Investor Wants “Due Diligence” Fees Paid…Up Front?

Investor Wants “Due Diligence” Fees Paid…Up Front?

Start-Up, Venture Capital
Several months ago, a new-ish startup founder (we'll just call him "Chuck") came to my law firm seeking help in reviewing and possibly negotiating the terms of a seed round with their first, outside investor. Chuck was genuinely excited because this investor had proposed (let's just say a number between) $1-2 million for (let's further say) 20% of Chuck's company. A critical infusion of capital that could get the company through a few of the next developmental milestones. However, during our first call, Chuck said something that made my lawyer antennae stand on end. While we were talking about timeframes, he said something along the lines of "yeah, [Mr. Investor] is just waiting for us to sign off on the agreement and to send in our check for due diligence."…
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