As reader Andrew Mitton noted recently on the blogosphere, “The only drawback to Koncision is that it only has one document.” Indeed.
Having just one product has taken the pressure off—it sends a signal that we’re in proof-of-concept mode. Real scaling up won’t happen until some deep pockets arrive on the scene, but it’s time to move beyond the confidentiality-agreement template.
But what product should come next? I want to do something that would appeal to the solo and small-firm market, and I’m thinking Delaware corporation and limited-liability-company formation documents. But I’m open to other ideas.
Ken: Organizational documents would be great, but Delaware? That’s so predictable. Why not think outside the box…maybe Missouri or Illinois?
I do a lot of very small M&A deals, which I think of as the micro-market, using simplified documents. I don’t know whether there would be a vibrant market for that sort of template, but the reason I can afford to do these deals, which other firms shun, is that I’ve lowered my cost of services by standardization and systemization. Automation would be wonderful, but I haven’t had the time to produce document assembly templates.
Brian: Regarding formation documents, how much work would be required to adjust the template for one state to meet the needs of other states?
And your notion of micro-market M&A is a good one. It would be a straightforward matter to put the materials together, as I’ve already established the framework in The Structure of M&A Contracts.
Ken
Ken: Actually, there would be much less state-to-state variation in organizational documents than deal-to-deal variation.
Of course. But the deal-to-deal stuff doesn’t faze me—the confidentiality-agreement template encompasses a broad range of possibilities. You just have to decide when you’ve reached the point of diminishing returns in providing for alternative structures.
A simplified business sale agreement is an intriguing idea, but (depending on how simplified it is) it still sounds like rather a long document to tackle next (particularly if there are optional alternatives for representations). I would probably go for something shorter, such as a simple consultancy agreement. Or maybe a non-binding term sheet for a commercial transaction, such as a business sale. Or some simple terms of sale (for B2B rather than consumer sales) that are designed to fit on one side of a sheet of paper. Or some website terms and conditions of use – that is something that a lot of start-up businesses need.
Mark: Those are sensible suggestions, but I think that to get any traction, a contract-automation vendor has to offer something essential rather than nibble around the edges.
And providing for different permutations isn’t that problematic. A copy-and-paste drafter has to winnow through the possibilities when creating a given draft; I simply make that process systematic.
Ken
I like Mark’s suggestion about website TOUs (and maybe a privacy policy as well), as is the idea of a small-business P&S agreement, but I think Ken’s original idea about organization documents is quite sound. Delaware corporate and LLC *filings* are too cut and dried to matter much, but an LLC operating agreement is just the sort of thing a small office practitioner would find valuable, and it is not localized to Delawrae. Corporate bylaws maybe as well.
I think general formation documents are likely not as viable as a product as many forms abound – and many are simple (e.g., LLCs) so customers likely either have what they use, can find alternative sources or (God forbid) read the statutes or grab base forms from State websites. Shareholder agreements and operating agreements could be a good idea but there is far more variation in these as they have to map to the specific deal. Some are simple (e.g., deals with friendlies that basically just want ROFR protection) but others address all of the other host of issues that come up (or should) in business discussions (e.g., management, capital, tag-along, drag-along, etc.). I’d like to see forms in these areas but think they would be far more complex to put together as a product because there are infinite variations of deals and different industries handle things in different ways (e.g., a real estate joint venture deal vs. a VC deal, etc.).
Website terms and conditions and privacy policies also have infinite variations (just look online). This is because they have to match up and address all of the variables in how the site operates, its data collection practices, industry issues, etc. These are often heavily customized documents unless you have a static website with simple data collection issues.
This sounds like an interesting idea as well. There are state to state variations (bulk sale laws, taxing authority notifications and escrows, etc.) but a product offering like this could get traction. The ABA has a Model Stock Purchase Agreement and Model Asset Purchase Agreement – both are helpful in certain circumstances but often not appropriate for smaller deals. The best thing about those volumes (which are good references) is the commentary they include. Unfortunately, they are not updated frequently (although I think the Model Stock Purchase Agreement book has a more recent version). Private M&A deals outside of the micro-market often have a lot of variation as well – often with complex reps/warranties and indemnity structures. Part of the process for the drafter (the user of the product) is understanding all of the other factors (e.g., state specific, federal, etc.) that are involved and mapping the document to the deal (i.e., no deal is the same as you are dealing with a different target company every time – each of which may have its own warts that have to be dealt with).
