YC has helped shape many ways in which modern startups do business and I could see this protocol adding to this by setting minimum expectations for defining who is truly "in" on a funding round before the binding documentation is done.
I see it as a remote risk that any such exchange would be treated as a legally binding contract. Too many essential terms would be missing, as for example in the case of a bridge note such things as time to maturity, interest rate, size of equity raise triggering mandatory conversion, etc. While the otherwise missing essential terms might be supplied by a term sheet used by the startup as a basis of discussion, such term sheets invariably make clear that they do not become legally binding until definitive documents are signed. To say, then, that one is "in" on such a term sheet would signify no more than what one signifies by actually signing it: that is, the investor becomes morally bound to negotiate in good faith until the documentation is prepared and signed and also morally bound to participate when such documentation is prepared in good faith and along customary lines. Of course, beyond the legal hurdles, there is the not insignificant issue of how either an investor or a startup would be treated in a tight-knit community such as YC if the person becomes known as being "sue happy." Could such lawsuits ever come about? Yes, and there may be unusual cases where the parties had had a true meeting of the minds, or where one party relied to his detriment on the other's statements and conduct such that a court might find an enforceable contract, but the practical risk of this happening would be near zero for almost all such cases - enough so, I think, that it may be effectively disregarded.
What the protocol does do is help prevent misunderstandings, inadvertent outcomes, and the occasional deliberately weasly overreaching that can occur with informal verbal exchanges. It says to the investor: do I really have a commitment from you such that, should you back out, your reputation will take a hit? It says to the startup: pin your investors down to the point where you can't be double-dealt but also make sure the commitment you think you have is real and not a product of your own wishful thinking.
I can see this working beautifully as a first step within YC. Beyond that, it will work as people come to terms with its existence and see it as useful. For its purpose, it is really an elegant solution to a knotty problem and therefore worthwhile.
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 unenforceable agreements aren't made. The consideration in this case is the startup reserving space in its round for the investor.
As far as steps 3 and 4, documenting the agreement is obviously valuable, but the contract is formed at the end of step 2 [2].
Now, it does seem unlikely that anyone would try to enforce this in court, in the same way that few are going to start a legal case over someone backing out on a term sheet, but if you could show damages based on your reliance on the other party's performance, you would in theory have a case.
Interestingly, it seems that either PG et al. must have aligned this protocol with the constraints of contract law, or in trying to achieve their ends, they independently reinvented the contract formation protocol that has been with us for at least hundreds of years.
--
Edit #1: Regarding the questions along the lines of, "this can't be a contract because there are many other terms to address," a contract can always be longer. If you don't address a term in a contract a court will try to divine the intent of the parties, or look at industry norms, or use defaults established by statute law, and try to do something reasonable. A valid contract isn't dependent on covering every possible, or even every usual, term. The fact that one party reasonably relied on the agreement and was thereby harmed by the other party's non-performance is often going to be sufficient.
[2] (edit): By reducing the contract to writing, even just one sentence in an email (steps 3 & 4), you would fulfill many statutory requirements for written agreements on certain kinds of transactions.
Edit #3: To be clear, I believe the contractual nature of this protocol is a feature, not a bug. You really do want the elements of a contract regardless of whether this is going to be enforced by a court, a person's own conscience, reputation networks, or public shaming.
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.
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.
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.
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.
"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."
Just as a thought experiment, let's imagine what would happen if you tried to enforce this handshake deal (complete with email confirmation per steps 3 and 4). How would the courts decide all the issues that would normally have been negotiated and agreed to in a terms sheet?
Taken literally - yea. But you can fix it pretty easily just by adding the standard "this is nonbinding" language that all term sheets have. That's a little inelegant though. Probably what would be best is just to have a page defining the protocol (and clarifying that it is nonbinding) and have people link to it in their handshake email.
While I agree this is a legal contract, more importantly, I think this is pg setting expectations for both founders and investors.
I speculate that the underlying motivation is that YC partners are spending too much time on handshakes that have gone wrong, rather than helping building businesses.
"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.
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 highly likely one person will have a cash on them - plus you don't have to deal with sharing emails, phone signal, phone battery, waiting for that text/email message to come through, blah-dee-blah.
And then you can frame it and do all sorts of other creative/cutesy stuff. If YC made it a tradition to do a "signed cash" deal as a way of indicating the confirmation of a deal, it'd make for a cool way of looking back at all the great (or not-so-great) investments... sort of like that whole "my first dollar" thing some people do.
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 in the conversation / side conversation.
o Central, Secure, two-party tracking with SMS/WhatsApp/iMessage. Nice Audit trail as well, and you have it all handy on your phone to keep track of things. Nobody wants to deal with more little pieces of paper.
