DIY Startup Legal Tools: Self-Diagnosis v. Self-Treatment

Image by Barbara Krawcowicz via Flickr

I have an awesome idea for a startup. Let’s call it LunaDoc. LunaDoc will be a website where you answer a series of algorithm-based questions about a health-related issue you’re dealing with, and then it will suggest to you a diagnosis. Sounds great, right? That’s probably why dozens of these exist already.

But let’s go one step further. After diagnosing you, LunaDoc will generate a prescription and send it to your pharmacy of choice, after which you can pick it up without the hassle or expense of ever having to talk with an actual physician.

If you’re half sane, you should have suddenly thought something along the lines of, “Whoa there, tiger.” Why is that? Because self-diagnosis, or educating someone enough to better understand their problem, is great. But self-treatment, or turning that new knowledge into a high-stakes action with potentially permanent consequences, without consulting a professional, can be absolutely nuts.

Sidenote: As I’ve done many times before, I’m going to leverage this healthcare example into a metaphor for the startup law context.  I truly believe there’s a lot that people in startup law can learn from the healthcare profession, so I’m going to milk this metaphor until the cows come home.

Self-Diagnosis

For years entrepreneurs have been fortunate enough to have an incredible amount of accurate, well-articulated, and free knowledge about startup law issues on the web; some in the form of blog posts and some in the form of articles. I’m a huge fan of recommending online resources to clients as a way to educate themselves without being billed hundreds of dollars an hour for it. And it makes the time that I personally spend with them more efficient (and cost-effective) because we can get right down to business without having to go through basic stuff. I keep my stash of helpful online reading here: SHL – Startup Law Links. 

Startup law blogs and articles are the legal equivalent of healthcare websites that help with self-diagnosis. Their role is simply educational, and can help a client (patient) better engage a professional in turning the diagnosis into a solution. While some doctors might complain about patients becoming “google doctors,” a more educated client base is uncontroversially a net positive.

Self-Treatment: Guided v. Unguided

Lately, however, we’re starting to see the web do what it always does: provide tools that attempt to dis-intermediate an economic relationship and let people completely handle things themselves. Self-diagnosis is evolving into self-treatment.

Major law firms have started posting standardized contracts on their websites for free.  Capography, a really cool new tool, lets entrepreneurs manage their own cap tables and even run a limited number of waterfall analyses to see how funds would flow in an exit. Docracy has emerged as an incredible source for hundreds of free contract forms for a wide variety of contexts, and they even let you execute the contract from the comfort of your own home, without ever having to go through the hassle or expense of talking with an actual lawyer (sound familiar)?

The much greater danger with these kinds of tools, much like with LunaDoc, is the issue of permanence. Education is flexible and easily correctable, but treatments are forever. Or perhaps better said, contractual and transactional mistakes are often extremely expensive to fix, if they’re fixable at all.

While everyone knows how much of a fan I am of standardization, automation, and any tool (toy) that allows attorneys to avoid repetitive, boring tasks, the fact of the matter is that tech startups are not coffee shops, and startup contracts are not wills. As I’ve mentioned before, startup law is a multi-specialty, highly contextual sport.  There are countless tax, employment law, securities law, and other state law issues that might come into play in your particular context, some of which need to be handled in the contract, and others that are completely separate from it. Signing the wrong contract, or taking the wrong legal action, isn’t that different from taking the wrong pill.  The side effects may be serious, or even lethal.

But, wait, aren’t law firms themselves putting up these standardized forms? Read the terms of service, my friend. Zero liability. Their skin isn’t in the game. Just yours. Those are marketing tools.

Attorney-Directed Self-Help

There’s a slightly different approach that a few companies are taking to allow entrepreneurs to do some things themselves and minimize their legal spend, while ensuring that a professional who understands the context is guiding the process. Brightleaf has a brilliant concept called a Leaflet. After speaking with a client and understanding what they’re trying to do, an attorney can easily turn a form into a self-help, automated tool. For example, you can turn the Company’s board-approved Option Grant form into a leaflet that allows the client to input the name, date, etc., and auto-generate option grant forms without bothering his law firm. Of course, every time you generate a form, the attorney sees it. Self-help, but with an experienced and invested professional making sure you don’t blow something up.

VCExpert’s Private Company Analysis Tool (PCAT) allows a law firm to input and update a Company’s capitalization info, and a client can then run any number of reports using that data without having to consult the attorney. Again, someone’s there making sure the inputs are correct and that things don’t go awry, but the client doesn’t have to ask his attorney to generate a different report (often hours of work) every time he wants to see the vesting status of options or the funds flow of a potential exit.

Empowering clients and unlocking information from artificial silos is awesome. Pretending that technology can completely replace professional judgment and contextual understanding when it simply can’t… not so much.

Yes, I understand that self-help tools are really about the under/un-served.

Of course, downloading a free contract form drafted by someone who at least knew what they were doing is light-years better than issuing stock with a 3-line contract written on a napkin.  And that’s why I’m not going to say that un-guided self-help tools aren’t a benefit to the startup ecosystem.

