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Monday, September 24, 2007

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Listed below are links to weblogs that reference VCs & Tech Lawyers: INNOVATE, AUTOMATE, SIMPLIFY:

» VC's and Lawyers Need To Think Simpler from Feld Thoughts
I love a good rant and Dave McClure has a doozy up titled VCs Tech Lawyers: Innovate, Automate, Simplify.Several years ago when Jason and I wrote our Term Sheet series, I often thought to myself (and often out loud) why ... [Read More]

» VCs & Tech Lawyers: INNOVATE, AUTOMATE, SIMPLIFY from MBA Depot
Dave McClure blogs about how venture capitalists and associated lawyers have failed to embrace the technological advances that have helped nearly every other aspect of the business world. [Read More]

» Venture capital: less overhead, please from blog.payne.org
One of the costs of raising venture capital is overhead: it takes a lot of energy to navigate the complexity of term sheets, to manage investors, and to navigate follow-on rounds of funding. It gets even worse if youre dealing with uniq... [Read More]

Comments

Dave


>>The Internet is for poor people


@Otakucode: thanks for the "enlightenment", and i completely agree.

... and just to be clear, it is my LIFE'S FUCKING MISSION to put people such as you describe to an early grave, and create revolution as required to REMOVE THEM FROM POWER well before they term-out or expire.

*** By Any Means Necessary. ***

- dmc

otakucode

Well, you're not going to be hearing from any of the guys with a lot of money, so let me bring down their "wisdom" from the mountain for you: The Internet is for poor people. The Internet doesn't have a barrier to entry, and anyone can get on it. That means those whose lives are based around exclusivity (did I mention I had breakfast with the CEO of MegaCorpSoft last Tuesday?) have no interest in it.

An executive, a "real" one (tech company execs are looked down upon as nouveau riche and working in an industry akin to prostitution or theater, churning out entertainment to keep the rabble quiet) sees the Internet no different from a teeming public market, with grubby people packed in shoulder-to-shoulder. They prefer private schools, good breeding, and associating with people in the same tax bracket. And they decide how business is conducted.

Their secretaries send email, they don't. Their assistants buy things off of Amazon, they've never touched it and wouldn't think of it any sooner than they would run to Walmart to get a screwdriver so they could repair something they own.

The two major groups that control the technical details of how businesses are put together (what one has to do before a corporation can be said to exist, etc) are these guys and legislators. Legislators are, mostly, the same. You won't bump into a legislator at the mall, or find yourself sitting next to an oil company executive at McDonalds, and you won't bump into them on your blog either.

T.A. McCann

I have had these emotions so many time as well. Thanks for the post Dave.

In my experience, most lawyers talk a good game about "adding real value" but just don't. They take their cut, even before the VC's.

I think there is a huge opportunity for some firm to reinvent the business, make it all online and simplified to bare bones. I am sure many of the web2.0 companies would use them and that could be a tidy little business.

I am new to the blog, but keep it up. Good luck at the conference this weekend.

T.A. McCann

Jason M. Lemkin

Just try EchoSign. You can get an electronic signature for free in about 60 seconds, even sign on your Blackberry. http://www.echosign.com.

Copies of all signed documents will also be stored in your EchoSign account if you want them there. You can also automate fax signing as well.

Amit C

The other side of this story is their companies get the same lawyers.
One actual example is KPCB, their startups have atrocious agreements, even from an engineer's point of view.
I interviewed with one in Seattle, early 2007 for a sw dev opening. They started by asking me to sign a 3 year non-solicit agreement buried in page 3 just to interview. I refused and then they changed the terms.

Another one earlier (2001, now gone) had too strict employment contract.

Ugh, I avoid the KPCB funded startups, though it is one of the top VC firm unless it is a killer startup.

Amit

Yaron Reich

Great piece !

I totally agree with you on over exaggerating fees, time and complexity of round A deals.
Round A should be the simplest round since the land is practically virgin.
The lawyers just need to put the right legal infrastructure for a great company and you can have almost standard form and documents for this.

Nonetheless, I believe that much of the blame lies with us – the entrepreneurs !

