Declined VC wants us to pay legal fees | Hacker News Reader

Declined VC wants us to pay legal fees

medium.com

94 pointsmntmn59 comments

Don't ask us what to do. Don't ask Medium what to do. You have a VC... ask them what to do. Your current VC has probably seen stuff like this before. They will have legal expertise available to you, as well as their experience and their judgment. Ideally, you pick a VC based on their value besides mere money anyway. They should be good advisors.

If your VC says just don't engage, then don't engage. If your VC says pay them, get a second opinion coz that's BS. But odds are good that your VC will happily call them up for you and give them a good stern talking-to.

For all the calls of "sunshine" here, your own VC is in a much better position to badmouth them than we are. Toxic behavior like this can get them cut out of ride-along deals, and they don't want to lose the opportunity to be co-investors on the best deal flows.

yes but how does that approach help drum up awareness in their startup?! this thing has viral posting written all over it. (I actually have no issue with a startup doing this if it helps them)

What makes this likely in my opinion is that the author of the article, Christoph Gerber, has already founded one successful startup, Lieferando. He probably has access to legal advice – and he is also not new to the startup business.

Precisely. The post even reads like a story more than a problem description.

I don't even think it's a bad growthhack move. Certainly seen worse.

>If your VC says just don't engage, then don't engage. If your VC says pay them, get a second opinion coz that's BS.

Wait...are you taking the VC's advice, or aren't you?

...not blindly

Unless the advice is not to engage.

I'll go the opposite of most of the comments here.

Assuming a NO attitude right from the start is probably not the way to go. Telling them to "Pound Sand" or just plain NO is not in your best interest. First, you should let the B investors know about this - ASAP. Second, you should start by emailing the GP at firm A and asking him to clarify why they think "you should pay" their legal fees.

With this information, you should consult your legal counsel on how is best to proceed. Most likely the A VC firm feels like you didn't negotiate in good faith and you made them spend money with no intention to accept their offer. You should in this case talk to the GP at that firm and show him that you wanted to close a deal with them and you even made them aware of another offer and asked them to reconsider the terms.

Most of this issues are easily solved if you discuss things with the other party. Assuming a NO attitude from the start, just brings everyones worst character and might land you in a legal dispute.

Meeting with a firm who is actively out to collect money from you is a dangerous path for a young founder without a legal background. You don't want to accidentally give them any more fuel for a potential lawsuit via something you say during that meeting.

I do agree that talking to legal counsel is wise... but not necessarily VC B's legal counsel, as that relationship will skew towards what is good for the VC, not your company.

Also, don't be afraid of getting sued. One of my lawyer friends always says that small businesses tend to harm themselves by over-avoiding lawsuits. If you grow enough, lawsuits will happen, and you need to know how to deal with them. Act from a position of knowledge, not of fear.

Absolutely no.

The best thing he can do is listen and get more information. You can't resolve a dispute without talking, and it only ends up in court if you don't resolve it. Yes he could ask his new investors for advice, and yes he should have called his lawyer the minute he heard, but the best way to clear things up is to listen to the VCs who are unhappy.

This is a completely different situation from the reason not to "talk it over" with the cops.

But this is not a dispute, at least not yet. It is just a one-sided request. They can just talk to their lawyer, ignore it, and wait to see if the VC files a suit. Short of that, there is no obligation to even reply. So why go into potentially dangerous legal territory at all, when you are perfectly in your rights to just discuss it with your lawyers, but then ignore it?

This is a VC who wanted to invest in the last round, not an attacking army. There's no reason to leave the relationship on a sour note.

This doesn't make things necessarily more sour. Firstly, given the evidence in the post, it sounds like a BS claim (although only a lawyer would know). Things are already sour. That being said, reaching an amicable arrangement via legal proxy doesn't make the situation sour at all. Getting lawyers involved is not an aggressive action - they are the subject matter experts. Just like you wouldn't have a software architect dealing with relations, you don't put a founder in charge of legalities.