Much like how cheap, mass-market contract websites have made wills and basic corporate forms available to people who would never have contacted an attorney to begin with, I get that there’s an underserved market here that needs these tools.  Just keep in mind that how much effort and expense you’re willing to incur in protecting your startup is, in many ways, a reflection of how seriously you take its prospects.  If you’re sitting on a dud, who cares if your employment forms aren’t enforceable in your state, or if you didn’t fill out your stock issuance forms correctly? But if you think it’s a home run (and why would you waste your time on something that you think isn’t?)… well, you get the idea. Investors will too.

5 Comments DIY Startup Legal Tools: Self-Diagnosis v. Self-Treatment

  1. Veronica (@UberVero)

    Very insightful post, Jose. “Self-help” is nothing but the edge of a process that’s been happening for a while now: unbundling of legal services. The internet makes it very easy to find information, and sometimes that’s all you need. Working at Docracy I hear a lot of paternalist comments along the lines of “giving free legal documents is like handling guns to children”. This is obviously not true, and the fact that firms and lawyers are publishing their own forms proves it. Free document and DIY legal are two different things. People are less dumb that what lawyers think: when the financing of the company is at stake, you bet they’ll call a lawyer. But reading an annotated convertible note beforehand can help them make informed decisions, and maybe even save some money. Or maybe find a good, independent lawyer, rather than going with the VC’s buddy firm. Evaluate an offer by comparing it to a standard. This is not that new. People have been selling books full of forms for decades. Thanks to the internet, the price of legal forms is basically zero. And this is good both for clients and lawyers (leveling the playing fields at least).

    And yes, there will be some people that cross the line of self-diagnosis and go DYI when they shouldn’t have. Again, this is nothing new. People have been googling “free legal documents” way before Docracy was born. Since we can’t read people’s mind, the best thing to do is teaching them their own limits. This is different than the “don’t this without a lawyer or you will regret it forever” paternalistic approach, but calls for a new attitude from legal professionals. But that’s another topic :)

    Reply
    1. siliconhillslawyer

      Hey Veronica,

      Thanks for reading and commenting. :) Funny how your comment fits very nicely with the healthcare example, which is another profession in which the practitioners are having to acclimate themselves to a better-educated, and, shall we say, “empowered” client base.

      Of course, I think we may be overstating a bit the extent to which people are actually interested in understanding the fine details of their legal contracts. They’re certainly interested in the high-level concepts, which articles and blog posts, and yes, perhaps annotations, are better at conveying, but forgive me if I’m a bit skeptical about the idea that, at least from the consumer standpoint, Docracy’s role is largely educational rather than transactional.

      I LOVE the benefits from a lawyer standpoint; especially how it gives smaller firms the ability to dig through a larger contract base.

      But let’s be careful about using the term “paternalistic” with too broad of a brush, to the point where it begins to sound a bit like marketing speak. “Talk to a physician” is not an unreasonable response to someone who says they want to self-medicate, however ‘paternalistic’ it may sound. It’s just much more realistic than making drugs freely accessible, handing people a set of medical textbooks in the name of “openness,” and ‘suggesting’ that they consult a professional if they feel like it.

      I’m not saying we need an FDA for contracts, but at least in the startup law context, “don’t do this without a lawyer” is a pretty realistic response to someone who’s been given the impression that signing some free contracts is all they need to form their company, or issue some stock. Thanks for reading!

      Reply
      1. Veronica (@UberVero)

        I agree entirely, and we’re the first to tell users (via comments or support email) that they should ask that question to a lawyer. By “paternalistic” I really mean people who will send you to a lawyer no matter what (usually, guess why, lawyers). This approach, even when in good faith, is simply not realistic. If two kids in a garage create their first mobile app, they’re going to rip off the privacy policy from some similar site. A lawyer who really cared about legal protection would do more than just say “you’re doing it wrong” (albeit true). Blog posts, discounted review fees, you name it. There are better ways.

        You’re also right in saying Docracy’s role is mainly educational (our mission is “taking out the mystery and fear from legal documents”) but I can tell you there are people who take a document, branch it privately, and then invite their lawyer for review in the signing process. Also, we are gathering data that lead to the identification of standard practices. This is more futuristic but, in a few years, there will be little risk in using a standard work for hire agreement already used in thousands of different cases. Not sure if you are familiar with the work of Richard Susskind, but he says that not all legal work is bespoke. Simple stuff are usually cookie cutters, as taking Tylenol when you have a cold. And you don’t need a doctor to take Tylenol.

        Reply
  2. siliconhillslawyer

    Sounds awesome. :) Definitely familiar with Susskind, and waiting for Amazon to make the audiobook of his recent work available. Trust me, a review of this blog should show that I’m all in on standardization and automation of contracts. Certainly makes my life (and those of lawyers not doing cookie-cutter work) better! But, like you say, we need to also emphasize to clients when simply signing a standard contract isn’t enough to get the job done. Because while signing an apartment lease might be Tylenol, issuing stock options is definitely not! Take care.

    Reply
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