Startup Toolbox

Jay Parkhill June 27th, 2008

I recently re-read attorney Ted Wang’s great proposal to simplify Series A financing documents in venture capital investment transactions.  He is completely correct that there is a lot of inefficiency in the way those deals are structured.  A bit of housecleaning would streamline the process a bunch.

The counterargument is that as attorney I don’t want to spend a huge amount of time renegotiating the form of the documents.  Ted has a few suggestions that will take more effort to adopt widely, and others that are really no-brainers in almost every deal, venture financing or otherwise.

Number 1 for me on the no-brainer list is the Secretary’s certificate and incumbency certificates that go along with most transactions.  These say that the Board has approved the transaction and that the people who sign the documents actually hold the offices they say they do.

This is a pet peeve of mine because the company already represents and warrants in the agreement that Board has approved the deal.  Saying it again in a separate document serves no benefit.  As well, the people who sign the incumbency certificate are, at least in most smaller companies, the same as the ones who signed the agreement.  Getting them to verify their titles adds no material benefit.

There is an exception here- if the deal is signed on one day and closed on a different one, then I completely understand the value in “bringing down” all of the reps and warranties to the closing date and verifying that the information in the agreement remains up to date.

Where this leaves us: the Secretary’s certificate and incumbency certificate are unnecessary in 99% of deals and result in extra time spent drafting and wasted paper.  However, they are valuable once in a while and I don’t want to bill my clients for time spent fretting with opposing counsel about whether this might be one such case.

So here’s my suggestion: leave the language requiring those certificates in the document, but add a short line saying that the certificates must only be delivered if the closing occurs on a different day from signing of the documents.

It’s a simple suggestion- 10 minutes to discuss and drop a phrase into the relevant part of agreements that could cut out an hour or two of attorney drafting and review time.  We’ll see how it works in the real world.

• Uncategorized , lawyering , pet peeves

Jay Parkhill June 19th, 2008

File this under pet peeves:  I work through a lot of agreements of all different kinds.  Every single one has a “Notices” provision.  The purpose of this language is to avoid arguments about whether notice was properly given of certain events.  It only becomes an issue when the relationship has broken down, and basically serves only to avoid arguments about the terms of the argument.

That said, 95% of the agreements I get say that notice may be delivered (i) in person, (ii) by Fedex or registered mail, or (iii) by fax with a confirmation copy by mail.

How often do you communicate by fax with people compared to email?

It’s not a huge point, but one of the items on my transaction-document checklist is to make sure that the communication methods reflect the way we actually communicate.  I have a standard paragraph I drop in to agreements that says people can provide legal notices by email (with a confirmation copy).  It takes about 30 seconds of extra time on my part and has saved a bunch of running around on the few occasions I have had to actually follow the notice procedures.

• Uncategorized , lawyering , notices , pet peeves

Jay Parkhill May 22nd, 2008

There has been a dust-up in certain corners of the Internet recently over Twitter’s alleged failure to deal appropriately with interpersonal conduct on the site. The relevant tweets have been removed, so none of the facts are easily verifiable. To summarize the story quickly, though:

*social media consultant Ariel Walden complained to Twitter that she was being stalked and harassed on Twitter by a specific user.

*Twitter declined to take action several times over several months, citing a desire not to filter content appearing on the platform, and also saying that the alleged conduct did not, in Twitter’s mind, violate the site’s Terms of Use.

*Twitter recently made several public comments on the matter, including one to say that it is reviewing its Terms of Use to more clearly say that it will not actively monitor content.

I spent a little time looking at this and came away interested much more in the issue as a study of human behavior than anything else. Specifically, comments on Twitter’s official blog post contain nothing but glowing praise for Twitter’s approach. In contrast, the thread on Twitter’s support forum is filled with nothing but condemnation of the company. Literally in each case- the comments are 100% pro-Twitter in one venue, and 100% pro-Walden in the other.

Is there a point to this? Possibly not, except that even within Twitter, finding “community” depends on how you turn the coin- look to the official outlet and find Twitter diehard supporters; look to the support forums and find a completely different view. Fascinating.

