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Comment by danielpal | Hacker News Reader

On the "pay investors legal fee's", I was recently very shocked of how many things investors want their Portfolio companies to pay for them.

For instance, if investor is required to travel for Board Meetings they will require company to pay for it. Also some investors will make companies do regular financial audits with a firm of their choosing and force the company to again pay for it.

My biggest questions is, were does the 2% annual fee that investors charge their LP's go? I know some firms have on-site staff to help their companies with recruiting, PR etc, but most don't.

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It is customary for companies to pay the travel expenses of all of their board members. That's not out of the ordinary.

Neither is paying their legal fees out of the ordinary. Doesn't necessarily make it right. I don't think there's any good reason a company should pay board members travel expenses.

Board member travel expenses makes sense because you are extracting value of their interactions (assuming they are working as they are supposed to), since they are part of your board.

Legal fees for investor related actions don't benefit the company at all unless they happen before the checks are signed.

This is an odd kind of adversarial stance to take with your Board. Not all of your board members are necessarily VC's either. You might have a solid advisor on your board.

Not to mention that your most solid advisor could be one of your VC's too ;)

If everyone is up-front about the legal fees, what does it matter?

The legal fees are paid after receiving the investment. If you negotiate for a pre-money valuation, and the terms require you to pay the legal fees, you simply take it out of the valuation.

The VCs can offer slightly more money and have the company pay the legal fees, or offer slightly less and the VC can pay the legal fees. There is no difference between these two things.

"The legal fees are paid after receiving the investment"

May be the case, but unless you can negotiate a deal with your law firm that the fees are contingent on closing, if the deal falls apart you've still got the legal fees to pay, and no investment cash to pay them with.

That's only true for your own legal fees. If the deal falls apart, you don't have to pay the VC's legal fees.

Massive salaries of GPs and associates.

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