How Much Are Investment Fund Legal Fees?

Boho people, welcome back to the show. Today we're going to talk about legal costs for a fund. I actually this week sat down with 6 different attorneys to ask them about their rates, their fees, what they would do for a fund. I gave them all the same prompt. I'm going to walk you through the answers I got, which were very surprising from these lawyers, and the range of prices that you have costs for a fund. Now, a few things before we get into this. We're going to talk about the Fund Launch Formula, how to get started, how to do this whole thing inside of your fund. What I got to say as well, my editing guy tells me to say this, we set a goal of getting 50,000 YouTube subscribers this year in 2021. Don't ask me why we picked 50,000. It was a good number. I don't know. Bitcoin is going to be there soon, hopefully. So that's what we picked. We are pretty small right now. We're at like 5,000 subscribers. So our YouTube channel, we want to grow. So if you're on the podcast or somewhere else, come over. If you can subscribe, it's a great way to, I guess, say thank you to us. That's what my YouTube guy tells me to say. So here I am saying it. YouTube guy Andy, this is for you. I've said it. All right, now that's my little pitch here. Go subscribe. That's it. It's free to you. It helps us out. It helps us hit that goal, 50,000. 50,000 on Bitcoin too, baby. It's going to be amazing when it hits that day. All right, so back to the whiteboard here, okay? Legal costs for a fund. If you guys remember back, the Fund Launch Formula— again, the Fund Launch Formula, we teach this is the best way to go out and launch your fund. This does not matter if you're doing a hedge fund, a private equity, a venture fund, a debt fund, a little pool, whatever it is. This is a great way— a syndication deal is a great way for you to go out. So step 1 of the Fund Launch Formula is find an incredible deal. 2 is frame that deal out Put it together, get your pitch deck together, all that kind of stuff. Then 3, go and pitch investors. Start getting soft commitments from those investors, getting people lined up. Again, you don't have your legal docs done, and that leads you, if you do that enough times in the right way, you'll iterate through those 3 steps, 1, 2, and 3. Eventually, it'll lead you to go to step number 4, which is getting your legal docs done. Again, we have other videos, we go way more in depth on the Fund Launch Formula, how to launch a fund, how to find those investors, how to pitch them. That's what we talk about on the show, but this episode, Back to the— keep me on topic, squirrel. You know I get off topic here. Is back to legal costs, right? How much is it gonna cost for your fund? So let's talk today about step number 4, legal docs. All right, so as you guys know, I am actually launching a new fund, a real estate fund right now. It's gonna be a 506 fund. We've got about $15 million soft committed for this fund, and hopefully in a few weeks I can tell all you guys about it. It's a 506, so I can publicly advertise. We are not filed yet, so I can't be Talking about everything yet, but we are going to do that. So this week I was shopping around lawyers. We've done the three steps, the first three steps. Now I'm shopping lawyers, and I gave them the same prompt. I said, "Hey, I'm looking to do a Reg D 506 real estate fund. We're looking to raise fifty million dollars as our target. This is our first fund in this space. I've launched other funds in different and debt funds. I've not ever launched a real estate fund before. So this is our." First offering in this space, we're going to raise money primarily from Utah, Nevada, Arizona, and California. We might have a few investors other places, but those are probably about a four-state offering. This is the prompt that I gave to my lawyers. Now again, if you don't know what a 506 or a 3 fund, that's okay. Go watch our other videos. We got other stuff that walks through what all those mean. So first lawyer I get on the phone with, great guy, nice gentleman. Him and his associate actually his associate was kind of interesting to talk to, but he was great. They quoted me, and it was almost like pulling teeth to get them to give me a price. I asked them, hey, I just want this to be a quick call. This is what I'm looking for. I know what I want. I've done funds before. Can you give me a timeline and a budget for this? And they kept asking questions. They were back and forth. They didn't want to give me a price. And I said, no, I just, hey, give me, I don't even care if it's a big ballpark, but just give me a range for where typically this type of a fund will land. First legal team I talked to, they said, hey, we could have this done in about 4 weeks, and they quoted me $75,000 to $125,000, which I thought was pretty high, but these guys apparently are the best in the business. They've got all the degrees, they got everything. About $100,000 budget for a first-time fund in 3 states. I said okay, I thanked them for their time. Now they again reminded me, which is a great reminder for you guys as well, when I'm going through these numbers When you raise your fund, the fund can reimburse the legal setup costs. So if I did go with these guys, and let's say it's $100,000, I set up my $50 million fund, we have the money