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Wednesday, June 29, 2022

Legal Fees Can Destroy Investment Rounds: DealCircle Raises $750k To Slash Them

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One thing that many startup founders do not think about are the legal costs of closing a seed round. Why is this significant? Because it can end-up being a much higher proportion of the deal than you can imagine. For instance we wrote earlier about Dexplora, a company where the legal costs of the round were higher than the total cost of producing the app and the system. Not surprisingly then, the co-founder of Dexplora (now Brisk.io), Hampus Jakobsson is one of the investors in DealCircle, a company that is aiming to solve this very problem.

DealCircle announced today that they have closed an impressive $750,000 with an aim to get rid of the excessive legal fees associated with making investments, while providing a platform that helps with the whole management of the round, including getting other investors on board, negotiating the agreement, syndicating and signing the deal.

Bertrand Bisson, one of the founders tell’s ArcticStartup that “startups are totally lost when it comes to closing a round. They spend a lot of their money on legal costs, sometimes upwards of 20 000 EUR.”

Besides slashing the legal costs, the platform aims to help with time spent on the deal. It can take upwards of five weeks to close a round, but DealCircle promises speeds of one to two weeks for the whole process.

There are of-course benefits for the angels too. One of the important issues for them is getting syndicates and other investors on board, but it is often difficult, especially when it comes to finding the active ones that will bring smart money to the table.

To address this, Lars Buch, also one of the founders, told us that “DealCircle focuses on quality vs. quantity. It will be members only and spread through invites. So we make sure that it is only active investors on the platform. At the same time, startups can not just go on there and blast, they can do that only if they have been validated by angels before hand. We will ensure a very high quality of dealflow and I believe in the long term that will be attractive for family offices as an alternative to investing through VC’s.”

Buch was also involved with the Dexplora deal and helped ArticStartup organize Term Sheet Battle last year, so he is the definitely the man to talk to when it comes to negotiating and closing a funding round.

Inside the platform, every participating angel investor can upload their own agreements or choose for a variety of existing templates and negotiate everything online. The templates and suggestions were carefully researched and take into account over 28 different legislations in Europe, which allows for very easy cross-border investments and an innate understadning of how Europe works.

When it comes to startups, one can only be invited to DealCircle by a ‘lead angel’, who acts as an ambassador and promotes syndication.

The idea is of course to get more investors on board, so all of the participating members can invite other investors, which allows to hunt for smart money by asking the group to for instance look for an investor who knows about “aerodynamics”. Given that the startup is from that field.

If you would need some additional help then DealCircle partnered up with lawyers from Bird&Bird, who have agreed to provide additional consultation on good terms.

Buch and Bisson told us that this is not a matchmaking platform per say, so they are not really going head to head with Angel List and would in fact prefer to see the two platforms co-exist and co-operate as currently most European investors usually do their “shopping” on Angel List but rarely do a deal.

As Buch commented: “We interviewed 50 angels for this platform. How many were on Angel List? Everyone. How many were checking up on startups? 80%. How many have actually landed a deal on Angel List? Zero.”
In addition to the extra services, the company is going to monetize through syndicates. Inside DealCircle, the lead angel can choose a carry of 0-20% and they would take a 5% fee of that carry but no more than EUR 10 000. This means that if there are no further investment rounds/exits – the companies do not pay.

The list of investors of DealCircle is also rather impressive: Alexander Aghassipour (Zendesk Co-Founder), Klaus Nyengaard (fromer CEO of Just Eat), SEED Capital, Hampus Jakobsson (TAT Co-Founder).

Hampus Jakobsson, the founder of the above mentioned Brisk.io and TAT commented that “since TAT was sold, I have invested in over 25 companies and in my own company, Brisk.io, we took on 14 Angels and I can guartantee that there are occasions when the process and lawyer fees are so large an irritation that the investement might not happen. DealCircle will be fantastic for both Angels and startups in Europe.”

Niels Vejrup Carlsen from SEED Capital, the largest early stage investor in Denmark also commented that “DealCircle has a unique business model that taps into a strong trend in the investment market, and it is essential for us at SEED to adapt to this. They have a kickass team and we have great expectations for them”.

Top Image Courtesy of Shutterstock // Lawyer Fees

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