I can give you two ideas of how I believe we can get out of this predicament:
1. simply shop around; an entrepreneur need to meet with 2 – 4 leading legal firm and let them bid on the overall rates and services they will charge for the round A. meet with them, talk to them, explain to them about your company and dream and make them believe in you. Once you did so they would like to stay with your company for the long run. Be sure to tell them that you also have other offers and you will choose the most attractive one.
When they know that they are in competition they can shave up to 30% of their regular rate and in order to keep you as their client they will need to do good job e.g. they will need to get efficient.

2. For the second idea I would throw you the glove to pick up; if we will have a site that will gather information on leading legal consulting who are specialize in round A for various fields we can then rate them according to their professional level and pricing level. Once entrepreneurs, VC and legal consultant will be aware of common price for round A you will see how prices will go down and in order to keep profitable they will need to get efficient.

Shane

What an interesting way to put forward a very important point!!

Michael Kreppein

Great post! I'm a co-founder of a software startup and we are still in the friends-family seed round of funding. I'd like to see a simple-to-read promissory note that converts upon Series A. Does anyone else have this need? Will anyone one share one? Thanks!
msk at inquisix dot com

Dave

thanks for the note Furqan.

actually, i believe that Plain Language English the SEC mandates for IPO filings and 10-K documents is very precise, and not "lossy" as per common english vernacular as you suggest.

note: i'm not suggesting we kill precise legal language, just that we make it as simple as possible -- and no simpler.

in addition, having a visual representation (as per Leo's examples) that exactly syncs with the verbal description would probably go a long way to increasing understanding.

legal language need be no less precise, just less complex.

Furqan Nazeeri

I wholeheartedly agree with your points #1 and #3, but not #2. I think "legalese" is required because common English is imprecise in the same way that programmers use "techese" or accountants use GAAP. If you're a founder/CEO it's just another thing you have to learn in order to do your job. I don't feel sorry for an entrepreneur who didn't take the time to learn how a termsheet affected his business. That said, there is way too little "reusable code" in the legal world and too much paper for my taste.

Jay Parkhill

I would love to have a "virtual closing room" on my website where people could log in and digitally sign documents.

I spend so much time chasing signatures and telling people to find fax machines- this would be fantastic.

Is there anyone willing to educate me in how to do this? Thanks

Stephen Kellett

Seriously funny and right on target!

A few years back we hired some patent attorneys to do some work. £200/hour (thats $400/hour!). I was amazed when I finally twigged why email communication with them was so odd - it always seemed to come from a secretary. The patent attorney was dictating (yes, you read that right) his email and the secretary would then type it up and send it later that day. Un-****ing beleivable.

And I was wondering where that £200/hour was going. Talk about back in the 60s with a secretarial pool staff.

Stephen

Anthony Kuhn

Dave:

When you go off, you go OFF! I can remember working at Bloomberg News in the Washington D.C. bureau and right from the start we were required to use the exact software our customers used in keeping with the "eat your own dogfood" motto. Good times ensued as anytime a modification was needed for a customer, which was basically daily, the software would be rolled out overnight, much to the chargrin of the 4 am reporters who suddenly couldn't file breaking news on their broken systems. I lasted 2 years as an IT support dud(e) before tossing in the towel. Your post is on topic for some of my audience, so I cross-posted on your piece, along with some comments of my own, at http://blog.innovators-network.org The Innovators Network is a non-profit dedicated to bringing technology to startups, small businesses, non-profits, venture capitalists and intellectual property experts. Please visit us and help grown our community!

Best wishes for continued success,

Anthony Kuhn
Innovators Network

Ask Bjørn Hansen

Hear hear!

It's not just VCs - it's all sorts of lawyering. When I do consulting work I'll often get a 5+ page contract. WTF? How complicated can this be? Fortunately I've been doing it for long enough that I can send them my PDF back and ask we use my much simpler contract; but even talking about it is such a waste of time.

The contract should just be: "You show me stuff. I promise not to tell anyone else. I'll give you ideas for how you can do it better; I might promise to competently give you useful advice. It will take 3 days, you pay me $4500."


- ask

loren nason

since i have not had any dealings with the VC industry I am surprised about how behind they are on the technology curve.

With Lawyers I am not surprised at all. As much as they bill per hour the ones I have dealt with are also behind the tech curve and have no desire to move forward.

Real Estate seems to be the worst over all on technology acceptance. I can't even count how many times I have been told that e-signatures are too difficult to learn.

Steve Kane

One painful item you didn't cover:

Why the heck are startups expected to pay for the closing and due diligence costs of VC fundings?

