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July 29, 2009


Only $150/hour for lawyers? Is the economy that bad in Toronto? :-)

Great article. Easier to solve these issues when there are no fires or big money on the table. This article parallels your post on specs and usecases. Just legal usecases.

Great topic, Rick. It triggered some thoughts I've been meaning to write up; I hope you don't mind if I do it here.


As a what-if brainstorming- and organizational aid, I've found it helpful to draw a big, blank grid on the whiteboard (or do it as a Word table projected on the whiteboard or shared online).

1. Across the top of the whiteboard, list the operational phases of the business relationship: A) Startup; B) Normal operations; C) Infrequent operations; D) Trouble; and E) Shutdown of the business relationship.

If desired, within each operational phase you can list specific known possibilities. For example, under "Infrequent operations" you could list things like a product launch; a new funding round; etc. Under "Trouble," you could list a product recall; a lawsuit; bad PR; and the like.

You could also subdivide a given operational phase by department -- R&D, marketing, sales, HR, etc.

2. Down the left-hand side of the whiteboard, list the various 'players' who might be involved, for example: 1) Parties X, Y, Z, etc.; 2) Competitors; 3) Suppliers; 4) Alliance partners; 5) Customers; 6) Government entities; 7) Non-government entities such as Nasdaq, standards groups; etc.

3. Methodically work through each cell in the grid you've just drawn. Each cell prompts you to ask what-if questions and to think about what particular players might want.

A simple example: During a follow-up round, existing investors will want dilution protection.

List as many what-ifs as you think reasonable. In drafting the contract language, it's likely you'll choose not to address every single contingency. But you'll feel better about whether you've covered what needs to be covered.

If you're using an actual whiteboard and not a Word document, you could do this with Post-It notes, so as to make it easier to sort and process your notes later on.


In producing the actual contract document, I've sometimes found it helpful to organize a lengthy or complex series of what-ifs into a table, instead of writing paragraph after paragraph of legalese.

The column labels for the table are: Event; Plan A; Plan B; Plan C.

Each row sets out the planned response(s) if a particular event comes to pass. (For any given event, Plan B and/or Plan C might be blank if Plan A is the only response needed.)

Clients seem to like this approach for its ease of reviewing and editing the draft language.

Hey Rick,

A topic near and dear to my heart as I spend a lot of time with lawyers. I would add that having a good deal-proven CFO on your side (part time or otherwise) will greatly reduce legal fees as between the CFO and the founders you can hash out all the business possibilities before getting into legal. Plus the CFO - especially if he's a cheap Scotsman - can keep the process tight and under control.


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