I like the approach, but I don't understand why an investment that's so well defined ("based on the standard Seedsummit documents") requires legal fees at all.
Having standard terms should mean lawyers are only needed the very first time (to set up the standard terms).
The rest should be 'fill in the blanks', and since valuations/dollar amounts are not negotiated here, the only blank each investment should have to fill in is the company information (name, incorporation location, address, etc.)
Unfortunately, lawyers have to check that the company exists, request info from founders, check that the IP is owned by the company etc...So cost is 2.5K to $4K (and it's not expensive)
We HATE paying lawyers... :-( We are not investing in a company for that. So we will try to work with all good lawyers with great prices.
As you said, it's not so difficult.
Jeremie,
I don't know if that is part of an agreement you have with your LPs that you need to have a lawyer doing due diligence for you and that require you to spend 2.5k-4k but allow me to propose a perspective of a founder who finished fundraising and one of the thing that I did was to ensure to keep my lawyer out of the equation when it was not needed.
1. Checking if the company exists - meaning looking over incorporation documents, validating the bank details and other information to make sure you're funding who you think you're funding - could be done with someone with some common sense and not a lawyer - probably hiring a person who does administration and work full time for you (the high volume of seed deals you're making make me think you already have that person).
2. Checking that the IP is owned by the company is usually done by doing a TAA (Technology assignment agreement) and in that case this could be a standard doc that you let the founders sign on. I would believe that someone on your behalf could also check that the validity of the signatures.
3. Use a service like RightSignature to collect signature, IPs, timestamps and even Identification cards picture or something of the sort in order to check the legitimacy of the person signing on the docs - this will allow you to remove the lawyer from the equation as well.
4. Last but not least - try documenting the things you need from the company beforehand and post it somewhere on the site - knowing in advance what are the things you are requesting usually eliminate the unneeded ping-ping with lawyer.
On a personal note - I streamlined the fundraising process by creating a few templates (with wire details) and having forms on Rightsignature. I had all of my investors go through that process and closed very fast - including countersigning and dating the documents once the wire reach our account. I think every process could and should be streamlined especially if you deal with 200 companies. Lawyer like to interject in between deals because they can bill and in our case we were able to save around ~$10k in legal fees because we didn't let our lawyers talk with our investors and negotiate for us - and we used a standard note provided by our lawyers.
I'm not saying you could do that but if there's room to reduce the $4k to something like $500 or even nothing - that mean an extra $400k that can be re-invested into ~3 companies - imagine that!
EDIT: I know you have way more experience closing deals than me - I just wanted to offer a founder experience and perspective on that process.
Thanks a lot for your feedback
but here we are talking about an equity deal not convertible notes...
Did you really issued new shares without a lawyer ?
Most of the investment were notes and I understand it is way easier - however the first investment from 500startups were shares. we signed on a SPA (stock purchase agreement) and did some other stuff as well. Most of it were done using Right Signature and quite fast to close.
The person on the other hand handling this process was not specifically a lawyer.
I hope this can shed some light - I'm not saying you can necessarily remove your lawyer from the equation but I am quite sure you could reduce that number to be non-significant.
Perhaps you should talk to 500startups :) They are doing lot of deals and I never saw them charge anything for the deal - they must be doing something right :)
Why do you need a lawyer, if you have standard documents already? Maybe this is something with the Europe / Israel legal framework that I'm not familiar with?
Ok, that's interesting, but doesn't really answer the question. You don't need a lawyer in the U.S. for example. (You may want one, to make sure you're not shooting yourself in the foot, but that's what the standard docs are for. Never in these sorts of things is it actually required that you have someone with a law degree sign off on it in every instance.)
You mentioned you invest all over the world. How does the legal stuff work with companies incorporated outside well understood markets like the US, EU, Singapore etc. Do you require they reincorporate somewhere else? How fast do you make decisions in these cases?
Our decisions are fast for everyone.
Sometimes lawyers could need a little more time...
We are not requesting reincorporation most of the time but sometimes we are advising the company to do that for many reasons
Explaining the Seedsummit, term sheet, creating the bespoke shareholder agreement, handling small details over back-forth emails, creating employee contracts (for the directors), filing relevant forms with local companies registry....
Depending on the home country of the company will mean each deal will need customised docs too I guess
grellas (who posted in this thread) comes highly respected in the startup community and from what I've heard works on flexible terms. I don't think he actually works for "free" though.
