He was saying the law firm was willing to defer up to $20K in fees until he raised a round.

That might include drafting/reviewing things like articles of incorporation, corporate bylaws, vesting agreements, NDAs, IP assignment, contractor and employee paperwork, etc. It's depressingly easy to run up $20K in legal fees at $500/hr.

Yeah, I hope thats what he meant or else we definitely short-changed our law firm!

The actual corp setup should cost $1-3k assuming you use fairly standard docs to start. There are some overpriced firms which want $5k.

This is independent of deferral, although generally the more overpriced firms are more willing to defer.