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The Handshake Deal Protocol
31–40 of 237 posts
Re: The Handshake Deal Protocol
#32Why not do something creative like have the investor sign a dollar bill (of any denomination) and give it to the founders?
Every founder comes prepared with some cash in their wallet, and then when you confirm a deal the founders ask the investors to sign the dollar bill with a Sharpie/pen. On it would be some sort of short-hand for the deal valuation... Cash is more ubiquitous than phones - even impromptu, it's highly likely one person will have a cash on them - plus you don't have to deal with sharing emails, phone signal, phone battery, waiting for that text/email message to come through, blah-dee-blah.
And then you can frame it and do all sorts of other creative/cutesy stuff. If YC made it a tradition to do a "signed cash" deal as a way of indicating the confirmation of a deal, it'd make for a cool way of looking back at all the great (or not-so-great) investments... sort of like that whole "my first dollar" thing some people do.
Re: The Handshake Deal Protocol
#33[deleted]
Re: The Handshake Deal Protocol
#34The databaser in me wonders about the applicability of a two-phase commit protocol.
Suppose PG/YC (s/PG/{FW or BF or ...}) acted in the role of a transaction coordinator.
Instead of sending confirmation messages directly to each other, the parties would send their confirmations to the coordinator. Like an escrow agent, the coordinator would wait until all parties had confirmed and then send agreement notifications to all.
This might allow investors to commit with contingencies, such as requiring other investors or a minimum investment greater than their own investment.
Re: The Handshake Deal Protocol
#35Surely there's a huge opportunity for the market of VCs to favour those that move quickly: Bring an accountant to the startup demo day to look over the books of ones you find impressive, a lawyer on call to prepare a (i.e. tweak a standard) contract and a free coupon for a same-day courier service for the founders to return it once they've consulted their lawyer and signed. Then an instant money transfer. Obviously,…
I would want a potential investor to spend a little more time on due diligence than that. Also, does the lawyer work for free? Don't you want to do some of your own research on the investor? This just sounds utterly bonkers.
Re: The Handshake Deal Protocol
#36Earlier quoted context omitted.
There are cases where that would make sense, e.g. if the second investor was some famous domain expert. That said, it doesn't happen often. The more common case is where the cap rises for later investors. Later investors gripe about that when it happens, but it's justifiable. The earlier investors took more risk. Plus the company actually is more valuable on account of their investment; a company that has raised $1m…
In my scenario, where the second investor isn't a domain expert, but says something like "I will say yes to $xxx at a a lower cap", then does the startup have a moral obligation to give the same deal to the first investor? I think so, but could be convinced otherwise. Maybe this never happens.
It happens. There are investors who are notorious for offering lower caps to startups that have already started raising money. The solution is essentially to route around them. We advise startups to approach such investors last, when they've already raised enough that they feel comfortable saying "take it or leave it."
(There was a big kerfuffle a while ago when an email of this type got leaked.)
There's another case, though, when the startup has initially raised money at a higher cap than the market will bear. We warn founders about this, but they don't always listen. In that case they give the earlier investors the same lower cap that they negotiate with later investors.
Re: The Handshake Deal Protocol
#37[deleted]
There is no verification of a verbal handshake deal. This protocol is more about clarity than being bulletproof.
Re: The Handshake Deal Protocol
#38Surely there's a huge opportunity for the market of VCs to favour those that move quickly: Bring an accountant to the startup demo day to look over the books of ones you find impressive, a lawyer on call to prepare a (i.e. tweak a standard) contract and a free coupon for a same-day courier service for the founders to return it once they've consulted their lawyer and signed. Then an instant money transfer. Obviously,…
I would want a potential investor to spend a little more time on due diligence than that. Also, does the lawyer work for free? Don't you want to do some of your own research on the investor? This just sounds utterly bonkers.
I agree, It is just as important to trust the investor as it is to trust the startup.
Re: The Handshake Deal Protocol
#39Surely there's a huge opportunity for the market of VCs to favour those that move quickly: Bring an accountant to the startup demo day to look over the books of ones you find impressive, a lawyer on call to prepare a (i.e. tweak a standard) contract and a free coupon for a same-day courier service for the founders to return it once they've consulted their lawyer and signed. Then an instant money transfer. Obviously,…
We (Clerky) have a service that lets you do the paperwork part of that with software. It's in private beta, but will be available publicly shortly. No need to have the lawyer on call or courier service - you can just enter in the deal terms, generate docs, and sign electronically.
Re: The Handshake Deal Protocol
#40You should probably clarify that this is not intended a legal contract and violations will be dealt with socially (if that is indeed what you intend).
What? How is this not a legal contract? All the elements are there.
But might that not be a problem? Some deals must get hung up on the documentation, no? Or perhaps more reasonably, a disagreement over the materiality of something discovered in due-diligence? This can't be a promise to invest X at Y valuation no matter what, which it might be if it were treated as a legal contract.