Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The Handshake Deal Protocol

ycombinator.com

Post reply on HN
Print view View original

71–80 of 237 posts

Re: The Handshake Deal Protocol

#71

Post by apalmer »

This doesn't make sense to me. Fundamentally, you either have a signed legal contract, or you 'just' have a verbal agreement aka handshake deal. The problem that this supposedly solves, is that verbal agreements are non binding and leave wiggle room.

If you cant trust the other party, the only recourse is the full legal contract. If you can trust the party then the handshake and the intention is enough.

Further more even handshake deals made by trustworthy agents with the best intentions sometimes fall apart before the full legal contract is signed. This will never go away.

Bottomline, handshake deals work in situations where the reputation of the individuals with each other is more valuable than the benefit of breaking a given handshake deal. Its just game theory really.

Further if the protocol did get buy in and become widespread, it will eventually reach a point where there are true legal ramifications for breaking a handshake deal. At which point everyone will (and should) refuse to make these deals for the same reason no one signs million dollar contracts without having the lawyers review the details.

Re: The Handshake Deal Protocol

#72

Post by dsr_ »

kayge wrote: post #64

Interesting timing. A similar post landed in my inbox this morning, from the blog of a VC in NYC: http://www.avc.com/a_vc/2013/03/doing-business-on-a-handshak...

Not coincidental, given that pg thanks Fred Wilson (avc.com) for feedback/input at the bottom of the handshake protocol page.

Re: The Handshake Deal Protocol

#73

Post by larrys »

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…

"And then you can frame it and do all sorts of other creative/cutesy stuff."

Restaurants do that frequently with their first sale. (Cynically: The other $$ end up in their pockets, untaxed).

Re: The Handshake Deal Protocol

#74

Post by cwp »

kcmarshall wrote: post #62
pc86 wrote: post #44

Earlier quoted context omitted.

Can someone define cap for me in this context?

Think "Market Capitalization" not "top" or "limit"

No, "limit" is the correct interpretation. For a convertible debt investment, it's the maximum valuation by which the debt can be converted to equity. (And therefor a minimum percentage of the company that the investor will receive.)

Re: The Handshake Deal Protocol

#75

Post by larrys »

pg wrote: post #55
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…

That's an amusing idea. It would be fine with me if that variant evolved. But it would have seemed frivolous if we'd proposed that.

The more you do things like that the idea becomes balkanized and you move further from your intention which is nice, simple, easy to remember and understand.

Re: The Handshake Deal Protocol

#76

Post by argonaut »

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.

Re: The Handshake Deal Protocol

#77

Post by cbhl »

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…

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.

Re: The Handshake Deal Protocol

#78

Post by lincolnq »

pc86 wrote: post #44
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.

Can someone define cap for me in this context?

Convertible debt is the trendy way to finance seed-stage startups these days. It allows early investors to essentially "punt" on determining the true valuation of the company at an early stage, while still ensuring that they get a decent deal when a valuation does get determined.

The way it works: instead of negotiating over true valuation early on, the seed investor hands over the cash as a debt instrument (so the startup technically owes the investor the money they paid), under the agreement that if the startup later raises a "real" (venture) investment round, the debt converts to equity at the price of the later round.

Of course, to avoid screwing the seed investors over, they typically insist on a "valuation cap" -- maximum valuation -- (so if you later raise venture at $10mm, but the cap was $5mm, the seed investors get twice as much equity as the venture investors per dollar paid). But if the venture investors only pay for a $5mm valuation, then they get the same equity-per-dollar as the seed investors.

Re: The Handshake Deal Protocol

#79

Post by cbhl »

jcampbell1 wrote: post #25
pg wrote: post #12

Earlier 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.

Are you suggesting that said moral obligation should be a part of the protocol?

I feel like it would make more sense for someone in that scenario to get advice for their specific situation, rather than spelling it out in the protocol.

Re: The Handshake Deal Protocol

#80

Post by wuest »

rthomas6 wrote: post #41
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…

>Cash is more ubiquitous than phones Are you sure? Right now I have a phone but I don't have any cash.

The last time I had cash on my person, it was because I was traveling, and wanted some on hand. I haven't carried cash, as a rule, in almost a decade.
Post reply on HN