As it happens, I have spent several hours today going through an investment agreement, a loan stock agreement and Articles of Association, on a deal where both parties’ lawyers have agreed a modest fixed fee because we are using some “standard” documents prepared by the investor’s lawyers. The amount of the investment is in the region of $500,000.
My experience of these deals is that every investor has a different set of priorities, and this makes it difficult to generate a “standard” set of investor protection provisions. In the present case, there are some distinctive provisions about authorising the investor’s conflicts of interests, and about giving the investor voting control if the founders are in breach of the investment agreement. On structural issues, the standard documents needed to be revised as they contemplated just two categories – some founders and an investor – and in the present case there is a third category, namely some seed investors who get some but not all of the protections of the new investors. Some of the provisions are concerned with protecting the founders’ tax breaks under UK law.
I fear that developing a template in this area may involve much work, although perhaps Brian’s micro-deal version will strip out much of this stuff and keep it really simple.
Mark: The point of document assembly is that you don’t compile a “standard” version of a given contract. Instead, you prepare innumerable versions within one coded template. For example, the number of permutations incorporated in Koncision’s confidentiality-agreement template would make your hair stand on end.
The issue becomes at what point you exclude further permutations on the grounds that they wouldn’t be of use to enough users. As a result, some users will find that a document-assembly might take them only 90% of the way. But that’s way better than having to construct that 90% the copy-and-paste way.
Would it be hard work compiling a document-assembly template for M&A transactions? Sure, but the resulting efficiency makes it worthwhile.
Ken
How about Purchase Order terms and conditions for the sale of goods?
P: That sounds it would be more of interest to the in-house crowd. Ken
I think this is a good idea – sort of like the product counterpart to the services agreement/SOW product I noted in a prior comment.
I’ve worked as in-house counsel at a couple of large corporations. My observation is that it will take awhile to wean corporate legal departments from law firms who operate on the traditional law firm model. Small businesses, on the other hand, are better poised for online systems.
I think there is a big market for the documents involved in small business acquisitions including professional practices, restaurants, automotive shops and the like (this is the millionaire-next-door market). These transactions have similarities that lend themselves to automated systems.
You’ve already got a great start with your confidentiality agreement. The logical next step seems to be a sales agreement along with a basic due diligence checklist.
New York real estate contracts – very much in need of updating. They are arcane in format and substance. Riders used because base forms are templates that cannot be edited other than with strikeouts. The bar committees seem to update forms only once every 10 years. Changes involve years of committee debate. Imagine if you succeeded in getting real estate lawyers to adopt this. All those condo and coop transactions!
I have seen these types of documents and am unsure how people maintain their sanity when working with them.
How about a master services agreement for the provision of services by a service provider to a customer with a Statement of Work structure? There are many varieties of these in different industries but many common points that are often deal with. If you did a template structure, it could be used for the general provision of services but then also be used as a base for further customization for specific industries which often have specific legal requirements (e.g., compliance, data protection, etc.). So you would have a base set of provisions (e.g, structure of relationship, term and termination, payment, etc.) and then individuals could layer in elements (extra reps and warranties, extra indemnities, etc.) as needed. These could be sub-templates to the main product that could be honed and issued to work with the general product offering. This kind of product could serve as a middle-ground that could be easily worked with rather than the typical situation where a service provider submits a short-form (or worse, just a Statement of Work) and the customer who often tries to use a 50 page behemoth that was drafted eons ago and does not map well to specific deals.
If you could do limited liability formation documents (if by that you mean operating agreement, as opposed to certificate of formation), it would be super. My experience as a solo is that most “country” lawyers, if I can use that phrase to differentiate from BigLaw and those coming out of BigLaw, don’t understand operating agreements at all. They tend to use boilerplate agreements without any real understanding of the issues, implications and alternatives. Also bravo for something directed at solo and SmallLaw. I love your confidentiality but if I do three or four a year, I am not sure your system is cost efficient.
Website Terms of Service. The number of web-based startups continues to grow exponentially and many launch without TOS or, sometimes worse, TOS copied from another website. A simple decision tree analysis that customizes TOS for websites might be a good market opportunity for Koncision (not just for the DIY entrepreneurs but lawyers who do not normally draft (or “write”) TOS).