This year I divided my New Year’s Resolutions into the personal and the professional. On the personal side of things, I registered for GymPact. In case you haven’t heard, GymPact is this wonderful little business idea that is just genius. The concept is as follows. If you are paying a ton of money on an unused gym membership and need that little extra kick in the pants that the $100 plus (or pick your number) monthly fee isn’t providing, perhaps allowing Gym Pact to tack on an extra $10 per week will help. Yes, folks, that’s the concept. You make a pact to make it to the gym a certain number of times a month, and if you fulfill your pact, then Gym Pact pays you a certain amount based on how many users failed to make their pact in that week. But if you don’t, you get charged. Week One, Day Six, no gym. If I don’t make it tomorrow, I’m funding the enterprise. I’ll let you know in my next post how it’s going. So enough of my personal resolutions and on to the professional ones. 2012 is my year of getting my social media act together. I was one of the earliest adopters of LinkedIn and am a Facebook junkie. Now I have hopped onto the social media bandwagon professionally. I am very lucky to work with clients that have become close friends in the course of our engagements. When I write this blog, I imagine I am sitting over dinner with any one of my clients chatting about the last deal that we did together: what went right and lessons learned. This year is the year of getting useful content out into the ether in a form that is entertaining, practical and provided in easily digestible bites. I look forward to taking the journey with you!
A short note about the format and content of this blog: The format of this blog will be intentionally brief. In future blog posts you can expect to see quick tips, lessons learned, checklists and tools that highlight lessons learned from my observations in doing technology transactions over the course of my career. I won’t typically take deep dives into the intricate details of legal analyses (although when the bleeding edge of technology intersects with fascinating legal questions, I may stray into that territory). Instead, the updates and blog posts here are intended to be easily consumed in 10 minutes or less. Note that substantive comments on the topics presented are welcome and I do hope you will “like,” “share,” and help me build the following for this endeavor!
One Good Question: What Is the Most Important Step that any Company Can Take to Efficiently Negotiate and Close a Technology Deal?
Answer: The Solid Non-Binding Term Sheet:
The value of a clear and thoughtful term sheet is often underestimated. A solid term sheet defines in reasonable detail the terms of the business transaction. It is not typically binding and often does not even need to be signed. Term sheets are valuable because they establish the expectations of the parties as to the main deal points to be covered in the to-be-negotiated final agreements. Any deal, whether involving technology or not, can benefit from a term sheet that describes at the overall purpose, product or service, price and other financial terms, performance metrics, duration of the relationship, and termination rights. For technology deals, the term sheet typically also should cover each party’s rights in intellectual property and data. Other significant deal terms should also be captured. When these issues are not fleshed out up front, the parties end up throwing documents back and forth that are prepared without much context and no understanding of what the other party’s concerns or limits might be. And yes, even lawyers don’t relish being sent down the path of drafting agreements with little or no direction as to the parties’ understanding of the deal. Spending time on the front end negotiating the key terms of the deal can save weeks of work and thousands of dollars in legal fees down the road.
A Few Thoughts on Engaging Assistance From Trusted Legal Advisors
Not all companies can afford to have an experienced trusted commercial lawyer by their side throughout every discussion leading up to and through negotiations, but experienced negotiators bring these trusted advisors into the process earlier than their less experienced counterparts. Why? Because these individuals have found advisors that help them do a better job than they can do on their own—they understand the business interests of both sides, are creative, suggest solutions, spot minefields that may not be transparent, and understand how decisions get made within their client’s and often the other side’s organizations. It’s as simple as that.
What if your company cannot afford this kind of help? My suggestion is to obtain advice at critical points in the deal cycle. Get help on the term sheet and in preparing or reviewing the initial draft of the agreement. Talk to your trusted legal advisor about where the key pain points are in the proposed terms. Have them walk you through those that will impact the future flexibility of the company to do other deals, or that are likely to raise questions from future funding sources or potential acquirers during due diligence. Most start-ups are prepared to take on risk. The key is being able to distinguish those risks that allow the company to preserve business flexibility from those that strip the company of building potent value for itself and its prospective investors or acquirers.
Disclaimer: The views on this blog are my own and not that of Orrick or its clients. Nothing on this blog is provided for, nor should it be relied upon as, legal advice. This blog is for informational purposes only. This site is not intended to substitute for obtaining legal advice from competent, independent, legal counsel in the relevant jurisdiction. Your use of this site is not intended to create and does not constitute a lawyer-client relationship. Neither this publication nor the lawyers who authored it are rendering legal or other professional advice or opinions on specific facts or matters. Neither Stephanie Sharron nor Orrick assume any liability in connection with the use of this publication.