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Comment by o_class_star | Hacker News Reader

It's a cuck test. They want to know up front that you'll take abuse. If you "fail", by standing up for yourself, then they'll just work with some other interchangeable would-be founder who's more of a "culture fit".

Legal fees are a rounding error to these companies. It's all about the "power move". They don't want to work with people who'll stand up for themselves over "a measly" $50K.

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I’m laughing too much at this. Agree “I’m making a $15mm investment I need you to cover my up to $100k in legal fees. If you can’t do that, deal off.” Has always sounded funny to me.

But if you need money it’s just one of those things you have to do.

I think what should happen is the whole syndicate should share in total legal fees pro-rata or something. That way the lead isn’t wearing all the legal fees.

Also think this is based some in the standard practice of banks passing through their legal fees to those they lend to.

For an institutional fund, they can be different, non-fungible pools of capital. The $15M comes from fund limited partner (LP) commitments as part of the investable capital of the fund (i.e. was earmarked for investments and is not the fund manager's money, in a very real sense), but the $100k might (depending on the LP agreement for the fund) come out of the management fees, and if so, is very much part of the P&L for the fund manager.

For a corporate VC, its typically all the same pool, though.

The article does cite how early VCs seek the legal fees because charging the funds might “mis-align incentives.” Could be phrased many ways, but evidently the fee burden is very much a power issue between VCs and investors, if not founders and VCs.

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