Law is a strange business to which to apply automated functionality.
On the one hand, and especially touching on startup-related areas, the law can have incredible complexity. When you consider that corporate law, securities law (federal and state), tax law, contract law, employment law, and copyright law all apply in varying degrees just to do a standard corporate formation, you can imagine how many opportunities might present themselves for missteps for founders trying to guide the process themselves.
In addition, there is not merely the issue of overt error in missing legal requirements, etc. There is also the issue of omitting to make the best strategic choices from among those potentially suitable for a venture, and this means being able to stand back from one particular well-trodden path (Delaware C-corp with one class of common stock) to assess whether that path in particular is best for your venture. While many startups are well served by following the Delaware C-corp (single class of stock) path, others may not be. Believe it or not, there are some startups that are best incorporated in their own local state and not in Delaware. There are others (particularly "lifestyle" ventures, certain specialty ventures or bootstrap ventures that want to start on the cheap and convert later) that may be best served by setting up an LLC. Even in Delaware, there is the vanilla setup (and by this I mean even a savvy one like the type YC uses) and there are others using super-voting classes of stock or FF preferred or other variations. There are also fine-point decisions within a typical Delaware C-corp setup that can easily be missed. Do you axiomatically go for a cliff for founder vesting (like YC does) or do you use pro rata vesting from inception? Do you prevest some founder stock or not and, if so, in what cases? How do you handle acceleration of vesting on certain triggers occurring? How do you best deal with IP issues for various scenarios where multiple persons have worked on a venture prior to company formation? Even mundane issues such as how to handle real cash contributions sometimes made by founders without messing up the common stock price can prove troublesome if mishandled.
All that said, and on the other hand, it is true that many legal transactions today fall cleanly into well-established patterns that do not require any form of specialty legal help. While founders can and do often use law firms for such steps, it is a very legitimate question to ask, "what is the real value from the lawyers?" and "is it worth the cost?"
So you have the two sides of law: the incredibly complex and the perfectly mundane.
And here is the problem for many founders: not knowing which side of the line you are on when it comes to this or that issue in the choices you make when you form or build a venture.
Of course, when you also add the vast range of laws that apply to a venture beyond formation, the issue gets even trickier.
No one wants to spend money unnecessarily on things that don't add value commensurate with what is spent. But no one wants to make crucial legal errors either. If a big one should occur, your early-stage cost-saving efforts can quickly transmute themselves into the penny-wise/pound-foolish category.
This is where the opportunity presents itself for tools and platforms that seek to streamline and improve legal transactions and this is what I like about Ironclad's philosophical approach in particular.
The idea is not to have some end goal of replacing lawyers because that leaves founders helpless when it comes to the "incredibly complex" legal aspects of what they do in their ventures.
The goal is to streamline the process of working with lawyers while giving founders the choice to work without them, or to work with them in limited ways only, whenever they feel comfortable doing so. This keeps the founders in control of the process. Any founder who has been whisked into a legal environment where the lawyers are advising this and advising that, and are meanwhile adding a team of departmental specialists to the mix, just to handle what you might have thought a fairly basic set of issues knows the frustration of losing control in such cases. Even with the best of automated tools, that risk of losing control will never fully be eliminated, as law is indeed complex in many, many ways. But, whenever you can take that risk out for important classes of cases, you empower the founders to be much more in control than they historically have been. And that is what Ironclad seeks to do philosophically. The goal is highly commendable and should not be resisted even by lawyers. People have problems enough to deal with and no one, even lawyers, should have a stake in waste and inefficiency.
Even more, there is huge value in making legal transactions quick and efficient in their processing, whether working with a lawyer or not. If you can get your standard forms processed quickly and properly without a paper-shuffling and delays, that is a huge value in itself.
So here is hoping for elegant execution and great success. I had spoken with Jason about this back in the day when he was with Fenwick and he does indeed bring a great perspective, skill set, and passion to the task. Congrats on getting to this level and looking forward to what will follow in the execution.
In theory law is super diverse, in practice there is a huge pool of startups that never do anything but "the standard documents" and they shouldn't be paying what they do for that.
I don't see why automation means one must follow the "well-trodden path." Software isn't limited to a linear script.
I'm no lawyer, but all those questions (where to incorporate, classes of stocks to use, etc) seem like they could be codified into decision trees and similar algorithms. I can see why a human would be better at learning and exploring to know what questions to ask, but surely applying them to a particular startup is mostly routine work?
For simple stuff, yea, an attorney could create a decision tree. But:
1) The hard part is objective and accurately assessing the issues at hand.
I haven't done any legal work for startups, but I've done diligence on a few deals that involved a startup getting acquired or funded. I've seen several deals killed because some basic entrepreneurship issues were written off because the company thought it was no big deal.
Nobody thinks they ripped off IP from their old company. But it's done, often unintentionally, all the time.
So the decision tree would ask "Is your company using IP that you developed that is similar to your previous employer?" I can promise you that people who should answer yes, would be completely convinced that they should say no. Zuckerberg would have said no. And yet he had to pay HarvardConnect.
