February 23, 2016
Startup UnixAn open legal operating system for start-up technology companies
This announcement made concurently on Ironclad, Inc.’s blog.
Startup legal structure is stuck in the Unix era, waiting for its “open” moment. We are happy to announce Ironsides, a project for a truly open startup legal operating system. The project’s goals:
- Document corporations compatible with standard Silicon Valley style equity compensation, financing, and other “mission critical” transactions and relationships.
- Favor no particular vendor, technology, lawyer, or law firm for preparation, handling, or signature.
- Release revisions in a transparent, predictable, and verifiable manner, for free, on the Internet.
- Welcome and incorporate contributions from companies, lawyers, and other professionals, with startup companies’ interests in mind.
Startup Legal is Unix All Over Again
Every startup company has to run boring “business applications”. Employees want stock options with standard tax benefits. Investors want a capital structure they can model. The guy in the tie at the bank won’t give you an account without the right magic paper. Boring.
There are probably dozens of prepackaged legal form sets for starting and “booting up” a Silicon Valley style startup company. All of them are compatible with these and other basic “business applications”. The set you’re running probably reflects who is selling you other kinds of products and services.
It’s like that ancient program that Accounting ran on the mainframe in the basement of your old job. AIX? Solaris? Who cares?
Vendors care. They probably sold Accounting the mainframe, and the mainframe almost certainly runs “their” Unix. The army of consultants and technicians and training people in orbit around the vendor all know that Unix like the backs of their hands, in every gruesome detail and vaunted selling point. It isn’t so much that customers buy Such-and-Such Unix and try to think up things to run on it. They know what they need, compare a few ways to get it, and buy into an “ecosystem” of follow-on companies, experts, and products as much as anything else.
When you go to a startup-capable law firm and get yourself a corporation, you end up with the same basic Delaware corporation as everyone else. It’s commodity legal hardware. But your Delaware corporation comes preloaded with the law firm’s proprietary operating system, in the form of articles of incorporation, bylaws, basic agreements, and other documents. Those docs pick the ground rules and set the board for the business game that follows.
The lawyers at the firm know their “flavor” of startup legal down cold. The 409A valuation firms they refer know where to look for the parts they need. The form financing documents they have ready to go are built to run on them. There may even be some document preparation automation going on back-office.
A good form set produces a legally compliant, business-ready corporation every time. That is the vast majority of its value. But that isn’t to say all form sets are created equal. They reflect the institutions that make them.
If a firm has particular strength in, say, tax, its startup forms may develop more nuanced tax features. If the firm forms a lot of startups for foreign founders, its forms may better address immigration needs. If the firm has an active form revision committee, or a particularly dedicated “startup” partner, updates for changes in the law may land quicker.
Conversely, if a firm’s lawyers still close documents on paper, its forms will be primed for that process. If the partners like whereins and whereases, their forms will be littered with them. If the firm doesn’t devote significant time to revision and rewriting, the forms will grow tattered with ad hoc edits, tacked-on provisos, and other toolmarks. If a firm’s clients are uniformly alike in some way, say they mostly come through a particular accelerator, the forms may become specialized to that kind of client.
The Law Firm Standard Distribution
It’s not quite so bad as that. Fortunately, startup legal has had its BSD moment.
A number of very fine law firms now release snapshots of at least part of their in-house forms on the Internet. As far as we know, Orrick blazed the trail, followed eventually by Cooley, Gunderson, Perkins Coie, and probably others.
Anyone can download the latest Orrick/Cooley/Gunderson/Perkins Distribution. It may not be easy to use, complete, or up-to-date, but the community is better off for the information. It’s good education for budding businesspeople. It’s invaluable for up-and-coming lawyers. And if you’re familiar with the forms—many startup lawyers can “recognize” a law firm in the style of a company’s founding docs—it can even save you time reviewing for meaningful changes. The process of preparing the forms for publication doubtless benefited the publishing firms’ lawyers and clients, too.
And they’ve enabled some meaningful technology work. The Orrick set, for example, begat Clerky, which in turn begat a bevy of startups. Gunderson’s release of its documents on Docracy was a boon. Legal technology startups and open-source projects love to demo with startup documents.
