Bridger PenningtonFund Launch & Investment Expert

This Mistake Costed Him 500,000 Dollars! 😳

23 May 2025 · 1 min

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1:06

In this informal dialogue, the speakers discuss a common and costly error made by new fund managers: engaging legal counsel too early and paying excessive hourly rates. They illustrate how lawyers can overwhelm founders with complex regulatory choices—such as Reg D 506, Reg A, and Reg CF—while charging $800 per hour to explain them. The conversation expands to cover decisions about fund structures (e.g., international feeder funds, Cayman or Luxembourg vehicles), economic terms like waterfall, carried interest, preferred returns, catch‑up, and management fees. An anecdote underscores the financial impact: a friend spent over $500,000 on legal fees for his first fund, whereas the speaker managed a similar setup for $10‑15k. The overall message warns aspiring fund creators to defer costly legal work until they have a clear strategy and to avoid unnecessary complexity.

Third biggest mistake I see is people jump to legal too early. Hello there. Most people think when they want to launch a fund, go spend 50 grand and just hire a lawyer, and the lawyer will help you figure out the rest of this.
And I was going, because you pay the lawyer and then they start asking you questions like, hey, do you want to do a Reg D 506 or 506 or a 3 or 3 or 3?
And you go, well, I don't really know what What that means? They go, "Oh, no worries. We'll charge you eight hundred an hour, and we will teach you what these mean." And then, okay, you guys are gonna be IA and RA or ERA.
What do you want to fall?
Oh, you don't know that? Oh, I'm gonna bill you again eight hundred dollars an hour to learn this. You know, we watched out the Reg A or Reg CF. You know, type of fund you do. What kind of waterfall you have? What kind of carried interest or pref or catch-up or management fee you have? Are you gonna do international feeder fund structures? You do Cayman Islander, Luxembourg funds. What do you want to do? You go, "I don't know." And they go, "Great. Yeah, we'd love to teach you." And they talk slow, and they bill you eight hundred dollars an hour. I had one buddy, no joke. He spent over five hundred thousand dollars on his very first fund because of what I just told you. You. This same lawyer would charge $30,000, $40,000, $50,000. It was $10,000 to $15,000 for my fund. I walked in, I said, hey, I want XYZ with a drink and a side of fries.