hopefully already soft committed, which we do, money comes in, I get reimbursed $100,000 as a setup. It's an expense of the fund, it can get reimbursed. Now the downside of that is now your fund is now in the hole $100 grand, and you've got to make that up through your investing, but still it's not coming out of your pocket, it's spread Through pro rata through the investors. So it's a good note to make before I move on. Okay, and I need to redraw this out because this was looking ugly here. Okay, so timeline, budget. Okay, so that was my first offer. Second guy I get on the phone with, nice gentleman, he tells me they do funds all the time. He gives me a quote. He goes, we could have this done in probably about 2 and a half weeks, maybe a little bit longer depending on how many changes you want, but if you have everything ready to go, probably about 2 and a half weeks. And he quoted me their base package If I paid in full today, okay, today paid in full, was $10,000. And he had another package that was about $22,000, another package of about $35,000. Those 2 top packages, you got them for a year on retainer. They could help answer questions, they could be on investor calls, whatever you needed them to do, they would be it. But if you just wanted the fund set up, the first package, $10,000, about 3-week timeline. So I just went from a $75 grand offer on fund docs all the way down to a $10,000 offer on docs. So now I'm all over the place, right? What do I expect from a lawyer? How do I know what to do? I decided to ring up the phone again. I call a third lawyer. He tells me about 4 weeks and they would come in about $55,000, somewhere in the middle. So now I've got a $75,000 offer, I've got a $10,000 offer, and I've got a $55,000 offer. So I'm in this predicament. I don't know what to do. I finally decided to call my dad. So my dad, if you guys don't know, co-founder of a deca-billion-dollar fund, has done very well in the fund space. They've raised and deployed billions of dollars. He has an incredible story if you guys haven't heard this, amazing rags-to-riches story my dad does, that he's gone and launched these funds, and with his partners and team, they've just, they've done an incredible job with everything they've done. That's actually how I learned how to launch funds. I didn't know he was rich growing up. My dad, again, has never invested in any of my funds. Still hasn't, actually I keep pitching him too. I pitched him last month again, On another offering and he said no. And so anyways, that's just how it goes. Tough love, right? Gotta go, I gotta figure it out for myself. So I call up him, the wise old sage, what would you do? I ask him, okay, I got a $75 grand offer, I got a $10 grand offer, and I got a $55 grand offer. And he said, well, he goes, he kinda laughs, he goes, I would keep looking. He goes, you don't need a $75,000, $100,000 fund docs for your first fund. He goes, yes, when you get bigger and you're getting international investors and you have a huge multi-international fund, yes, spend a couple hundred thousand dollars on fund docs. He says, well, if you're gonna raise money from institutional investors, okay, institutional investors are gonna wanna see really nice fund docs. They're gonna wanna see that you've thought things through. They're also gonna probably want side letters or side deals that you're gonna have to negotiate, and those lawyers are gonna kinda have to draft them for you. But he says, my first fund, no, this fund we're not getting institutional investors. We need something simple. He goes, so I would scratch out that first option. Now the second option here, $10,000. And he goes, well, you know, I don't know the firm. I've never worked with them. They could be good. They could be a good firm and actually might be the perfect fit for what you're doing, especially if it's a first-time fund in your space. You're grabbing money mainly from high-net-worth individuals, maybe a family office if you're lucky. they are not gonna dig into these documents as much. Because the other side of the coin is if you have too cheap of documents, in a year or 2 from now, you might have to hire one of these expensive firms to come and fix your documents anyways. So he goes, well, I, you know, I would vet that group out. Maybe $10,000 is actually a great deal. Maybe it would be just perfect for you. So he goes, I'll put that on hold. It might be a good deal. And then he came back and said, well, $55,000, $60,000, that still seems high for what you're doing. Now, if he goes, if you were setting up a hedge fund and it was going to be a hedge fund that was going to run for the next 20 years and you were going to have that one fund. You know what? $50,000, $60,000 might sound like a good deal. You want to set it up the right way at the beginning. You don't want to change your docs in the future. However, for our case, we're setting up a real estate fund. And this is the same for real estate, a venture fund, or private equity fund where you're going to have multiple closed-ended funds. We're going to have a fund that's— this fund is going to be about a 5 to 7-year fund. We're gonna have that fund, and we're hoping 18 months from now we're gonna launch another fund, and then another 18 months we're gonna launch a third fund. So he goes, yeah, maybe on fund 2 or fund 