Y Combinator Goes Open-Source With Legal Funding Documents
If you’ve ever launched a startup with funding from a venture firm or angel group, you know the bank-account-draining toll those startup legal bills can take. I still feel the pain: an amazing $25K each from my lawyer and the lead investor’s lawyer for a simple angel deal. And guess who paid for it all? Me, the bootstrapping entrepreneur. I need a couple Excedrins just thinking about it.
That’s why I perked up immediately when I saw the news in TechCrunch this afternoon, about Y Combinator making the boilerplate legal documents it provides its own startups free and available to all comers—in hopes they will smooth the legal path to funding and save entrepreneurs money in the process. According to a message on the Y Combinator site, where you can download the documents: “These documents were originally created for YC-funded startups to use when raising angel rounds. They seem to have worked well in trial runs so far, so we’re open-sourcing them.”
Y Combinator, in case you haven’t been following our recent rash of posts about it, is a novel type of venture firm—based in Cambridge, MA, in the summer, and Mountain View, CA, during the winter—that provides seed funding of up to $20,000 to early-stage startups and works with the founders to help evolve their business plans to the point when they can raise additional money from others to advance to the next stage. As part of the services it provides these young startups, Y Combinator has worked with the law firm of Wilson Sonsini Goodrich & Rosati to create legal documents to use when it comes to taking in that additional funding.
As the note on Y Combinator’s site says, “While they may not be suitable for all situations, the goal was to make the terms fairly neutral. So while we would of course advise both parties using these documents to have their lawyers look at them, they provide a starting point that we hope can be used in many situations…without too many modifications.”
I take that to mean that lawyers like to justify their existence to their clients, so they wrangle over terms, trying to get an edge in one clause or another—or at least prevent the other side from getting an edge. Meanwhile, the bills pile up. But if you have a “neutral” document from the start, you might just prevent a lot of that haggling. And that saves the entrepreneur money—because it’s the lowly startup that gets hit with the tab from both its own lawyer and the investor’s law firm. (Where’s that Excedrin?)
“Needless to say, neither YC nor WSGR assumes any responsibility for any consequence of using these documents,” reads the Y Combinator message. But I say that just for trying to ease the entrepreneur’s burden, YC deserves some kudos.