What should I expect for total costs of a priced round?
This week’s question: What should I expect for total costs of a VC financing?
Our answer: The costs of a venture financing can catch you off guard if you don’t budget appropriately. While costs vary widely depending on the size and complexity of the round, the law firms involved, and the specific issues that arise, financings are not cheap. You should expect your startup’s counsel legal fees alone to run $30K to $75K with a boutique firm, while at “Big Law” firms such as Cooley, Fenwick, Gunderson, or Wilson Sonsini such costs often range from $75K to $150K+ given the much higher hourly rates and staffing model. On top of this, startups typically pay investors’ counsel fees as well (usually capped at $25K–$40K, but often fully used). When you add in other required expenses for filings, insurance, and miscellaneous costs, a financing can easily total around $75K with a boutique law firm and well over $150K with a Big Law firm.
Key Considerations
Company Counsel Fees. For a typical Series Seed or Series A financing, company counsel legal fees typically range from $30K to $75K if using a boutique law firm. However, if using a “Big Law” firm such costs often range from $75K to $150K+ because attorney hourly rates are usually $800 to $1.3K for associates and $1.4K+ for partners; meaning even relatively routine rounds can quickly rack up significant bills well over the above range if hiccups arise (e.g. diligence is messy, investors push for non-standard terms, there are numerous stakeholders, negotiations drag on longer than expected, etc).
Investor Counsel Fees. Investors almost always require the company to cover their legal costs, subject to a cap. For early-stage rounds, the cap is usually $25K to $50K. Note that the lower cost of investor counsel is because typically company counsel is responsible for most of the heavy-lifting in preparing the initial drafts and responding to diligence. Always negotiate the cap up front and confirm whether it’s inclusive of all expenses.
State Filings, Franchise Taxes, and Other Fees. You should also budget for filing fees for amended charters, annual Delaware franchise taxes if not already paid, agent handling fees, etc. Foreign qualifications in states where you do business may also add costs, especially if you need to make state-specific filings in compliance with state securities laws. Budget around $5K for this.
Insurance. As part of a financing, many investors will require the company to get Directors & Officers (D&O) insurance to protect a company’s D&Os from personal liability and/or Key Person to protect the company if a key person (e.g. a founder or executive) dies or becomes incapacitated. Such policies may run around $10K annually in the aggregate. It’s not always part of the closing, but should be budgeted if your new investors insist on it.
Miscellaneous Costs. Things such wire transfer fees, cap table upgrades, and PandaDoc/Docusign subscriptions add up. We recommend you also budget a few thousand dollars of “miscellaneous” cushion.
Why It Matters
Budgeting matters when raising capital because every dollar spent on closing a financing is a dollar not going into growth. Founders are often surprised to see legal invoices that total $100K or more for a venture financing, especially in earlier rounds when the raise itself may only be a few million dollars. Knowing what to expect lets you (i) budget realistically so you’re not scrambling for cash at closing or expend more money than expected, (ii) push for reasonable investor counsel caps to keep costs contained, (iii) void scope creep by aligning early with your lawyers on what’s “market” vs. what’s overkill and (iv) make sure you factor in the true cost of raising capital, not just dilution to your equity, but the hard cash out the door. Financings are expensive, but they don’t have to spiral. With good planning, clear caps, and disciplined process management, you can keep the total costs predictable and avoid unpleasant surprises.
