The Handshake Deal Protocol • Hacker News Board

Re: The Handshake Deal Protocol

#121

Post by pekk » Thu, Mar 14, 2013, 6:36 PM UTC

PotatoEngineer wrote: post #3

webwright wrote: post #2

This is great protocol for all discussions/agreements. It's pretty hard for any relationship to break down if there's a shared understanding of expectations. The re-statement/confirmation email is a great weapon against what time+memory do with reality, whether it's in the investment setting, with a partner, with an employee, or, heck, with a friend/spouse.

I wouldn't expect most "handshake deals" with a friend/spouse to require that level of formality - unless money is changing hands.

Money changes hands every time people marry.

Re: The Handshake Deal Protocol

#122

Post by devinmontgomery » Thu, Mar 14, 2013, 6:37 PM UTC

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…

Some background on what makes a contract from Nolo (http://www.nolo.com/dictionary/contract-term.html):

"A legally binding agreement involving two or more people or businesses (called parties) that sets forth what the parties will or will not do. Most contracts that can be carried out within one year can be either oral or written. Major exceptions include contracts involving the ownership of real estate and commercial contracts for goods worth $500 or more, which must be in writing to be enforceable. (See: statute of frauds) A contract is formed when competent parties -- usually adults of sound mind or business entities -- mutually agree to provide each other some benefit (called consideration), such as a promise to pay money in exchange for a promise to deliver specified goods or services or the actual delivery of those goods and services. A contract normally requires one party to make a reasonably detailed offer to do something -- including, typically, the price, time for performance, and other essential terms and conditions -- and the other to accept without significant change. For example, if I offer to sell you ten roses for $10 to be delivered next Thursday and you say "It's a deal," we've made a valid contract. On the other hand, if one party fails to offer something of benefit to the other, there is no contract. For example, if Maria promises to fix Josh's car, there is no contract unless Josh promises something in return for Maria's services."

Re: The Handshake Deal Protocol

#123

Post by tomasien » Thu, Mar 14, 2013, 6:42 PM UTC

Not having money is fine, thinking you have money when you don't will kill you.

It's amazing to me that even after having a company utterly destroyed by broken promises from handshake deals that I still trust them, but I do EVERY SINGLE TIME! I'm going to use this protocol for the next few and see how it works out.

Re: The Handshake Deal Protocol

#124

Post by pjscott » Thu, Mar 14, 2013, 6:45 PM UTC

This sounds very simiar to the medieval merchant law: a non-state-affiliated system of lightweight customs for helping people trust each other in business transactions.

http://en.wikipedia.org/wiki/Lex_mercatoria

Re: The Handshake Deal Protocol

#125

Post by thrush » Thu, Mar 14, 2013, 6:48 PM UTC

I think that there needs to be some "time-cap" associated with the handshake protocol. If I don't hear back from step 4 within 24 hours or some other agreed time, I feel it'd be safe to assume the deal is off.

Re: The Handshake Deal Protocol

#126

Post by danenania » Thu, Mar 14, 2013, 6:48 PM UTC

3pt14159 wrote: post #119

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…

It seems like the point here is that 'normal negotiation' is flawed. If you're really planning to invest (or accept investment), you're going to be filling out a large and thorough contract fairly soon anyway. What's the harm in starting out with a mini-contract, unless you want an option to weasel out? If there are other things to consider that prevent you from doing this, then you shouldn't be verbally making those same commitments. There's still room to say "strongly interested" or whatever instead, but you shouldn't expect your place in line to be saved if others say "definitely" and follow the protocol.

Re: The Handshake Deal Protocol

#127

Post by Uhhrrr » Thu, Mar 14, 2013, 6:55 PM UTC

jcampbell1 wrote: post #18

Uhhrrr wrote: post #11

You 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.

I didn't realize it was, but I was thinking it shouldn't be for the reasons other people have already mentioned - mainly, that the resulting case would be a mess and a drag on any startup, and the social punishment for a VC would be I think worse.

Re: The Handshake Deal Protocol

#128

Post by IgorPartola » Thu, Mar 14, 2013, 6:56 PM UTC

cbhl wrote: post #77

IgorPartola wrote: post #20

Earlier quoted context omitted.

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…

I'm curious if something like this would happen today. With PayPal, Venmo, Interac E-mail Money Transfer, and other similar services, I would expect such a transfer (if the other person felt obligated to make one) would be nearly instantaneous.

PayPal for VC's? "OK, I'll invest in your company. Here's $5M!", "Gee, thanks!", meeting over.

Re: The Handshake Deal Protocol

#129

Post by caw » Thu, Mar 14, 2013, 6:56 PM UTC

driverdan wrote: post #112

argonaut wrote: post #76

Earlier quoted context omitted.

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.

Still, you've got proof with this that someone is at least less than honorable, even if you can't legally force anything to happen.

Re: The Handshake Deal Protocol

#130

Post by samiur1204 » Thu, Mar 14, 2013, 6:56 PM UTC

pg wrote: post #12

jcampbell1 wrote: post #5

This seems completely sound. Is it implicitly understood that all investors get the same terms? I assume that if there is an agreement to invest $100k at $5M cap, then the startup can't go take another $100k at a $4M cap, without giving that same deal to the first investor.

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…

There is also a case to be made that even though initial investors took the risk to get a lower cap, they benefit from later investments even if they get a lower cap since the company becomes more valuable, making it more likely that they will actually profit more. While I agree that it's not ideal to have to allow later investors at lower caps, it could still be beneficial to earlier investors for the startup to accept these later investments. I don't think the moral burden should rest on the startup to go back to the earlier investors and offer a revised deal. Not only is it inefficient, but it also gives earlier investors the advantage when it comes to a hot startup that everyone wants to investment in initially. They can just bid with a high cap, guaranteeing that their offer is accepted, expecting the startup to come back because of it's "moral obligation" later on when other investors offer them lower caps.