The Handshake Deal Protocol • Hacker News Board

Re: The Handshake Deal Protocol

#111

Post by ohazi » Thu, Mar 14, 2013, 6:19 PM UTC

JOnAgain wrote: post #93

>> Finally, it isn't possible to add conditions to a handshake deal. For example, there is no way for an investor to use this protocol to offer, as some investors try to do, to invest if other people will—e.g. to say that they'll invest as part of a larger round if you can find a lead. I disagree with this statement -- specifically about having a lead. As an angel, I would use this condition because I wouldn't invest…

This is a perfectly reasonable attitude. If your constraints don't allow you to make a handshake deal until later (when a lead is found), then you shouldn't be making a handshake deal until then.

Re: The Handshake Deal Protocol

#112

Post by driverdan » Thu, Mar 14, 2013, 6:21 PM UTC

argonaut wrote: post #76

tc wrote: post #65

This protocol causes a valid and enforceable contract to be formed. In fact, the constraints imposed by the protocol are almost exactly what you might learn about contracts in the first year of law school. A contract is composed of a 1) reasonably specific offer, 2) acceptance of that offer, and 3) some consideration between the parties. By forbidding vague offers, PG is assuring that obviously questionable or unenfo…

Thanks you. A lot of people commenting on this thread don't seem to realize that oral contracts are just as legally valid as written contracts (as long as all the elements of a contact are present), email records notwithstanding.

Not necessarily. In New York state for example, it's required that any contract worth $500 or more be written. Oral contracts over $500 aren't enforceable.

Re: The Handshake Deal Protocol

#113

Post by jwhitlark » Thu, Mar 14, 2013, 6:23 PM UTC

I really like this idea. But "handshake deal" is too ambiguous. pg couldn't have proposed it without sounding crass, but I think it should be called a...

"YC handshake"

Re: The Handshake Deal Protocol

#114

Post by [deleted] » Thu, Mar 14, 2013, 6:23 PM UTC

jcampbell1 wrote: post #90

legutierr wrote: post #40

Earlier quoted context omitted.

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.

> 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. Legal contracts don't work they way you think. If there is a discrepancy between what is offered and reality, the contract can fail, or the courts can find a reasonable interpretation, or both parties can agree to change the contract (most common). This happens in due diligence all the time.

[deleted]

Re: The Handshake Deal Protocol

#115

Post by jwp » Thu, Mar 14, 2013, 6:26 PM UTC

kirse wrote: post #32

Why 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 high…

This is exactly the same handshake deal the founders of Fairchild Semiconductor did with each other.

Re: The Handshake Deal Protocol

#116

Post by apalmer » Thu, Mar 14, 2013, 6:27 PM UTC

rlpb wrote: post #10

A handshake is generally not taken to be a legally binding contract in itself. An email might be. So it might be worth making it clear in the emails that you don't intend them to be legally binding.

I think that's the fatal flaw... It attempts at the same time to be a contract and NOT be a contract. If it IS a contract no one will be willing to partake without legal review, so it loses all the time saving benefits. If it is NOT a contract then its no better than what is done today without all the protocol just with a simple handshake.

I think the chief benefit I see is educational for new business people/founders as to what you should and should not consider a 'deal', and what is just networking/bullshit.

Re: The Handshake Deal Protocol

#117

Post by logn » Thu, Mar 14, 2013, 6:32 PM UTC

rscale wrote: post #100

larrys wrote: post #88

Earlier quoted context omitted.

"This protocol causes a valid and enforceable contract to be formed." Don't agree but if that were the case it would be a good reason not to use it. Details matter and this protocol doesn't have enough details (nor can it) that I would ever use it to form an legally binding agreement. I already to a version of this with other types of investing (email back and forth essentially or sometimes a text) and the underlying…

It's likely that other casual agreements that you don't think of as contracts are also contracts. I'm not a lawyer, I'm a guy who took a business law class during undergrad, but my prof drilled it into my head that a contract consists of offer, acceptance, consideration, capacity, and legality. It can be on a napkin, it can be verbal, it can be in a text message, so long as those elements are present. The difference…

At the very least it makes people accountable and open to shaming if they don't follow through. And in a small community word would spread about who breaks their deals.

Also I think PG should make this into a small mobile app. Every VC is going to add some wiggle text to his boiler plate.

Re: The Handshake Deal Protocol

#118

Post by darkarmani » Thu, Mar 14, 2013, 6:33 PM UTC

IgorPartola wrote: post #20

webwright wrote: post #9

Earlier quoted context omitted.

Agreed with the "most" sentiment. But it is worthwhile for anything where a misunderstanding is possible and the consequences of a misunderstanding would be meaningful (to you).

When I was first dating the woman who became my wife, we decided to take a vacation together and split the expenses. We worked up a budget and did a pretty good job of sticking to it, until our car had a minor issue and we had some extra expenses (an extra meal at a restaurant, etc.) When we did the numbers at the end of the trip, it turned out that I overpaid by a bit, and she wrote me a check for that amount. When…

> she wrote me a check for that amount. When I cashed it a week later, she got very upset with me, because she forgot about it and already slated the money for something else

You bastard! She forgot and you cashed it anyway! haha.

Re: The Handshake Deal Protocol

#119

Post by 3pt14159 » Thu, Mar 14, 2013, 6:34 PM UTC

The idea here is good, but the execution leaves far too much room for the startup founder or the investor to get screwed. In contract law any ambiguities are judged against the person that wrote the contract. Since the startup founder wrote "This is to confirm you're in for $100k at a $5 million cap." This is the contract that they have offered. Why bother making things so formal and binding when everyone knows that things still need to be dotted and signed.

My main concern is that this is forcing contracts onto normal negotiation. Maybe if the wording was changed to "strongly interested in" so that you can still publicly shame repeat offenders, without having the contract being formed when there are still other things to consider.

Re: The Handshake Deal Protocol

#120

Post by wbl » Thu, Mar 14, 2013, 6:35 PM UTC

pg wrote: post #36

jcampbell1 wrote: post #25

Earlier quoted context omitted.

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…

This seems very inefficient for the startup. They have people willing to offer more money for less shares, so why not go down the list until they have enough money? Or are there second-order effects I am not seeing here.