• Twitter , Uncategorized , social media

Jay Parkhill April 9th, 2008

I recently started following the blog of John Adams, the US’s second President.  He has good things to say, nothwithstanding that he has been dead for 182 years.  Some of his expressions seem a litle colloquial, leading me to suspect some conemporary help in getting his thoughts out (notice I didn’ say ghost writer).

Still this one on recessions is spot-on.  Recessions are historical labels.  Let’s not worry about whether we are entering the first of two consecutive quarters of negative growth (or in non-economist terms, "decline").  Let’s think about policies that will make the economy strong.

What would I say about a Recession? - JohnAdamsUncensored

• Uncategorized

Jay Parkhill March 31st, 2008

Moira Gunn’s Tech Nation podcast covers a lot of ground and has some great interviews. One of the most interesting I have heard in a long time was with NYU professor Clay Shirky, who wrote a recent book on social media.

The best part of the interview was where he talked about the use of social web tools for political purposes. Starting with a reminder that Chinese students used fax machines in 1989 to obtain Western reports on the Tiananmen Square protests and crackdown, he went on to discuss several examples of social media being used to record things that matter to the world- as opposed to everyday events that matter to specific individuals. My favorites:

* A flash mob convened in October Square, Minsk, Belarus in May 2006 (in Belarussian(?) with lots of pictures) to eat ice cream. Mass gatherings in October Square are illegal and security forces monitor the same social networks as the activists, so plainclothes police were ready and arrested a number of participants. Photos document the entire episode, including the arrests.

*Twitter used by Egyptian activists to let the community know their whereabouts, esp. whether they have been arrested. Shirky pointed out that when the fact of a person’s arrest is widely known, the likelihood that the person will be seen again increases dramatically. In this case, Alaa was able to Twitter the circumstances of his detention from his mobile phone.

Shirky opines that tools like Twitter and SMS mean that connectivity is an all-or-nothing proposition for repressive governments. I don’t think he has it quite right- China and other countries manage to screen web sites effectively. The point is well taken, though- lightweight communication tools can find ways through the walls. This is really inspirational stuff.

• Twitter , Uncategorized , social media

Jay Parkhill March 18th, 2008

This is a great read. The author penned a scathing Linkedin “recommendation” of another user, pointing out in the process that Linkedin is built only to allow positive reviews, which makes the system less than valuable.

tartley.com » The Long Overdue LinkedIn Backlash

What to do then, when one thinks that a person should not be trusted with a pencil, never mind a job? Be honest or let the matter drop? It would be nice if our “trust networks” let us trust the collected wisdom, but it is a hard nut to crack. Ebay has worked hard at it, but it still requires egregious conduct to merit a negative review.

The problem, in my opinion, is endemic to virtual communities. Written text (email or site-based) is tone-deaf. Nuance is lost completely and context is nearly so. Compare this with a private conversation in which negative points can be explained and put into accurate context, and couple it with the adage that negative feedback outweighs positive by a factor of 10:1 or so, and the problem becomes apparent- no one wants to be dissed, and few are willing to risk the fallout from posting a negative opinion of someone else. VentureBeat has extensively chronicled thefunded.com’s efforts to create a fair and honest feedback system. It’s not easy.

This is not to say that the nut can’t be split, but capturing the real meaning
and reasons behind someone’s negative comments and framing them accurately may require extreme fact- and situation-analysis. Thefunded has it easier than most in this regard, since the VC-entrepreneur relationship is well-defined.

When all is said and done, though, Linkedin is among the worst at producing meaningful feedback. They should take comments like these as the must-fix issues they are. Get after it, Linkedin. You are too useful to be sidelined by a lack of trust in your recommendations.

• Uncategorized , social graph , social media

Jay Parkhill March 10th, 2008

From Harvard Business School’s Working Knowledge newsletter- eight (!) tips for keeping one’s business intact through a recession.

