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.

Answered 10 years ago

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