This is one of those things where you have his lawyer talk to your lawyer. This guy shouldn't be talking to anyone himself.

+1 this answer.

You'll most likely end up in the same spot as other suggestions: NOT paying the bill. But the WAY you approach things (very good advice here) makes all the difference.

This is all terrible legal advice. If you think there may be a legal dispute, you should absolutely not communicate with the other party. You should involve your own lawyer, and decide whether and how to communicate after considering the ramifications.

> you should absolutely not communicate with the other party at all

One very slight, but important, addition - don't even indicate that you are looking for your own legal advice. Mum's the word. Totally a slippery slope albeit plausible argument: "Investor A" might just be waiting for you to make a legal mistake. Even that post could work against you (deleting it could be worse). Keep your lips sealed and share the whole ordeal once you have reached postmortem, if you still want to go that route and your lawyer gives you the go-ahead.

as someone who has been in a similar situation

do not respond. don't even acknowledge receipt. call your lawyer, and call your existing VC. tell them to call their lawyer too.

end of story.

It looks like you're based in Europe, so be careful relying on any US-centric advice if that's the case. It pretty much goes without saying, but HN is not a proxy for proper legal advice from a local lawyer who understands the full fact set.

With that said, while you're unlikely to be liable for their costs given the unsigned term sheet (assuming there's no wrinkle in your local law), you don't want to get trapped in an ugly public battle with a VC as it will potentially make raising funds in the future much harder - whether for Talon.One or another company.

I'd recommend talking quietly to the GP at Investor B and seek his/her advice on how to settle this quickly, quietly and preferably with little or no out-of-pocket expense. Based on the facts laid out, I don't like the behavior of Investor A so I hope this process ends with them reflecting on their actions and realizing that they won't survive long in the VC game if they don't adapt.

Just say no. If they sent anything short of a lawsuit, they aren't serious. And if they do proceed to a lawsuit, fight it, and counter-sue for your own expenses and trouble. You signed no contract with them, they chose to spend their own money on the project, and they did not complete the deal. That is just part of doing business. You owe them nothing.

Maybe I'm just young & naive, but it's probably in their best interest to go tell Investor A to pound sand. I'm sure if Investor A consulted with their expensive corporate lawyer they'd tell them to go pound sand too.

Big corporate lawyer has a conflict if interests. Every lawsuit they bring is big $$$, who cares if valid or not. Of course they could go too far and get in trouble I guess, but all they need is a shred of merit.

IANAL but I would ask one vs posting on hacker news. If this goes the wrong way, it could destroy your startup.

One thing I see more and more in business in the USA is the lack of class, the lack of diplomacy and tact. It reminds me of my time in India where business transactions start off with a winner-takes-all mentality. More and more I see vendors signing an agreement that says X - and then afterwards asking us to waive rights or pay more or forgive transgressions; typically they'll say "We're not going to do what we said, please give us permission to not do what we said we'd do." Of course, they do it slightly crafty, saying "We need you to do this, OK?" And invariably, me and my team politely says "No, we will not deviate from the agreement without value, you will stick to the agreement." And invariably they do.

Tell these money lenders that you don't owe them a penny, and you decline to pay their legal bills, and not to contact you again.

You may even consider this a fair credit issue:

http://debt-collection-defense.whocanisue.com/fighting-false...

Demand proof of debt and demand they do not contact you. If they continue, take valid legal action.

What makes you assume this is a USA issue? The company that the author is writing about is headquartered in Germany.

There is no scenario where you should feel compelled to pay their legal fees. Perhaps they will think again before starting to run up a legal tab on a term sheet in the future.

That said, if this is a <$5k amount of legal bill… I might just offer to split it to leave cordially.

Now they're bluffing for real. Good thing you didn't sign anything. Sounds like they would have been a gigantic PITA all the way through if you had signed with them.

Investor A has no grounds to force you to pay their lawyers unless you signed an agreement stating otherwise.

