I was very pleased to hear about this on Paul Graham’s twitter feed.
Apparently, the good folks over at Spark Capital have decided to buck the trend and pick up their own legal expenses in their future deals.
The first time I raised venture capital, over a decade ago, I was hit with the same shock that I think every founder goes through, “wait, what, I have to pay the VCs [sic] legal bills?” It just seemed strange when the whole point was to talk about how much money the business needed to succeed, not to start siphoning it off immediately for other stuff.
I’m happy that we can say we are now footing the bill for our portion of legal expenses.
It’s always perverse when the richer party in a negotiation forces the poorer party to pick up their legal tab. It’s not without precedent, but it’s a shitty thing to do, nonetheless.
This has greater reverberations for the legal industry in other ways. It creates a more direct incentive structure for VCs to keep their legal bills to a minimum. Whenever the party picking up the legal tab is someone other than the person hiring the law firm, there’s a greater risk of the law firm running up the bill. When it’s your money on the line, you tend to pay closer attention to the details of what you’re being charged. When I worked at a big firm, our rainmaking partners consciously sought out cases where the client wasn’t the one footing the bill for that very reason.
I see this as very much a positive for the startup community.