comapany’s exposure, it has another important benefit: making the VC mindful to unnecessaey complications of the deal which some lawyers will gladly push and the VC (their client!) wouldn’t push back otherwise. Miraculously, when a cap is set you’d see the bill coming right below that cap and things move faster.
A GP I’m talking to for an investment told me a potential LP asked them to cover DD and legal fees first, before they wire funds. I pushed back to the LP and they acknowledge that they still needed IC approval. I explained that it’s ok to cover capped fees AFTER the deal closes but not before. Has the market gone crazy or is this normal practice in 2025??
I’ve seen many term sheets to lead seed and series-A rounds. Vast majority call for the company to pay legal, however essentially always with a cap, typi$25-$30k. I don’t recall seeing one that did not have a cap
Full-stack general counsel to emerging tech ventures | former eHarmony GC, Google, MySpace
2mo*Always* cap the fees of investor’s counsel payable by the company at the term sheet phase! (It used to be only 10-15K but has escalated with Biglaw billing rates. Still, $100K is insane.)