If a dollar bill is signed, only one party has a record (which can easily be spent and conveniently lost forever). If an email is sent, both parties have a record.
What I like most about is that it embodies the idea that funding is an end rather than a means. Rather than commemorating revenue you're celebrating funding. It's perfect for the VC centric world of Silicon Valley.
Reminds me of Ron Conway's Google receipt investment story. Signing on a dollar bill is interesting. Small shops/cafes frame the first dollar bill they earned. Similarly, founders can frame the first 'dollar' investment.
The investor should reply "I confirm I'm in for <offer> for <startup>" otherwise the investor could say it said yes to the wrong text message/mail, and that's it's all a misunderstanding yada yada yada
Hard to do that if you have to answer something explicit.
In fact this doesn't solve the problem of investors who wait and see. If they wait a week, and things look good, they can come back and say "we have this legally binding email that says we're in". Startup comes back and says "well we didn't get your response so as per PG's handshake protocol you're not in." To which their lawyer replies "what is this handshake protocol you speak of?"
Seriously, though, isn't this whole thing giving everyone flashback of interview questions involving philosophers sending stone tablets to each other trying to verify whether the other one got it or not?
"Yes" is sufficient. Remember that this purpose is to formalize a usually in-person handshake deal. Even out of that context, claiming "oh I signed the wrong paper" won't fly.
>> 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.
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.
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 think this protocol has a flaw, in a corner case.
In the seventh paragraph, PG explicitly points out that it's in the interest of duplicitous investors to delay commitment while retaining the ability to retroactively commit. Delay between stages 3 and 4 gives investors that power, and isn't explicit.
The twelfth paragraph does address this ("both parties will usually have mobile devices... ordinarily [send messages] in person... suspicious if the other is unwilling to"). However, as it acknowledges, only USUALLY. Mobile devices get forgotten, or they run out of battery, or founders might be really crazy frugal.
It seems obvious that the fix is for Step 3 to include an expiry date/time, to be agreed upon just prior to step 1.
If only there were a discipline that had already studied things like this...
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.
"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?
Oh I like this a lot. That adds a lot of clarity around what can be a very tumultuous time for a young company. I've personally been burned by the "We would like to come in but we don't want to lead." line. I treat such statements as polite "no thank you"s now.
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.
Otherwise it's the equivalent of having one party execute a contract, and the other party just sit on the contract to wait for more information. Either executing if it's clearly beneficial, or ignoring if it's not.
If this is a handshake deal - then doesn't the investor reply yes immediately? It would be nice if those who are more knowledgeable than I would weigh in and indicate whether these things happen in real-time. I.E. The "Handshake" deal takes place within the space of a few minutes.
Totally unrelated to the topic at hand, but what is PG's obsession with tiny fonts? this article is set in 8.5pt font - can anybody read that? at 10pt HN itself is almost as bad.
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.
Surely there's a huge opportunity for the market of VCs to favour those that move quickly: Bring an accountant to the startup demo day to look over the books of ones you find impressive, a lawyer on call to prepare a (i.e. tweak a standard) contract and a free coupon for a same-day courier service for the founders to return it once they've consulted their lawyer and signed. Then an instant money transfer.
Obviously, this puts an awful lot of power in the hands of the investor that actually attends the demo day. Those VCs (and their backers) willing to do so will face the usual risk/reward tradeoff.
We (Clerky) have a service that lets you do the paperwork part of that with software. It's in private beta, but will be available publicly shortly. No need to have the lawyer on call or courier service - you can just enter in the deal terms, generate docs, and sign electronically.
I would want a potential investor to spend a little more time on due diligence than that. Also, does the lawyer work for free? Don't you want to do some of your own research on the investor? This just sounds utterly bonkers.
I think this would only work if the VCs had been regularly paying attention to the company long before Demo Day, and had done their research. I don't think they'd want to invest immediately after seeing the company for the first time.
There should be some time limitation mentioned in step 3. Otherwise, there's nothing to stop step 4 from occurring several months later, which ideally would nullify the deal.
I could really use some advice on this, actually. It's very serendipitous to see this posted.
What if you have a handshake deal and the other person abruptly disappears? I'm incurring all costs of operation, they've gone back and not completed anything they've said they would and now don't even reply to emails?
So I've wondered this for a while. Contracts are of course important, but if the only way you can trust the other party is through a contract and don't feel secure without one, can you really be sure that you won't get screwed over because of a hole in the contract? Seems to be that in reality a contract is only as good as the word of the person behind it, and if you wouldn't simply take them on their word, you might reconsider doing business with them altogether.
This protocol highlights that you don't need 50 pages of documentation to agree on something and I like it because of that.
