Tag Archives: venture capital

Bottlenecks in the Entrepreneurship Pipeline: Legal

3 Mar

I’ve been doing a lot of thinking about the entrepreneurship pipeline and the bottlenecks that keep people from starting a business. Some of these bottlenecks are necessary (not every company deserves the $500k in funding they want) but many of them are process problems that can and should be fixed.

An overly complicated legal system can keep people like me in business but there’s no question that its harmful to entrepreneurship.  I can count at least a dozen potential entrepreneurs who never entered the race because the legal challenges seemed to daunting.  You could make an argument that perhaps those folks wouldn’t have succeeded to begin with but isn’t it possible that the costs outweigh the benefits?  I refer not only to the cost of incorporating (as high as $500 in many states) and the cost of raising money ($30k or more in legal fees) but the cost in time and energy wasted on activity that does not always create value.

A group of attorneys and venture capitalists led by Series Seed’s offer of open source legal documents is a good example of how we can make the process simpler, I encourage you to check out the explanation of these documents. With reliable financing documents and a few hours of legal advice, many companies seeking to raise $25,000 or $50,000 will be able to get the financing they need to expand and their business ideas.  In the situation where both the investor and the company want to play ball, this is a way for the “umpire” to get out of the way.

More: YCombinator also offers open source financing documents.  I haven’t reviewed either set so I can’t tell you which is better but I can say that fantastic attorneys appear to have worked on creating both.  Series Seed and YCombinator both give you a disclaimer and I better do the same: I don’t offer these as legal advice and can’t assume any responsibility for the consequences of using these documents.

Hat Tip: VentureBeat.

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