Some might find it ironic that the rock-star VC of the past decade, Fred Wilson, would be blogging today about how great it might be if angel investors and startups could work on a handshake basis, rather than need to create all sorts of legal documentation.
“I often wish we could do business on a handshake.
I’ve been thinking about it more and more these days. We negotiate a sophisticated set of documents when we invest in a company and for the most part, those documents never come into play. Many times when things go badly, we rip up the documents and decide what to do based on an honest discussion among the interested parties. When things go well, all we need are the stock certificates.
I am not suggesting (Union Square Ventures) is going to start doing deals on a handshake. We have investors and we have a responsibility to them to act responsibly.
But if I were an angel, I might do things differently. There is something powerful that comes from establishing trust early in a relationship.
I’m not an angel investor, and only one of the companies I’ve been associated with involved angel and VC investments. But from a totally different perspective than Fred’s–from a “non-startup, independent, small business” point-of-view, I guess–I can relate to the frustration he expresses in his post.
As Hammock works primarily with large corporate and association clients, we understand that every new relationship we enter is going to be codified by lots of legal documentation stipulating who can disclose what, the scope of work, liabilities and on-and-on.
What used to be a one-page letter of agreement can now end up being exchanges of thick sets of documents that can take weeks to work through.
Like, Fred, I’m not suggesting Hammock can enter into multi-year relationships based solely on a handshake.
However, like Fred, I can look back and see that almost never does such documentation come into play. And, to be quite frank, even when the paper exists, it does not keep parties from spending months or years arguing what the paperwork actually meant.
The fact is, and I think it’s a sad fact, we live in an era when virtually everything we do is wrapped up in legal documentation. Much of the business-related email I receive has a disclosure statement right below the signature line–typically saying that nothing in the email can be used to prove anything.
If you use the internet for accessing news or information (and obviously you do, as you wouldn’t be reading this, otherwise), You and I today must agree to long “terms of agreement or conditions” that we never read.
If I visit certain news websites, they feel compelled (or instructed by lawyers) to display their “cookies” practices in a message the size of a large banner ad.
As a veteran of some unnecessary legal wrangling, I understand completely why companies must do this. And how there are companies and law firms that have, as a business model, using the lack of, or fuzziness in, such documentation to extract fees and settlements from companies.
In the past few months I’ve even received notifications that I can be a part of settlements relating to not getting my full share of drinks on an airline or music on iTunes. I ignored them as my cut of the settlement was something like a drink coupon and a free download.
I wish it were not so, but there are just enough folks like whatever law-firms dreamed up those lawsuits (I assume they got more than mere drink vouchers) that now mean we all must add massive layers of cost and time and negotiations to entering into even the most simple of relationships.
How I’d like to be able to go back to the handshake days.
Disclosure: All of this post was my opinion only and not necessarily that of any company, website, client, relative, pet or person I’ve ever known or will know, perpetually.