In deals where investors don’t have counsel, the term sheet usually says that each party will bear its own legal fees and expenses. It wouldn’t be unusual for investors to not engage counsel in an early stage convertible note financing with friends and family. If one of the investors wants to have the documents reviewed by counsel, those fees typically are paid by the company, which is customary in any VC financing. The amount of fees to investor counsel can be as low as $2500 for a quick look at documents and no due diligence in a seed stage deal, to over $15K, depending on the amount of diligence and the complexity of the documents. Investor’s counsel may conduct UCC searches and extensive due diligence, especially if the note is secured. In complex deals, investor’s counsel fees may exceed $50K to $100K. Investor counsel fees payable by the company are typically capped, with the investors responsible for any excess over the cap.
Company counsel fees could be under $10K if there is no negotiation on terms and a single investor to over $30K if there is extensive due diligence and complexity. Company counsel fees on convertible loans may exceed $100K for later stage companies or extremely complicated deals. Company counsel fees are higher than investor’s counsel fees because company counsel drafts documents (on the West Coast) and needs to solve diligence issues. In addition, there is typically some deferred corporate housekeeping that needs to be done by company counsel before the financing.