i'll have a lot more to say about this in the future, but at the moment i just want to observe that for a group of folks who hang around startups & talk about technology & innovation all day long, most VCs & lawyers i know really need to eat some of their own [startup's] dogfood.
Over the past 3-4 months, i've made a few small investments in several startups and become an advisor to a few others. The amount of paper, email, & faxes i have exchanged to get these deals done is FUCKING MIND-BOGGLING. Aren't we in the 21st century? Don't we all use the web & online transactions for everything? Aren't you supposed to be ADVISORS to startups that make lives simpler & use the INTARWEB to get rid of all the paper, delay, & complexity we HATE LIKE THE PLAGUE?!? Or did you all grow up with Ted Stevens or something?
Seriously. If you guys REALLY WANT to be in the business of providing money & legal advice to startups, THEN GET WITH THE GODDAMN PROGRAM.
Innovate. Automate. Simplify.
This means:
1) NO MORE FUCKING FAXES. get used to web forms, and put all your term sheets, advisory agreements, and other documents online. it's not that damn hard. furthermore, when you close a financing, don't send me a pound and half of published paper. it's a waste of everyone's time & money. worst case, send me a CD with everything scanned online. best case, send me an email link to an online doc. if you must, require me to SIGN ONE DAMN PAGE and let me fax that solitary page, not 30 pages back to you. i sort of understand why lawyers do this, since they charge by the hour. however, i have no fucking clue why VCs do this, since it probably makes their lives hell just as much as it does entrepreneurs & angels. if there is a rational reason you guys tolerate this, please explain it to me. it's certainly no problem for my bank to do a wire transfer of $25,000, so why do you think your paper is somehow any more important / less secure than cold hard cash?
2) SIMPLIFY THE TERM SHEET. stop using legalese & complex documents as a weapon / negotiating advantage. if you must include participating preferred / liquidation preferences, include a simple graph that illustrates what's going on (see Leo Dirac's excellent visual explanations of liquidation preferences below). VCs do deals 10+ times a year, and lawyers do them 20-50+ times a year. However, entrepreneurs do them only once every 2-5 years. Guess who gets screwed on the complexity? So if you continue to use complex term sheets, please at least acknowledge to the entrepreneurs you're funding or providing legal services to that you're intentionally screwing them over with complexity in order to gain a negotiating advantage. If the SEC can require plain english language disclosures for IPOs & other advanced financial documents, you guys sure as hell can as well. imho, smart VCs & lawyers will realize that simple, clean term sheets will soon become a negotiating advantage IN THE OTHER DIRECTION, and entrepreneurs who have a fucking clue will simply not stand for this shit. as an angel investor, i will encourage all my startups to ask for simpler term sheets, and i'll send my dealflow to VCs & lawyers who play ball with me. i'll also spread the word about those who don't play ball. believe me, i'll get the word out. you'll become known for being a Tech Luddite.
3) STANDARDIZE & AUTOMATE. everything that you do, from creating advisory agreements to employee stock option plans, should be standardized & moved online . it should not require paper, nor even email moving back & forth to make this happen. you should have an online repository of standard web forms & agreements, and the ability to customize these quickly for your clients with a few simple changes, ideally driven by a wizard-based interface that is self-service. lawyers should NOT charge hourly for these services, rather they should provide a flat-rate package of services that encompass most of the regular items, and perhaps charge hourly / extra for additional or unusual items. i know for a fact that immigration lawyers have FAR more variation & complexity filing work visas & green cards, and yet for many of their services they charge a flat rate.
in short, you guys are still in the 80's.
you've hardly innovated or automated ANY of your business models in decades (and kudos to the few like DFJ, CRV, First Round, Y-Combinator, TechStars, & a few others who have tried some unique variations, at least you guys are moving in the right direction). with the minimal exception of using email, you CERTAINLY have not taken advantage of technology to improve productivity, reduce cost for customers, or simplify and present information in ways that help move the industry forward.
in fact, your CONTINUED tolerance & proactive [ab]use of current business models & practices should serve as clear evidence to your customers that you really don't give a damn. and as with other businesses where incumbents refuse to innovate & rest on laurels, and continue to screw customers with outdated technology & poor service, you're exactly what Schumpeter spoke of.
and you rightly deserve to be disrupted and destroyed.
So you are now on notice.
Every time i talk to one of you from now on, i'm going to ask you what you're doing to move the industry forward. What are you doing to innovate. to automate. to simplify. What. Are. You. DOING?
Lead, follow, or get out of the goddamn way.
UPDATE: Oren Michels reminds me that Ted Wang is one attorney who is innovating. His VentureBeat article "Reinventing the Series A" is a great step in the right direction. Ted is super smart, and he rocks. I'll also mention that White & Lee have done some good work to help educate entrepreneurs over the years (a firm i've used on several occasions).
UPDATE2: Should have of course mentioned the fbFUND that was announced last week, and the folks involved there (Accel, Founders Fund, Reid Hoffman, Josh Kopelman, Rajeev Motwani). definitely innovative, altho not sure who was the driver on that one.
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