That's why you have your attorney look at the contract thoroughly. It's not about distrusting anyone, it's about making sure you're as protected as you can be.
Truthfully, a contract is only as good as your attorney is.
Google Glass (or even a simple voice recorder in an app designed for the purpose) would also be great to reduce the friction of having to type something into a phone while talking to an investor.
[+] [-] grellas|13 years ago|reply
I see it as a remote risk that any such exchange would be treated as a legally binding contract. Too many essential terms would be missing, as for example in the case of a bridge note such things as time to maturity, interest rate, size of equity raise triggering mandatory conversion, etc. While the otherwise missing essential terms might be supplied by a term sheet used by the startup as a basis of discussion, such term sheets invariably make clear that they do not become legally binding until definitive documents are signed. To say, then, that one is "in" on such a term sheet would signify no more than what one signifies by actually signing it: that is, the investor becomes morally bound to negotiate in good faith until the documentation is prepared and signed and also morally bound to participate when such documentation is prepared in good faith and along customary lines. Of course, beyond the legal hurdles, there is the not insignificant issue of how either an investor or a startup would be treated in a tight-knit community such as YC if the person becomes known as being "sue happy." Could such lawsuits ever come about? Yes, and there may be unusual cases where the parties had had a true meeting of the minds, or where one party relied to his detriment on the other's statements and conduct such that a court might find an enforceable contract, but the practical risk of this happening would be near zero for almost all such cases - enough so, I think, that it may be effectively disregarded.
What the protocol does do is help prevent misunderstandings, inadvertent outcomes, and the occasional deliberately weasly overreaching that can occur with informal verbal exchanges. It says to the investor: do I really have a commitment from you such that, should you back out, your reputation will take a hit? It says to the startup: pin your investors down to the point where you can't be double-dealt but also make sure the commitment you think you have is real and not a product of your own wishful thinking.
I can see this working beautifully as a first step within YC. Beyond that, it will work as people come to terms with its existence and see it as useful. For its purpose, it is really an elegant solution to a knotty problem and therefore worthwhile.
[+] [-] tc|13 years ago|reply
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 unenforceable agreements aren't made. The consideration in this case is the startup reserving space in its round for the investor.
As far as steps 3 and 4, documenting the agreement is obviously valuable, but the contract is formed at the end of step 2 [2].
Now, it does seem unlikely that anyone would try to enforce this in court, in the same way that few are going to start a legal case over someone backing out on a term sheet, but if you could show damages based on your reliance on the other party's performance, you would in theory have a case.
Interestingly, it seems that either PG et al. must have aligned this protocol with the constraints of contract law, or in trying to achieve their ends, they independently reinvented the contract formation protocol that has been with us for at least hundreds of years.
--
Edit #1: Regarding the questions along the lines of, "this can't be a contract because there are many other terms to address," a contract can always be longer. If you don't address a term in a contract a court will try to divine the intent of the parties, or look at industry norms, or use defaults established by statute law, and try to do something reasonable. A valid contract isn't dependent on covering every possible, or even every usual, term. The fact that one party reasonably relied on the agreement and was thereby harmed by the other party's non-performance is often going to be sufficient.
[2] (edit): By reducing the contract to writing, even just one sentence in an email (steps 3 & 4), you would fulfill many statutory requirements for written agreements on certain kinds of transactions.
Edit #3: To be clear, I believe the contractual nature of this protocol is a feature, not a bug. You really do want the elements of a contract regardless of whether this is going to be enforced by a court, a person's own conscience, reputation networks, or public shaming.
[+] [-] johnrob|13 years ago|reply
[+] [-] brandall10|13 years ago|reply
[+] [-] argonaut|13 years ago|reply
[+] [-] FlukeATX|13 years ago|reply
[+] [-] devinmontgomery|13 years ago|reply
"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."
[+] [-] jarrett|13 years ago|reply
http://mashable.com/2011/05/27/term-sheet-startup-investing/
Just as a thought experiment, let's imagine what would happen if you tried to enforce this handshake deal (complete with email confirmation per steps 3 and 4). How would the courts decide all the issues that would normally have been negotiated and agreed to in a terms sheet?
[+] [-] swampthing|13 years ago|reply
[+] [-] jcampbell1|13 years ago|reply
I speculate that the underlying motivation is that YC partners are spending too much time on handshakes that have gone wrong, rather than helping building businesses.
[+] [-] larrys|13 years ago|reply
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.
[+] [-] kirse|13 years ago|reply
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 highly likely one person will have a cash on them - plus you don't have to deal with sharing emails, phone signal, phone battery, waiting for that text/email message to come through, blah-dee-blah.
