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Is it common that funds charge the startup investee a fee to cover for your due diligence costs?

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May 03, 2023
Is it common that funds charge the startup investee a fee to cover for your due diligence costs?
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Community Member
Accepted Answer
May 03, 2023
No. VCs will commonly charge portfolio companies for legal fees associated with a deal up to a cap in the term sheet, but it is uncommon to charge for due diligence fees, such as a software audit. These fees can be charged to Limited Partners as Fund Expenses versus coming from Management Fees.
The VC charges for their own deal legal fees the startup., up to a cap.....? Why is that? The startup needs to pay legal fees to their own legal counsel/outside attorneys...why would the startup have to pay the legal fees of the VC fund as well (ok, subject to a cap)? What is the logic we penalize the startup in such an unfair way....legal deal fees for the VC should be paid out of the Operating Expenses for the fund, which are essentially paid for by the LPs (w potential to recoup these funds, if there is a Management Recycling Fee that is invested well and returns well)
Community Member
Dec 10, 2023 9:54am
Startups typically want to control their cap-table so they will have their law firm do a lot of this work regardless. With respect to it being 'fair' one could make a pretty strong counter argument that it's unfair to the LP that their money was used for this expense instead of being deployed into a company. Every fund expense is an opportunity cost.
Dec 10, 2023 3:06pm
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