VCs collect huge "management fees" -- usually 2% of COMMITTED capital (not drawn down capital) -- isn't this what those fees are supposed to pay for? For the overheads and costs associated with sourcing funding deals?

Instead the startups are expected to pay for the VCs lawyers, etc. Sort of like being required to pay for the billyclub used to beat you up? I mean, what incentives do attorneys have for keeping things simple and quick and cheap when their clients -- the VCs -- dont care how much they bill out?

If the VCs insist on your company paying their closing costs, then insist back on a "cap" - a maximum amount the startup will pay. Say, $10K total, across all VCs and VC lawyers in the deal. Then sit back and watch how quickly and cheaply closings can get done!

kareem

Well fucking said, Dave!

pwb

It'll be interesting to see if off-shoring legal services ever takes hold.

Michael Lamb

hahaha, McClure this is the best post I've ever read from you. One start-up I'm involved with got a $250K investment - chump change eh? The documentation they produced from this transaction was as thick as a (big) yellow pages book! It was unbelievable.

I think lawyers and politicians are in cahoots to keep law firms in them thare fancy buildings....

Dave

>>One thing to keep in mind, though, is that we don't make the laws

mmm... have to disagree with you there. (and believe me i know *you* are more part of the solution than the problem)

certainly, lawyers can be some of the most important folks involved in CHANGING the laws. however, i just don't think most lawyers perceive that to be in their best interest.

at least on behalf of their clients, if not themselves, i think they should be more motivated to get those laws changed & have them make more sense.

those that take the lead (such as yourself) will certainly earn our respect, praise, and business.

Ted Wang

Dave-

Absolutely agree with the sentiment and we really are working on trying to make things simple. One thing to keep in mind, though, is that we don't make the laws. So, for example, the California Secretary of State would not accept FAX SIGNATURE PAGES until about a year ago. That's right, if you didn't have "blue ink" your Articles of Incorporation would get bounced right out of the Secretary's office.

I do agree that we should try and move towards more standard forms. One other tricky thing to deal with is the laws keep changing. So, for example, the new tax law Section 409A has made us fundamentally rethink how to handle options.

Over all, our form documents are a lot like software code. Enterprise software customers buy both the big applicaitons and customization/implementation services. The value is not just in the code itself, but it is in getting the code to peform the tasks that are specfic to the enterprise. Similarly, the value of buying transaction services from a law firm is not in the forms themselves, it's in having the knowledge as to how to change them and the judgement as to when. (Btw: Apologies to Lawrence Lessig who has made this analogy in more meaningful contexts)

I do agree that we lawyers should adapt our business model to the extent possible to charge for the knowledge and judgement and less for the form documents. Adapting some easier signing technologies would be a good step.

Edward Vielmetti

see EchoSign

http://www.echosign.com/

it's also integrated into Salesforce.

pwb

Violent agreement. Adobe could help out here by making its PDF-based products more affordable and accessible.

Oren Michels

Oh, and at least one part - the fax - can go away. When I helped get Feedster's series A closed over two years ago, we had two investors who did electronic sigs - literally, they opened the signature pages as word docs and pasted in an image of their signature in the appropriate places, saved it, and emailed it to me. Christopher Austin, our attorney, assured me that it was perfectly legal. I had others do the same thing for Mashery's funding as well.

daveschappell

I couldn't agree more, Dave -- especially since I'm probably one of the folks who sent you several pounds of paper. We literally have to make the trade-off between having our attorney's coordinate the paperpile and costing us a ton of money or doing it ourselves with the requisite time and potential error possibilities. For our last round of docs, we did it ourselves, and I literally felt like I was at my first job out of college copying, stapling, adding post-its (for the 19 places people had to sign), etc. I can't believe solutions haven't already appeared with online signatures, document storage, delivery and acceptance confirmations, and more.

Onward...

Oren Michels

Couldn't agree more. Ted Wang at Fenwick is trying to make some progress on this, cutting the required docs from 5 down to 3 and getting rid of silly things like registration rights that will never ever ever be invoked on a series A deal. It's a baby step, but significant enough that when I had lunch with Ted last week I suggested he put the docs out in a way that they'll be easy to use; it will likely raise his profile in a very good way in our world.

Ted did a great post on this as a guest contributor on Venture Beat the other day

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