And then you can frame it and do all sorts of other creative/cutesy stuff. If YC made it a tradition to do a "signed cash" deal as a way of indicating the confirmation of a deal, it'd make for a cool way of looking back at all the great (or not-so-great) investments... sort of like that whole "my first dollar" thing some people do.
[+] [-] pg|13 years ago|reply
[+] [-] rthomas6|13 years ago|reply
Are you sure? Right now I have a phone but I don't have any cash.
[+] [-] ghshephard|13 years ago|reply
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 in the conversation / side conversation.
o Central, Secure, two-party tracking with SMS/WhatsApp/iMessage. Nice Audit trail as well, and you have it all handy on your phone to keep track of things. Nobody wants to deal with more little pieces of paper.
[+] [-] tobyjsullivan|13 years ago|reply
[+] [-] minimax|13 years ago|reply
[+] [-] samstave|13 years ago|reply
Also, these bills will be sold off and collected when massive failures happen in later years.
[+] [-] rohin|13 years ago|reply
[+] [-] jwp|13 years ago|reply
[+] [-] larrys|13 years ago|reply
Restaurants do that frequently with their first sale. (Cynically: The other $$ end up in their pockets, untaxed).
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] lominming|13 years ago|reply
[+] [-] tempaccount9473|13 years ago|reply
Other than that, I really like your idea.
[+] [-] shin_lao|13 years ago|reply
The investor should reply "I confirm I'm in for <offer> for <startup>" otherwise the investor could say it said yes to the wrong text message/mail, and that's it's all a misunderstanding yada yada yada
Hard to do that if you have to answer something explicit.
[+] [-] jamieb|13 years ago|reply
Seriously, though, isn't this whole thing giving everyone flashback of interview questions involving philosophers sending stone tablets to each other trying to verify whether the other one got it or not?
[+] [-] kaliblack|13 years ago|reply
[+] [-] joallard|13 years ago|reply
[+] [-] JOnAgain|13 years ago|reply
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.
[+] [-] ohazi|13 years ago|reply
[+] [-] webwright|13 years ago|reply
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.
[+] [-] jholman|13 years ago|reply
In the seventh paragraph, PG explicitly points out that it's in the interest of duplicitous investors to delay commitment while retaining the ability to retroactively commit. Delay between stages 3 and 4 gives investors that power, and isn't explicit.
The twelfth paragraph does address this ("both parties will usually have mobile devices... ordinarily [send messages] in person... suspicious if the other is unwilling to"). However, as it acknowledges, only USUALLY. Mobile devices get forgotten, or they run out of battery, or founders might be really crazy frugal.
It seems obvious that the fix is for Step 3 to include an expiry date/time, to be agreed upon just prior to step 1.
If only there were a discipline that had already studied things like this...
http://en.wikipedia.org/wiki/Consensus_%28computer_science%2...
[+] [-] jcampbell1|13 years ago|reply
[+] [-] larrys|13 years ago|reply
So we can assume that the VC's named in the above have agreed to this protocol and will be using it?
[+] [-] ChuckMcM|13 years ago|reply
[+] [-] apalmer|13 years ago|reply
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.
[+] [-] preinheimer|13 years ago|reply
The investor replies with Yes within 96 hours.
Otherwise it's the equivalent of having one party execute a contract, and the other party just sit on the contract to wait for more information. Either executing if it's clearly beneficial, or ignoring if it's not.
[+] [-] ghshephard|13 years ago|reply
g.
[+] [-] notatoad|13 years ago|reply
[+] [-] mikeash|13 years ago|reply
[+] [-] 6thSigma|13 years ago|reply
[+] [-] Jabbles|13 years ago|reply
Obviously, this puts an awful lot of power in the hands of the investor that actually attends the demo day. Those VCs (and their backers) willing to do so will face the usual risk/reward tradeoff.
[+] [-] swampthing|13 years ago|reply
[+] [-] eli|13 years ago|reply
[+] [-] timjahn|13 years ago|reply
[+] [-] matthuggins|13 years ago|reply
[+] [-] _jss|13 years ago|reply
What if you have a handshake deal and the other person abruptly disappears? I'm incurring all costs of operation, they've gone back and not completed anything they've said they would and now don't even reply to emails?
[+] [-] IgorPartola|13 years ago|reply
This protocol highlights that you don't need 50 pages of documentation to agree on something and I like it because of that.
[+] [-] pc86|13 years ago|reply
Truthfully, a contract is only as good as your attorney is.
[+] [-] coopdog|13 years ago|reply
Google Glass (or even a simple voice recorder in an app designed for the purpose) would also be great to reduce the friction of having to type something into a phone while talking to an investor.