Keeping Deal Costs Low
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This is a guest post by Mark MacLeod, currently the CFO at Tungle and Akoha. You can read his other articles on his blog, The Start Up CFO
The YCombinator docs are great for your seed round. When you get into later rounds, your VCs (if they are from the US) will be referring to the National Venture Capital Association (NVCA) templates. You’ll need lawyers on these later rounds and will likely need them on the seed stuff as well. Though, hopefully the templates will save you $ and get both sides focused around the same points.
Here are some other tips for saving legal $ on financing transactions:
Let the investors draft: Each fund has its own quirks for what they like to see in the docs. Don’t get hung up on drafting. Let them take the lead. You’ll still get to the right end point, but you’ll save time and money.
Keep turns low: Each time you edit the documents and send them back to the investors’ lawyers is called a “turn”. Each turn costs thousands of $. When you get the first drafts take your time to send back one complete set of comments that reflects everything you are looking from your side (if you already have VCs this means getting all of their comments and including them with yours). Your goal is to get the deal done with three turns.
Keep moving: Whenever you have delays, legal fees strangely keep accumulating. Time, even when nothing is happening, costs you money.
Be due diligence ready: Scan and organize every important document you touch as a business. When it comes to deal time, you will have to hand these over to the lawyers. Be ready to do that electronically early in the process. I am always “due diligence ready”.
Get caps: Force your and the investor’s lawyers to cap their fees.
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