Over the Wall
The Law Firm Standard Distributions are fundamentally read-only. Each firm has its own internal revision process, and those processes are time-intensive and expensive. Their output alone is tremendously valuable, but there’s no clear channel for outside feedback or interaction, and no good incentive for it. To land a patch upstream to the law firm, you go to work for the law firm.
Of course, you’re free to “fork” your own variant of a publicly released set. What happens next? Either you revisit each of your changes every time the firm makes a new release, or you give up and go your own way. The proliferation of “house” form sets at law firms may come down to lawyers carrying their old firm’s set with them as they changed law firms. Even within firms that have standard form sets, lawyers are known to keep templates with pet changes for their own work.
This kind of diversification doesn’t effectively distribute meaningful improvements to startups. It doesn’t rapidly distribute fixes to problems, like the infamous Benchmark gap, either. It definitely doesn’t reduce the burden on those who review startup legal documents. It produces a lot of variation, but not necessarily much diversity, and doesn’t do anything to focus effort.
The startup community doesn’t need another set of free startup legal forms to download. It needs a process that focuses the disparate efforts of legal and business allies into a community owned, vendor neutral legal operating system for startups. We don’t need another Unix, we need a Unix that runs on anyone’s hardware that no one owns and anyone can improve. We need a 386BSD of startup legal.
Good news: there’s precedent. In finance, the International Swaps and Derivatives Association (ISDA) publishes industry-standard derivatives documentation, and the Loan Trading and Syndication Association (LSTA) and Loan Market Association (LMA) publish debt syndication agreements. The Insurance Services Office (ISO) publishes standard form policies that enable meaningful cross-firm actuarial research and analysis. Even venture capitalists have the National Venture Capital Association (NVCA), which publishes standard venture capital financing documents. In the construction industry, associations of contractors and professionals formed ConsensusDocs as an alternative to the established contract forms published by the American Institute of Architects (AIA), which they thought unfairly privileged architects. These and countless other industry groups have come together to pool effort and encourage competition among service providers.
There isn’t any group turning out startup legal documents in the interests of startup companies. There ought to be. In its absence, the community endures a dizzying array of competing, specialized legal sets that function to lure and lock new companies to one or another service provider. Our answer is a state-of-the-art startup implementation developed with best-available tools for collaboration, promoted and refined by startup people, for startup people.
What We Have
The Ironsides project’s purpose is to learn from and serve the startup community, not to tell it what it should want. However, contributors have already worked hard and prepared a strong starting point for the project. A few themes have come up over and over again in that work, and led to a few practical choices:
- Contributors have stressed that documents should be easy to read and improve. That means documents should be consistently organized and phrased, as much as possible, in everyday English.
- Contributors believe software development is way ahead of legal on tools for creating documents collaboratively, rather than competitively. The contributors are developing Ironsides as plain text files, using Git, GitHub, Travis CI, and open source software to create copies in other formats, including Microsoft Word.
- Contributors believe work on Ironsides will be most valuable if it’s utterly free of copyright-related uncertainty. That means making it available under the terms of the Creative Commons CC0 1.0 Universal, a professionally drafted public domain dedication with a fallback permissive license.
- Contributors believe every possible barrier between the project and valuable feedback should be removed. That means making feedback possible through more familiar, non-developer tools like Google Drive. When all else fails, it means processes for taking proposals as traditional legal markups, called “redlines”, by e-mail or even postal mail. It means taking anonymous contributions.
Ironsides’ beginnings (and cool name) are the work of two individuals.
Jason Boehmig is founder and CEO of Ironclad, Inc., a San Francisco-based legal document automation company that understands open-source software. Prior to founding Ironclad, Jason practiced business law in Silicon Valley and maintained the Series Seed equity financing documents. Jason is @jboehmig on GitHub & Twitter.
Kyle Mitchell is a business lawyer and open-source programmer. Prior to starting his own law practice in Oakland, Kyle also practiced business law in Silicon Valley. Kyle is @kemitchell on GitHub & Twitter. Kyle facilitates and contributes to Ironsides with the generous support of Ironclad.
Kyle and Jason would like to thank Ansel Halliburton of Kronenberger Rosenfeld, also a startup lawyer and open-source programmer, for advance feedback and suggestions on Ironsides and this blog post. Ansel is @anseljh on Github & Twitter.
Your thoughts and feedback are always welcome by e-mail.
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