The past decade, there has been an explosion in seed financing for early-stage technology startups. Increasingly, this seed financing is channeled to these companies via an entirely new form of investment contract — the deferred equity agreement. One version of this agreement — the Simple Agreement for Future Equity (SAFE) — made its debut in 2013. Another version — the Keep It Simple Security (KISS) — first appeared in 2014. While these instruments have attracted extensive attention in the startup blogosphere, there exists remarkably little information about the role they play in the real world. Nobody seems to know, for example, precisely who is using these new contracts. It is likewise unclear where exactly these agreements are being used. In a very real sense, the discussion about these new contractual forms is occurring in an empirical black hole.
This Article describes the day-to-day work of lawyers who advise startup companies. Drawing upon interviews with practicing attorneys in New York City and the Research Triangle of North Carolina, it distinguishes the practice of startup lawyers from the practice of other types of corporate lawyers. In so doing, the Article aspires to update and expand upon a sociological study published in 1996 that described the distinctive character of the work performed by startup lawyers in Silicon Valley. This earlier study provides an account of what we call “Startup Lawyering 1.0.” In this Article, we describe the work of startup lawyers outside of Silicon Valley circa 2016. In so doing, we provide an account of what we call “Startup Lawyering 2.0.”
On May 16, 2016, the much-anticipated era of retail crowdfunding officially began in the United States. While it is far too early to pass judgment on the long-term prospects of the crowdfunding project more generally, it is possible at this juncture to assess how certain aspects of crowdfunding are developing. With respect to the menu of financing instruments being offered to prospective investors, we believe that early market participants are potentially sabotaging the crowdfunding experiment by making widespread use of a relatively new startup-financing instrument — the simple agreement for future equity (SAFE) — that may frustrate the ability of investors to share in the upside of successful crowdfunding companies.
Scholars agree that contractual innovation, though sometimes slow to occur, can and will take place if certain conditions are met. The Article argues that the evolution of certain venture finance contracts over the past decade constitutes a prime example of such innovation.