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The Handshake Deal Protocol

ycombinator.com

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Re: The Handshake Deal Protocol

#91

Post by kirse »

ghshephard wrote: post #59
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…

Numerous Reasons: o Everyone has a mobile device at all times, trying to remember to carry cash and/pens is an extra step. Cash, in the valley, is not as ubiquitous as a phone. In fact, it's not as ubiquitous as a smart phone. o Texting is instantaneous. In fact, when we're sitting at a table having a conversation, it's not unusual for some people to be texting each other instead of talking to avoid creating a break…

OK people, I get it, you don't carry cash, etc etc. I'm just imagining myself using whatever I have on me to come to a quick agreement on a precise valuation and secure a solid "affirmative" from an investor, beyond a basic verbal agreement.

So whether that's scrawled on a dollar bill, transmitted officially via the "PG Handshake Protocol", or signed on your ass with a picture in the mirror for posterity... doesn't matter, have fun with it and get it done!

Re: The Handshake Deal Protocol

#93

Post by JOnAgain »

>> 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 without a lead institutional investor. What they bring to the table is: a) diligence during the investment period b) lawyers that know what they're doing c) taking a seat on the board

I feel these add material value to a deal (when it's the right lead, there can be bad ones). I hope I'm adding value, both with money and with advice / monitorship / whatever, but I'm not going to in a positon to look after legal, finance, or accounting issues, I'm probably not going to insist on auditing books, I am probably not interested in a board seat, etc. etc.

There are definitely angels and institutions who invest largely on social proof. But there are real reasons to want a "real lead". I will probably never invest in a party round unless it's really a friends and family round.

I will say "$X with $Y cap, but only with a lead". As a "small time" investor, I am not willing to set or negotiate the valuation. I am not going to judge based on who else you get or who your lead is but I do want there to be a lead.

Re: The Handshake Deal Protocol

#94

Post by eli »

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…

Raising money relies on trust. If you don't have any faith in the other party holding up their end of the deal, the contract doesn't matter and you should probably reconsider the transaction. In practice, you can get pretty jammed up regardless of what the contract says.

Re: The Handshake Deal Protocol

#95

Post by hkmurakami »

This is fantastic. Like putting more leverage and negotiating power to engineers (who have traditionally been marginalized by the suits), providing more knowledge and leverage to founders and taking away grey-zone-hand-waving-smoke-and-mirrors wiggle room from the comparatively powerful party (the VCs) can only be positive in bringing about parity in the relationship.

Re: The Handshake Deal Protocol

#96

Post by brandall10 »

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…

Having a light shined on activity that pollutes an environment based on trust IME is a better disincentive than fear of legal threat, esp. considering the power disparity between the parties.

Re: The Handshake Deal Protocol

#98

Post by nwenzel »

larrys wrote: post #70

"Sam Altman, Marc Andreessen, Paul Buchheit, Ron Conway, Ronny Conway, Chris Dixon, Ben Horowitz, Ash Patel, Geoff Ralston, Joshua Schachter, Harj Taggar, Albert Wenger, and Fred Wilson for reading drafts of this." So we can assume that the VC's named in the above have agreed to this protocol and will be using it?

I saw the same thing. PG is pretty consistent with that tagline. So presumably the VCs knew it would be there. If those VCs didn't want to give the appearance of agreement, they probably would have asked to have their names witheld.

PG also specifically mentions VC "noobs" as being a motivation for this protocol. I would think that experienced VCs would be in favor of such a protocol so that "dishonest" or noob VCs wouldn't disrupt a potential deal or increase the cost of the deal with disingenuous offers.

Re: The Handshake Deal Protocol

#99

Post by FlukeATX »

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…

Though this does follow the qualities of a contract, it's important to note that oral agreements only get you so far in many jurisdictions and particularly have an upper limit on the value, around the order of $500. So while its great this is an explicit and clear conversation, I don't think you can say that it is assuring unenforceable agreements aren't made.

Re: The Handshake Deal Protocol

#100

Post by rscale »

larrys wrote: post #88
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…

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 between an offer and preliminary negotiations is the intent to contract, and language can be used to provide evidence on either side of this one. "Would you take $100k with a $5MM cap" is negotiating language, while "I'll give you $100k with a $5MM cap" is an offer.

Again, not a lawyer, but this "handshake protocol" appears to create valid contracts.

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