Talk to your legal counsel first, before doing anything. Especially before making a blog post about it.

this medium post was ill advised in my opinion. this kind of stuff causes reputational damage to everyone involved (regardless of who is in the right and who is being a greedy asshole).

real professionalism involves establishing that you are mature enough to handle yourself in difficult situations and know how to get GOOD ADVICE from qualified advisors, not randoms on the internet.

talk to a lawyer and talk your board of investors. take down this blog post if you know what's good for you.

Please share the name of this investor.

Yes please. You're either dealing with a third tier investor with no class, or else the investor needs to be exposed. Lots of VCs have moxie and chutzpah, this is beyond the pale and deserves public shaming.

Sunlight is the best disinfectant, name and shame and all of that.

Calling one party "Investor A" when they are acting like snakes and attempting to extort money from a company simply because they didn't get to invest only serves to protect that party in the future. And I say extort because the logical reading of "Pay our legal fees" is "Pay our legal fees ... or we will sue you."

This is a very dangerous game to play. I'd bet that there is more to this story than meets the eye, as there almost always is. There's always another side to the story. And in the case that this does end up as a lawsuit, name-and-shame could open the door to a much bigger case.

Which means it's important for the person doing the naming and shaming to be sure that they're not telling any lies and not breaking any laws. I don't mean to imply that you should start tweeting vitriol as you walk out of the meeting, only that it's important that people be held to account for their actions, particularly when it involves threatening others with lawsuits and trying to extort money.

On the flip side, we should view any article talking about "Investor A" v. "Investor B" as at best half the story and view it as suspect when someone doesn't name the firm outright.

In the US, in cases of libel or slander, the truth shall be sufficient defense. In Europe, you may be better off not saying anything defamatory, even if it is true.

Either way, it may be best to couch the story in terms of "I recall that X did Y, and at the time, I felt that it was grossly inappropriate," rather than "X did Y, and is a complete jerk."

> In the US, in cases of libel or slander, the truth shall be sufficient defense.

Technically, truth isn't a defense, falsity is an element of the prima facie case for defamation in the US (this may seem pedantic, but its important as regards where the initial burden of proof lies.)

> In Europe, you may be better off not saying anything defamatory, even if it is true.

That makes no damn sense. How could the truth be considered defamatory? It's real, it's fact.

It's Europe. From an American mindset, many European laws seem some combination of draconian, incomprehensible, and/or ridiculous. Bring up any discussion surrounding American law and you're sure to see the same sentiment coming the other direction as well. They are two very different legal contexts.

Consider that people in the territories now controlled by the U.S. and Mexico were willing to murder thousands of Europeans in bloody gun battles, in order to escape their governance.

And then, when building their own confederation and federation governments, they debated at length on how to avoid the sort of legal foundations that inevitably lead to laws that are draconian, incomprehensible, and/or ridiculous.

Unfortunately, history suggests that such laws arise not because the legal foundations are flawed, but because humans are sometimes authoritarian, illogical, or insane, and the laws are little more than the trails left as such people pass through the circles of power.

In my opinion, New World laws are only more sensible than Old World laws (on average) because they have spent less time accumulating cruft. But look at how hard the U.S. federal and state legislators work to catch up!

We don't know the other side of the story and the OP is just asking for advice. I don't think advising them to escalate the situation is in their own best interest.

I'm sure future investors will be comforted by your open ended internet inquiry on legal matters /s.

Would love to know who the investor and their law firm are. Unfortunately I don't think it's wise to base the decision on feedback from HN. Should ask your own lawyer b/c there may be facts that are not in your medium article. In general if there's nothing signed with the other party that explicitly says you agree to pay legal fees, at least in NY, you do not owe legal fees due to broken deal talks as a matter of law.

I'm sure it's a bit more complicated than this and we'd need to see all correspondence, etc. to give an informed opinion, but generally speaking based on that fact pattern: Tell them to fuck off. Or better yet, don't tell them anything until they act on it - and then have your lawyer tell them to fuck off.

