These days of  investment  are days of great uncertainty, and nothing makes you encounter uncertainty more than the long list of contracts relating to the investments: employment contracts (e.g. ours), cooperation contracts, allocation of percentages and options, and the greatest unknown – the investment contract.

Our  partners, the investors, need to know what they are getting into – and rightfully so. Therefore, the investment requires the utmost certainty, and every informal agreement that you may have had with designers, developers, attorneys, and partners needs to be put down in writing. This process doesn’t amount to the writing down of everything that was agreed upon, but rather, it consists of writing down everything that wasn’t agreed upon: the boundaries of commitment and the conditions of termination. Nothing is stranger for you, the entrepreneur, than to look at your own employment contract, and to figure out how many months of notice should be given for your termination.

Keeping House as Part of the Prenuptial Agreement

There is something romantic about a startup, and as in a relationship, you commit to do everything it takes for it to succeed. Finalizing the contracts, if we compare them to their romantic counterpart, brings to mind a prenuptial agreement that includes a commitment to the amount of sex, family dinners, and weekly housekeeping routines.

Would you be able or willing to commit to that? Perhaps this is the end of the romantic phase of our attitude towards the company, the moment that all the intentions and wishes undergo a conversion to commitments. We wouldn’t want that and neither would the investors. Our romantic commitment to the company is the jet fuel that propels it, the source of our unlimited dedication (will all persons who haven’t received their salary in three months please raise their hands), and that of the people surrounding us, who are willing to forgo precious hours of rest and sleep in order to deliver contracts, features and designs. This requires a careful tradeoff between the need for certainty, and boundaries that make the signatories maintain them but do nothing beyond them.

The scary part of the process is that it creates the foundations for everything to follow. We commit to a minimum company value, to proven results and to expenses, while fully knowing that market forces, the appearance of unexpected competition, personal events and an abundance of factors beyond our control, even beyond our imagination, could overturn everything at any moment, demanding entirely different parameters than the ones we committed to.

Worse yet, the conditions of the investment market in six months to a year are a great unknown even to bigger experts than ourselves, and it is entirely unclear to us which of the various terms of this investment, related to the next investment, will be applied when it comes about. The understanding is that we are writing the term sheet for the next investment today, with all uncertainty. Will we maintain control? (Probably not) Will we stay in our positions? (Maybe) What percentage will remain in our ownership? (Who knows)

Think of the worst, first?

Here we lay the foundation for one of the most meaningful discussions you should have with yourself when you found a company: should you examine the worst case scenario (realistically and at least contractually) from the start? Or should your faith in yourself and in the project propel you? The answer is, as in many cases, “both”, but the dilemma remains.

Coming, as we do, from the realms of development, product and community, we do not effortlessly navigate this bureaucratic battlefield. The current phase shows us that every time we spend time on a contract, we acquire dozens of new expressions, insights, and questions, which, for the professionals around us, have stopped being questions long ago.

Part of the ability to deal with this uncertainty lies in the people around us. Part of our management concept (hey, we have a management concept!) says that you should employ people who deeply understand what they’re doing, and be able to believe in them, letting go of the delusion of “knowing everything.”

outlook
Our attorney is a good friend, and we have perfect faith in her. It is a great help that she is a seasoned professional and has overseen investments, sales, and IPOs of a magnitude that we can only dream of, for now. But dealing with uncertainty on our part involves conceding to the fact that you cannot know everything in so short a time, and that sometimes the insistence on understanding and proceeding on your understanding, could be detrimental.

All around us chaos rules, but the contracts stand. We commit to certainty in an uncertain reality, and the very commitment just goes to show us how little we know about the future to come. In the end, things can happen for the best, and the lack of prophetic skills does not turn us into pessimists; but as Socrates put it so well, “I know one thing, and that is that I know nothing.”

This entry was posted on Monday, December 14th, 2009 at 1:00 pm and is filed under Here and there. You can leave a response, or trackback from your own site.