I’ve always found it annoying that the company has to pay for investors’ legal fees and I also assumed that it was a trick GPs at a fund pull on LPs. But then I confess I never thought much about the incentives at play. I recently saw this post on Venture Hacks which makes a fairly compelling case why this has advantages for LPs, namely, a company paying all the legal bills:
- Incents [is that a word?] you to not argue too much or quibble over basic things that investors will never remove.
- Lets the investor buy a little piece of the company with his legal bill.
- Avoids discussion about how to split the bill among multiple investors.
- May slightly reduce the hurdle for the investor’s carry, depending on the investor’s agreement with his limited partners.
It doesn’t make it any easier to write that $75K check to the lawyers, but at least now you know who to blame [hint: it’s not the VCs, it’s *their* investors].