3 you can go and start getting more sophisticated documents because you're gonna be attracting higher investors. But he goes, I still think that would be too much. So fourth and finally, he finally gives me a contact to a great gentleman. He— I call this guy up, I want you to talk to him and see what you think. I call him up and he was kind of right in the middle. He gave me a quote for about $25,000 and same kind of timeline, about 4-week timeline, give or take. And this gentleman had great experience in securities. He's also done 506 funds before and 3 funds before, so he knows what we've done before. And I— he's had experience in these types of funds, this niche. And something interesting that he brought up as well, which I have used on previous attorneys, is he asked if I already had Templates. He said, hey, if you already have templates that you're working out of, that will save me a lot of time. And if you guys remember, on a lot of my videos I talk about if you can have legal templates ready to go and you've gone through and under— you understand those templates, you've gone through and edited them yourself, you put on your lawyer hat and then take it to a lawyer and you say, hey, Mr. Lawyer, Mrs. Lawyer, can you just cross a T and dot an I for me and just look through this? Most lawyers bill by the hour, and that will save them a significant amount of time if they're open to it. This last lawyer I talked to, $25,000, he said, well, if you have templates, I mean, I could do it even for less. I could do it maybe $15,000 or $18,000. We'll just see what the hours come out at. But the templated documents helped him a lot. Now, a lot of you guys that listen to this are in our mastermind group. You guys know we actually give you good templated documents for all different types of funds. So I was like, bingo baby, I've got documents. I'll download them, I'll pull them off the course, our mastermind program, and then I can use them, edit them, and bring those templates to him. Now I haven't made a final decision on what I'm gonna do right now. I'm actually gonna call a few more attorneys, get pricing and timelines from them. But I hope this actually helps you a little bit to see the range of types of attorneys. You can go all the way from $10,000 or less all the way up to $125,000 for a The last thing I want to add is this, and one of these actually lawyers told me this. He says, Bridger, the one thing you don't want to have happen with your fund docs, you don't want an investor to take those documents, send them to their own lawyer, and say, hey, can you look through this? Give me, you know, what do you think of these docs? Lawyers love to shoot other lawyers down, right? It's kind of a pride thing for them. You don't want them to grab your documents, that lawyer to look through and say, hey, these are, These are crap. These are not thought through, and you should not invest with them. You do not want to lose an investor because your documents were not done or drawn up the right way. Additionally, a year or two down the road, you might have problems from if the documents were too cheap or weren't done the right way. You might have to adjust those documents. That's what a lot of these high-end lawyers were telling me. It's like, hey, you're gonna have to pay us eventually to fix some of these low-cost documents. However, the rebuttal to that is I'm probably going to change my docs anyway in a year. I don't even know what I don't know right now, and so a year goes by, I'm probably going to have to make tax changes and codes and law changes because things are going to change anyways. So I don't want to pay you guys twice $100 grand each for each one. Maybe I'll start small, get started, get moving, and then I can come back to you guys later and you help fix and correct a few things. Something I'm big on inside of our programs as well, as you guys know if you're in our programs, is getting started, is getting moving. That's why back to the beginning, the Fund Launch Formula is designed to build momentum. 95% of funds never launch. They just stay in idea mode and no one ever puts the pen to paper to get things moving, to get started, to get money raised. My goal is to help push people to actually start moving and make things happen. In your case, if that means going after a $10,000 loan just to get things started and moving, and yeah, you have to fix it in the future, but That's okay because you're at least moving. You're at least started. I always prefer movement over no movement, and momentum builds on momentum, and you'll figure it out as you go a year or 2 from now. Maybe you do need to go find these, you know, big lawyers, and maybe you don't. Maybe what was done was adequate and was great, and you actually got your fund launched and started, and now you're in the race, but you can figure it out then. All right, so hopefully this helps give you an idea of legal costs for funds. Again, if you guys want to go subscribe at our YouTube channel, That would help us a lot. We want to hit 50,000 subscribers here pretty soon. So go hit that subscribe button. We also have other videos on there. If you guys don't know the other stuff I'm talking about in here, we have plenty of videos to help walk you through that as well. Thank you guys so much, and I will see you on the next episode. Bye.