For the most part, these are things any business needs to review periodically in any case.  For me, the one-line summary is "avoid the temptation to withdraw into product-engineering mode. You still need to sell too".  I recall many stories from the last recession about companies that laid of all their sales and marketing staff and kept all the engineers- only to end up with a product no one was buying.

Marketing Your Way Through a Recession — HBS Working Knowledge

• Uncategorized

Jay Parkhill March 7th, 2008

I am at conference today at UC Berkeley’s Center for Law and Technology. I just sat through a terrific panel discussion on the usefulness of software patents.

Brad Feld is a noted opponent of software patents. He held his own well against several others on the panel. If I understood his position correctly, it was (a) that the effort to prosecute patents is lengthy and time-consuming, (b) that software is such a dynamic field that patents can’t keep up with evolution of a business (especially a startup business), and (c) that IP portfolios result in extensive IP reps & warranties and significant potential liabilities when the startup eventually sells to a larger business.

On the other side, the argument is that patents represent a stake in the ground for any business. Weak patents exist, but when a company develops unique technology and protects it with a patent(s), it helps that company to establish its own value and possibly sell services around the technology.

In addition, because patents are public records, the knowledge goes into the public realm to serve as the basis (with due attribution/license fees) for future innovation.

The pro-patent camp’s arguments are relevant in all fields- not just software- so the question is really whether software is so different from, say, biotech, that the patent system doesn’t work.

My gut tells me that software is a more nimble field than many others, with much shorter product lifecycles. A 20 year term on a software patent probably won’t generate much value after the first 5 years or so (though the MSFT Windows group may disagree).

Still, abolishing software patents outright sounds like flushing the baby with the bathwater. This is certainly not my area of expertise, but I will venture my opinion that software companies need to think a little harder than companies in other industries about whether a patent will generate more value than risk, but that patents can still provide significant value.

I’d love to hear other opinions, though. As noted, I am no expert here and trying to understand the scope of the debate as much as I can.

• Uncategorized

Jay Parkhill February 21st, 2008

I’m sure I am the last person to hear this term, but it’s a gem.

The First Rule of Holes is that if you find yourself in one, stop digging. It sounds so simple- I think the hard part may be understanding that you are actually in one, or maybe the urge to tunnel away from problems is just irresistible.

Either way, the term is going into my lexicon.

• Uncategorized

Jay Parkhill February 20th, 2008

For those who have never filed form 1099 before, one copy (red) goes to the IRS and another (black) goes to the independent contractor who provided services to a business. Apparently the reason for this is that the IRS’s computers scan the filings, and they can only read forms printed with red ink.

One can’t download the fileable form, because the shade of red must be very specific and a normal color printer can’t be trusted to get it right. One must have the forms mailed out or buy them from an office supply store.

About.com tells me that the Social Security Administration updated its systems to accept black copies of form W-2, but the IRS has changed its systems twice without adding this magical ability.

The IRS does allow 1099s to be filed electronically. This is a great step forward- it fairly leapfrogs the whole download/print/mail correct-color routine.

*However*, while thousands of businesses everywhere have figured out how to create online forms viewable and editable in any web browser, AND have worked out a way to let consumers create accounts online in minutes (if not seconds), the IRS is not quite there.

So in order to conveniently file my 1099s online, I must first mail in a form to the IRS, receive a Transmitter Control Code back by mail, and then download and install the IRS’s special form-creation software.

Identity theft and fraud are certainly big concerns so I can understand the need to verify identity before setting up accounts. Putting documents in the mail is not a remedy here though (the IRS should ask Network Solutions about Stephen Michael Cohen and Sex.com on this point).

The IRS has a huge job managing millions of accounts. They are certainly correct to be careful, and kudos to them for getting on the e-filing program. My wish, though, is that after Microsoft takes over Yahoo and drives away key employees, that the IRS will see an opportunity to pick up some Internet expertise. Yahoo has great e-commerce software. Get some of the engineers behind it working on IRS e-file programs for all kinds of filing.

• Uncategorized