What should legal fees for a Series A financing be?
Takeaway: For a standard Series A, expect your company’s legal fees to be billed on an hourly basis, often totaling $50,000 to $100,000 depending on deal complexity. In addition, it is market-standard for the company to pay the lead investor’s legal fees, subject to a negotiated cap.
A Series A financing is a complex legal transaction involving a full suite of definitive agreements. As such, the legal fees are a significant and necessary part of your financing budget. Unlike a simple seed round on a SAFE, a priced round requires substantially more legal work, and understanding how these fees are structured is a key part of your financial planning.
The Company’s Legal Fees: Hourly Billing
For a Series A financing, most startup law firms bill on an hourly basis. The ultimate cost depends on the complexity of the transaction, how heavily the documents are negotiated, and whether your company’s corporate records are already in good order.
Hourly fees cover work such as:
Drafting all the definitive agreements (the Stock Purchase Agreement, the Amended and Restated Charter, the Investors’ Rights Agreement, etc.).
Managing the due diligence process and preparing the disclosure schedules.
Handling necessary corporate and securities filings.
For a typical Series A, you should budget for $50,000 to $100,000 in company legal fees, though this can increase if the transaction is unusually complex or contentious.
The Investor’s Legal Fees: The “Fee Cap”
It is the universal market standard in a venture financing for the company to pay the reasonable legal fees of the lead investor’s counsel.
The Rationale: Investors are supplying the capital, and their legal fees are considered a transaction cost of the financing.
The Fee Cap: The company does not provide an unlimited reimbursement. The term sheet specifies a fee cap—a maximum amount the company will pay toward the investor’s legal fees. For a Series A, the standard fee cap is typically $25,000 to $50,000.
Budgeting
When planning the “use of proceeds” for your Series A, founders should set aside enough to cover both their own hourly legal fees and reimbursement of the investor’s legal fees up to the agreed-upon cap.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.