The Handshake Deal Protocol • Hacker News Board

Re: The Handshake Deal Protocol

#81

Post by larrys » Thu, Mar 14, 2013, 5:45 PM UTC

apalmer wrote: post #71

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…

Agree in general but note that it allows the investors who agree to use this framework the ability to put FUD into the minds of founders who deal with investors who don't.

Especially with startups with so many newly minted noobies coming on board every day who don't have any history or business knowledge they will soon might accept that this is the way "business has always been done".

Re: The Handshake Deal Protocol

#82

Post by [deleted] » Thu, Mar 14, 2013, 5:48 PM UTC

ramirez60 wrote: post #66

[deleted] wrote: post #8

[deleted]

I'll bite. Your comment doesn't say anything...what are you talking about? What is your world? Why is it different? If you want to throw a comment it in, it would be a lot more useful to have some context and reason...

[deleted]

Re: The Handshake Deal Protocol

#83

Post by johnrob » Thu, Mar 14, 2013, 5:49 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…

This might be by design. I think all investors probably realize the legal ramifications. The net effect of this could be to sniff out the ones who don't make good on their handshakes, since the ones who do probably won't mind putting terms in an email.

Re: The Handshake Deal Protocol

#84

Post by mikeash » Thu, Mar 14, 2013, 5:50 PM UTC

I don't understand why this would be called a "handshake deal" when the last two (and most important) steps involve e-mail. Call it an "e-mail deal" or "e-mail contract" and a lot of the mystique just sort of floats away. Now it's obvious why you need to call it off if either party doesn't want to send an e-mail, it's obvious that the handshake itself isn't enough, etc.

Re: The Handshake Deal Protocol

#85

Post by karamazov » Thu, Mar 14, 2013, 5:50 PM UTC

apalmer wrote: post #71

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…

Verbal contracts are fuzzy. They rely on reputation, and an investor's reputation won't take a substantial hit from a "he-said she-said" situation.

Having the agreement recorded in writing might not be legally enforceable, but it makes it clear that there was a concrete agreement in the first place.

Re: The Handshake Deal Protocol

#86

Post by legutierr » Thu, Mar 14, 2013, 5:51 PM UTC

argonaut wrote: post #49

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.

I think the point you're missing is that an oral contract is legally binding. So even handshake deals are legally binding. The only thing preventing a startup from suing a VC that reneges is 1) the startup/founder's reputation and 2) the difficulty of proving your case. The legal system only prefers written contracts because it's easier to prove in court.

I totally agree with you technically, but on a de-facto basis the difficulty of proving a handshake deal is why they are effectively treated not as legal agreements but social commitments, hence Uhhrrr's comment for a clarification of this protocol.

If these "handshake" emails are enough to constitute a legally binding commitment, then the power in this relationship slides dramatically in the favor of the investment target. This might not be a problem generally, but like I wrote above, it is not inconceivable that due-diligence would turn up a real problem, especially if the investment target itself is run by shady people.

There are any number of reasonable circumstances short of fraud that would make an investor consider that the initial presentation made by a company was misleading enough to require a modification or withdrawal of the original offer. Wouldn't an attempt to modify the offer put the investor in a position to get sued, especially if it was relied upon by the company?

This protocol sounds like a great idea, but the vagueness of a verbal commitment has some value (keeping a dispute out of the legal system) that is being sacrificed in exchange for clarity.

Re: The Handshake Deal Protocol

#87

Post by icegreentea » Thu, Mar 14, 2013, 5:51 PM UTC

apalmer wrote: post #71

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…

As pointed out elsewhere in the thread, verbal agreements that contain all the other aspects of a valid (for example written) contract is infact every bit as binding as a written version providing you can prove it occurred. You can do this all sorts of ways - witnesses for examples. The wiggle room that enters verbal agreements are typically not the result of it being a verbal agreement, but that verbal agreements are typically more concise than written agreements, and therefore lack the specificity and breathe.

In summary, a concept of a legal contract is largely abstracted away from the medium it is expressed it. The medium only effects the ease at which you can prove that your version of the contract is infact the version that both parties agreed to.

Re: The Handshake Deal Protocol

#88

Post by larrys » Thu, Mar 14, 2013, 5:52 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…

"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 assumption is that it is always subject to a formal contract which needs to be signed.

Re: The Handshake Deal Protocol

#89

Post by [deleted] » Thu, Mar 14, 2013, 5:53 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…

[deleted]

Re: The Handshake Deal Protocol

#90

Post by jcampbell1 » Thu, Mar 14, 2013, 5:57 PM UTC

legutierr wrote: post #40

jcampbell1 wrote: post #18

Earlier quoted context omitted.

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.

> 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.