2) You are wasting the founders time thinking about this stuff.
But I get the impulse. Law firms take their pound of flesh. I like Sandworms comment down thread about "legal debt."
Why not? Assuming lawyers aren't working based on hunches, one should be able to write down the process followed, which could then be encoded in software (as a flow chart or otherwise).
In fact, even if the lawyers are working from "instinct" and can't fully describe their process, it's just a matter of getting a good sample of existing companies (a few hundreds, perhaps, some of which not Delaware corps) and asking the lawyer to "fake advise" each one. At the end of the process, you'd have a pretty good model of that process.
Because, following the corp hypo, it isn't the lawyer's decision. A lawyer doesn't decide which path is best for a corporation. A lawyer outlines the various options and allows the corp's leaders to make the decision. Sometimes there is an obvious answer, sometimes not. Therefore any accurate flow chart would end with a series of options. The lawyer then stands ready to answer questions about those options. It's a back-and-forth conversation and, imho, the client rarely agrees completely with the lawyers opinion.
On the one hand, and especially touching on startup-related areas, the law can have incredible complexity. When you consider that corporate law, securities law (federal and state), tax law, contract law, employment law, and copyright law all apply in varying degrees just to do a standard corporate formation, you can imagine how many opportunities might present themselves for missteps for founders trying to guide the process themselves.
In addition, there is not merely the issue of overt error in missing legal requirements, etc. There is also the issue of omitting to make the best strategic choices from among those potentially suitable for a venture, and this means being able to stand back from one particular well-trodden path (Delaware C-corp with one class of common stock) to assess whether that path in particular is best for your venture. While many startups are well served by following the Delaware C-corp (single class of stock) path, others may not be. Believe it or not, there are some startups that are best incorporated in their own local state and not in Delaware. There are others (particularly "lifestyle" ventures, certain specialty ventures or bootstrap ventures that want to start on the cheap and convert later) that may be best served by setting up an LLC. Even in Delaware, there is the vanilla setup (and by this I mean even a savvy one like the type YC uses) and there are others using super-voting classes of stock or FF preferred or other variations. There are also fine-point decisions within a typical Delaware C-corp setup that can easily be missed. Do you axiomatically go for a cliff for founder vesting (like YC does) or do you use pro rata vesting from inception? Do you prevest some founder stock or not and, if so, in what cases? How do you handle acceleration of vesting on certain triggers occurring? How do you best deal with IP issues for various scenarios where multiple persons have worked on a venture prior to company formation? Even mundane issues such as how to handle real cash contributions sometimes made by founders without messing up the common stock price can prove troublesome if mishandled.
All that said, and on the other hand, it is true that many legal transactions today fall cleanly into well-established patterns that do not require any form of specialty legal help. While founders can and do often use law firms for such steps, it is a very legitimate question to ask, "what is the real value from the lawyers?" and "is it worth the cost?"
So you have the two sides of law: the incredibly complex and the perfectly mundane.
And here is the problem for many founders: not knowing which side of the line you are on when it comes to this or that issue in the choices you make when you form or build a venture.
Of course, when you also add the vast range of laws that apply to a venture beyond formation, the issue gets even trickier.
No one wants to spend money unnecessarily on things that don't add value commensurate with what is spent. But no one wants to make crucial legal errors either. If a big one should occur, your early-stage cost-saving efforts can quickly transmute themselves into the penny-wise/pound-foolish category.
This is where the opportunity presents itself for tools and platforms that seek to streamline and improve legal transactions and this is what I like about Ironclad's philosophical approach in particular.
The idea is not to have some end goal of replacing lawyers because that leaves founders helpless when it comes to the "incredibly complex" legal aspects of what they do in their ventures.
The goal is to streamline the process of working with lawyers while giving founders the choice to work without them, or to work with them in limited ways only, whenever they feel comfortable doing so. This keeps the founders in control of the process. Any founder who has been whisked into a legal environment where the lawyers are advising this and advising that, and are meanwhile adding a team of departmental specialists to the mix, just to handle what you might have thought a fairly basic set of issues knows the frustration of losing control in such cases. Even with the best of automated tools, that risk of losing control will never fully be eliminated, as law is indeed complex in many, many ways. But, whenever you can take that risk out for important classes of cases, you empower the founders to be much more in control than they historically have been. And that is what Ironclad seeks to do philosophically. The goal is highly commendable and should not be resisted even by lawyers. People have problems enough to deal with and no one, even lawyers, should have a stake in waste and inefficiency.
Even more, there is huge value in making legal transactions quick and efficient in their processing, whether working with a lawyer or not. If you can get your standard forms processed quickly and properly without a paper-shuffling and delays, that is a huge value in itself.
So here is hoping for elegant execution and great success. I had spoken with Jason about this back in the day when he was with Fenwick and he does indeed bring a great perspective, skill set, and passion to the task. Congrats on getting to this level and looking forward to what will follow in the execution.