I'm reluctant to say "it depends," but legal expense for a true seed round varies dramatically based on:
1. Whether the investment is structured as a priced equity round vs. convertible debt (or variations on that theme such as "SAFE")
2. Number and location of investors, timing of closing(s), and prior angel investing experience
3. Company counsel's efficiency and fluency in industry norms
4. "Deferred maintenance" necessary in areas like corporate formation, founders' equity issuance and IP assignments.
#4 is the item that takes many entrepreneurs by surprise. On the investor side, it leads otherwise very savvy observers to give unrealistically low estimates of legal expense because they assume starting from a clean slate. This item is also most resistant to automation or standardization because startups come into being many different ways; each story is unique.
I would put the lowest estimate at around $3K, assuming the company is already formed as a Delaware corporation with clean, basic documents, has issued founders' stock and handled related IP and other matters, and simply needs to issue a convertible note to one or two accredited investors with minimal negotiation of documents.
The highest I would expect for a true "seed round" is about $15K, where some corporate cleanup is needed, the deal is structured as a streamlined kind of preferred equity (e.g., Series Seed), there are multiple closings with investors on different dates and terms, etc. Beyond that point we're really in "Series A" territory, doing things like creating a full set of VC preferred stock investment documents (about 100 pages), negotiating with investors' counsel (at the company's expense), and so forth. The expense and complexity of a traditional Series A deal have been the main impetus behind using convertible debt or Series Seed-type documents for seed-stage investments of less than $1 million or so in recent years.
I hope this proves helpful. Always happy to chat and answer further questions.
As for attorneys’ fees, much depends on your geographical location. Traditional law firms located in larger cities will generally cost you more than those in smaller cities and towns. An average range of legal costs for a startup at the angel stage can sit anywhere between $5000 to $20,000. The more complexities involved (e.g., intellectual property transfers and number of investors), the higher the expense.
When you get to the Series A stage, you’ll be looking at legal fees easily above $30,000. Due diligence and document review are time intensive, and you’ll want to ensure that this is done thoroughly. It’s also customary to pick up an investor’s legal fees in the ballpark of $10,000. VC preferred stock investment documents tend to run beyond 100 pages, and negotiating with investors’ counsel inevitably adds costs. Larger cities routinely see attorneys’ fees in the range of $50,000 to $100,000 once you enter the Series A phase.
Another option is utilizing convertible notes. A convertible note is essentially short-term debt that converts into equity. For example, your family and friends give you money and that automatically converts into shares of preferred stock when you close your Series A round. This is appealing for early stage investments because you don't have to deal with the valuation negotiations and it's much faster to close. Not to mention, it's only a few pages of legal documents which can cost between $1,500-$2,000 in legal fees.
Many attorneys offer fixed fees as an alternative to the billable hourly rate. This allows clients to anticipate costs and have clarity regarding expectations. For example, some attorneys might charge $5000 for a basic startup, which includes the incorporation, operating and/or shareholder agreements, stock issuance, confidentiality agreements and IP transfers. Higher fixed rate packages might include patent and trademark registration, drafting and negotiating notes, and compensation plans. Other lawyers offer a blend of fixed and hourly rate structures.
Feel free to check out www.lawtrades.com, which was designed to offer the high quality legal work from experienced startup attorneys at fraction of the price of law firms. Also don't hesitate to message me directly if I can answer any additional questions.
I assume you mean legal costs. In that case, the lead investor will ask for between $10,000 - $15,000 in legal costs. The Company's legal costs could run from $15,000 all the way up to $50,000 depending on the complexities involved in completing the deal. But these are costs associated with a priced round with a lead.
If you're raising under $1,000,000, it's best to raise a convertible note where you can use a standard convertible note doc and really spend no more than a couple of thousand (if that much) on legal fees.
Happy to talk this through in a call.
The cost is roughly as follows, based on where you raise the money from:
1. Angel investor, if you give them equity, that is a piece of your company - the cost is around $10,000
2. Angel investor, if you give them a convertible note, that is a loan - around $1,000 -$2,000
3. Angel investor, if you give them a Safe (Y Combinator alternative to convertible note) - the cost is either $0 if you use their agreement straight up, or a couple hundred to minimally tailor it
If you hire a professional accountant who is also familiar with securities law, the cost is so minimal. If you hire broker dealers, it is based on perceived risks of your business and market rates.