Compact Forms Project1
An Expert Tool for Counsel and their Clients
Joseph W. Bartlett
For many years, I (and numerous others) have longed to introduce long-needed efficiencies into the transactional aspects of emerging growth finance. One initiative would, and should, be the adoption generally, by consensus among experienced professionals, of an agreed set of model forms … ideally accompanied by user-friendly annotations, and explanations.
Despite the plethora of available exemplars and paradigms, the NIH (‘not invented here’) factor mainly controls.2 As one of the law business’s most astute and prescient analyst, David Susskind has put it:
“ … [l]aw firms tend to have what I call an ‘information non-sharing culture.’3
To be sure, most firms, including mine, have their own master sets of forms which lawyers in the firm will consult particularly in a pinch;4 but ,with certain quite prominent exceptions, to say that the models are standardized within the firm would be a mild exaggeration and to suggest (again with exceptions) the forms are standardized amongst firms would be bordering on the delirious.
Thus, in venture capital, where arguably the need is at its greatest (due to cost pressures), standardization has yet to take hold. Granted, amongst that handful of firms with the largest market share (including mine), partners and senior associates are generally familiar with the modes of expression which have been developed over the last several decades. Moreover, the National Venture Capital Association has sponsored a set for forms, online and free (www.nvca.org), which several law firm have had a hand in drafting.
Nonetheless, standardization of model documents remains like the weather; as Mark Twain put it: ‘a topic of general conversation but as yet nobody is doing anything about it,’ or at least without the success the need would dictate. The question then arises: Why should the CCC Project of The Encyclopedia of Venture Capital be any different?
First, of course, model forms should be on line, and downloadable in Word:
“The web is the ideal medium for creating standards; it allows groups to collaborate at almost no cost, and makes decision-making more transparent … … . [t]he more data they [the documents, in our case] contain and the more users they have, the more valuable they become and the more data and users they will attract. Moreover, the Internet allows for massive testing and peer review, boosting the quality of [the content], in particular through open-source projects. The more people look at a program, the more likely it is that mistakes will be spotted. ‘Given enough eyeballs, all bugs are shallow’ … .”5
Further, the standards cannot be the property of any one firm or individual. Thus The Encyclopedia’s forms are multi-authored and open source … the NIH issue has been faced and, I hope, checkmated. That is to say, invitations have been and are being extended (and almost without exception, accepted) by professionals active throughout the system. The model forms, in a word, are not “Bartlett’s,” or any one firm’s in particular; they belong to the entire universe of professional advisers since they are open to comments and contributions from all, including unsolicited reactions from reader users. The process is truly interactive.
Finally, if (as Susskind has predicted) clients ultimately call the tune, our bet is that clients will drive reform by choosing these firms which subscribe to the Number One item on the typical client ‘wish list,’ namely: “Give me a short agreement … put it on one page, short and sweet.”
To be sure, honoring that demand uncritically can be a recipe for disaster; lawyers are paid to anticipate all realistic contingencies and help negotiate them prior to the closing. Otherwise, when the contingency arises, there is no road map … disputes wind up in costly (sometimes fatal) litigation. This means the document should cover the points completely and with precision, a process which, if done professionally, cannot be reduced to a few pages and a handful of simple propositions. Moreover, well drafted documents are not only comprehensive, they should (as I first learned from the best draftsperson I ever knew) tell a story … a story which is laid out so it can be read coherently and with some style. The staccato bullet points one sees in, say, a bill of lading, borrowing heavily from terms defined in, say, the U.C.C., do not make for easy reading, except to narrow specialists in the area. The best documents take up a certain amount of space, enough pages to do the job.
That said, however, there is no reason the agreements one sees on a regular basis in this business should be anywhere near as long as they currently run. Again going back to an exercise I conjured with in 1978,6 the typical venture documents (i.e., certificate of designation; stock purchase agreement; subscription agreement; registration rights agreement; shareholders agreement) can be reduced in size by at least 50 percent without losing an iota of coverage or precision … and, in the process, enhancing readability for professionals and lay people alike. In fact, the 3 C initiative is well underway.
Examples of what can be done (from the current VC Encyclopedia, in fact) are contained and illustrated in The Encyclopedia. We have taken standard agreements, well drafted by today’s standards, and cut them in half, on average. The forms are “3 C” compliant … comprehensive, clear and (above all) concise.
Please note in this connection that the ecumenical, open source nature of The Encyclopedia models is being maintained. I look forward to edits and comments from all hands … a fun part of my job, as we collectively borrow from each other, with Strunk & White for our guidance.
1 Comprehensive, Clear and Concise.
2 Thus, some years ago, I interviewed a lawyer then leaving a prestigious law firm which had hired her to create an intrafirm set of model forms all the partners and associates would use. She was quitting after two years work … she had been unable to convince any attorney to give up his or her favorite models, the ones sitting in binders of previous deals on the attorney’s shelf . . . NIH in spades. This is just human nature, of course, driven by the familiarity factor.
3 Susskind, Transforming The Law, Incidentally, Susskind’s point of view is consistent with a prediction, nowhere near as elegant nor informed, that I made in a 1978 book published while on sabbatical on the Stanford Law School faculty, where I stated that:
“A … fundamental cause of inefficiency is the cottage nature of the business. One of the underpinnings of any mass production process is its adherence to rigid standards so that products, parts and machines are compatible and may be exchanged efficiently. In the law business, the question has largely to do with the failure to standardize language, which is the product lawyers sell, in contracts and other legal documents. For example, most lawyers are engaged from time to time in drafting wills and trusts designed to allow the easy descent and distribution of property with a minimum of confusion. There are, of course, in most estate planning cases a few specific items which should be tailored to suit the taste of the testator or local law. However, there is no reason why law firms throughout the country could not draft standard language for use by all lawyers (not just the lawyers within a given firm) in putting together, say 90 percent of the text of a will and trust. The cooperating firms could, in addition, draft a layman’s explanation for each of the clauses and actually sell the package to the client as a ‘do it yourself’ kit. A very substantial percentage of the work to be done could be accomplished by the client himself, with the lawyer taking a last look at the instrument and supervising its execution with the required formality. The cost savings could be immense, and, in fact, business increased.” Bartlett, The Law Business: A Tired Monopoly (Rothman, 1978).
4 This commentary is not meant to slight some very good form books. I include The Encyclopedia of Private Equity, of course, as well as Richard Harroch’s and Mike Halloran’s compendia, which are widely consulted. And, the NVCA, prompted by Sarah Reed at Charles River Ventures, has posted model forms online (www.nvca.org). There exists in the minds of some that a given form may be “owned” by, say, Smith & Brown LP because the same was drafted (or, better, assembled) in its present form by one or more Smith & Brown lawyers and sits in the firm’s electronic library. Old hands in this business smile at that posture; all legal forms are mongrels, the product of decades of drafts circulating publicly and privately throughout the system. No one, literally no one, can trace the provenance of a given form back to its birth event; we all routinely borrow from one another, the origins of a particular clause or paragraph now lost in antiquity. Thus, The Encyclopedia’s forms, while copyrighted, are designed to be used by the initial licensees in their law, banking or consulting practice. While I would be distressed to see a knock off of The Encyclopedia forms copied and sold to the profession as a set, the core idea is that the forms themselves will find acceptance throughout the entire sector, acceptance built on as broad and frequent a usage as possible, with improvements stimulated by comments and reactions from the users themselves.
5 The Economist “Software: The Beast of Complexity,” 3-26 (April 14, 2001).
6 Bartlett, The Law Business: A Tired Monopoly, 154 (Rothman, 1982).