> I'm sure it's a bit more complicated than this and we'd need to see all correspondence, etc. to give an informed opinion

Exactly. We are hearing one side of a story. We have no idea of what promises were made by the startup to the VC firm. (Or vice versa) Those promises could be construed as a contract with enough of a leg to stand on for a suit to be filed. Doesn't mean that the VC firm would win but the important lesson to be learned is that someone who feels wrong can file a suit and potentially extract a settlement which may be cheaper than fighting litigation.

Seems unlikely that you're under any real legal obligation to pay. But as others have said, it might be worthwhile to pay, or pay partially, just to avoid burning bridges and leave on cordial terms. It would depend on the amount they expect and other factors, of course.

Cordial terms with sociopath swindlers? Why?

It has not been established that anybody in this story is a "sociopath swindler". As such, I think the best advice is to assume good intentions and try to remain cordial and professional and avoid a "scorched earth" policy. But that's based on acknowledging that we don't have all of the details and a general philosophy of favoring diplomacy first.

While there's a chance that the OP's account of the situation is biased or incomplete, "professional" VCs with "good intentions" don't ask for money, and professional firms doing any sort of business in good faith send legitimate bills (in this case, for hypothetical services) immediately, not after six months.

The only professional viewpoint is that they are sociopaths who are willing to burn bridges with clients and other VCs for the sake of revenge or swindlers who want to extract money from a weak party.

I have almost exactly zero expertise in this area. I have a gut reaction to your question, but there's no point in my sharing it.

But if I were an expert, I suspect that I still wouldn't offer an opinion after hearing only one side of the story.

One of the stories from Chaos Monkeys [0] is how the author was no the receiving end of a potential company-ending lawsuit. He talked to PG, who ultimately was the one to play hardball with the other firm. Angels and VCs are better at this than founders.

[0] https://www.harpercollins.com/9780062458193/chaos-monkeys

It says "I got a phone call" at the end as the entire punch line. It's not even a written or emailed request, it can just be ignored.

TIINAL (the internet is not a lawyer). Get legal advice from a lawyer. Inform investor B, get a referral from investor B for a lawyer.

My gut instinct is no, nothing was signed, there is no contract, but there may be an intent that assigns some share of cost for the failed partnership, but I doubt it. But IANAL so that is not legal advice.

You do not have any legal reason to have to pay this but share it with current VCs so they are aware of the issue.

They figured since you got some funding, you might be foolish enough to pay to make them go away. Please talk to your VC, get legal advice and if possible do name those idiots so folks who know to steer clear from them. Ask that VC, if they pay the legal fees for all the companies they decline.

Linked article needs more empathy. OP thinks they're negotiating a legal deal in good faith. VC is actually bored that afternoon and is literally telemarketing, or maybe panhandling depending on how you look at it.

Linked article's thought process is exactly whats going thru the mind of an elderly person when a telemarketer preys upon them "Well, he wouldn't say HUD will sue me if I don't pay $500 for him to clean my furnace ducts unless it were true, so I better pay him"

Even if the rate of return is low for the bored VC, at least its not negative and probably not zero.

There is a meta large scale issue WRT the overall market that there is documented proof that at least one VC out there is so bored and sees so few productive opportunities to work on, that their best way to spend an afternoon is panhandling. Now does that prove that there exists one VC thats an isolated idiot which statistically must be true, or is it anecdotal evidence of an overall market slowdown / bubble pop which certainly could be true, or perhaps both?

A version of this happened to us - we played the role of Investor B and I became a director of the company.

It was a very easy no.

Our fund does not charge any fees to companies - no legal fees nor director fees. This way we align with the company on trying to minimise transaction and on-going costs for all parties.

"Should we pay or not?"

Sure. You've asked the internet for our guidance, so I say go ahead.

No legal ground to pay them. Just ignore the noise and focus in your product.

Lawyer up, do NOT post to your blog, do NOT post to HackerNews.

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