The Board works for the Common Stock

TL;DR: Under Delaware law, the Board’s primary fiduciary duties are to the common stock; not the preferred. That includes Board members who are themselves investors. Keeping that in mind when interests between investors and common stockholders diverge is important for preventing lawsuits.

Background Reading:

Note: For purpose of this post, we’re going to assume Delaware corporate law, because the vast majority of startups are Delaware corporations. States like California, Texas, and New York have different laws, although they are not that far off from Delaware (usually).

There are situations in which the “right” thing to do is a black and white, easy to identify issue. But in many other situations, contextual nuances, ambiguity, and human loyalties/incentives make finding an answer more opaque. In those situations, I’ve found that two questions can help provide clarity:

  • Whom do you work for?
  • (and related) Whom do you not work for?

Corporate governance is the broad term for how corporations should be “governed” in the best interests of their constituents. And under Delaware corporate law, it’s a well-known fact that a Board of Directors, which manages the Company at the highest levels, works for the stockholders. The job of a Board of Directors is to maximize value for the stockholder base. 

But which stockholders? Again, we have some ambiguity. Some of the stockholders are sophisticated, repeat player investors holding preferred stock, and the ability to fund (and negotiate) future financings. Other stockholders are first-time entrepreneurs, or employees, with far more of their net worth already sunk in the specific company, in the form of common stock.

Common v. Preferred

As I wrote in Common Stock v. Preferred Stock, anyone who speaks of Common Stockholders (founders, employees) and Preferred Stockholders (investors) as being fully aligned economically either has no idea what they’re talking about, or is deliberately obfuscating the facts, and the relevant case law on the subject. Investors are typically diversified, experienced, advised independently by personal counsel, and have contractual rights that allow them, in certain exit scenarios, to take 100% of exit proceeds. Common Stockholders are typically significantly less diversified, less experienced, reliant on company counsel for guidance, and lacking in contractual preferences on their equity.

In one sense, Common and Preferred stockholders are aligned in desiring for the Company to get as large of an exit as possible. But after that point is made, it has to be acknowledged that between them (distributionally), they conflict in terms of how much risk they are comfortable taking on to achieve that exit, what percentage of exit they will take, who else might join the cap table to share in that exit, when to go for an exit, and any number of other scenarios.

So again returning back to the point made earlier: a Board of Directors works for the stockholders. But there are conflicts between the stockholders. So whom does the Board work for?

Delaware courts give a clear answer: the Common Stock. For those interested, the most commonly cited case on the issue is called In re Trades Shareholder Litigation, although there’s a huge amount of other material available online on the subject.

Yes, all Board members work for the Common Stock; even the directors who are themselves investors and preferred stockholders. That means that, when deliberating on issues for the Company as Board members, directors are supposed to put aside their personal interests, and all the ways in which they might benefit themselves over other stockholders, and do what’s best for the common stock, as a class. And if they don’t, they are open to being sued by common stockholders.

The Job of Company Counsel

Delaware’s answer to whom the Board works for also illuminates what the job of company counsel is: to help the Board do what’s best for the common stock. That includes paying attention to circumstances in which investor directors may be, shall we say, distracted by personal interests in ways that aren’t beneficial to the overall stockholder base.

The job of independent company counsel is, in part, to help a Board of Directors remain mindful of their fiduciary duties to the company’s stockholders, particularly the common stockholders, and to avoid placing itself in situations where they’re exposed to fiduciary duty violation claims.

Because company counsel plays such a key role in corporate governance and keeping self-dealing in check, very aggressive VCs will maneuver to have the company engage lawyers who are “captive” to the interests of the lead investors. I’ve written about this extensively, including in How to avoid “Captive” Company Counsel.

If the job of the Board is to do what’s best for the common stock, and to avoid favoring the preferred, then clearly the last thing a well-governed Board would do is force the company to hire lawyers who have long histories working for the Company’s lead preferred holders. In 90% of Boards I work with, this is seen as an obvious, plain as daylight fact; the Company should hire independent lawyers. Outside of the startup/VC world, it would be seen the same way by 100% of Boards.

But there’s still that 10% of funds (bad actors) who use any number of excuses for putting captive lawyers in the counsel seat. And yes, I have seen lawsuits, both against investors and against lawyers, result from parties playing those kinds of games. Piss off the wrong stockholder, and leave enough evidence, and you won’t like the outcome. 

When Board’s don’t do their job

It’s one thing to say that the Board’s job is to represent the best interests of the common stockholders, and not take actions to enrich the investor base at their expense, but ensuring that it actually gets done is a whole other issue. Again, there are many funds out there who care deeply about their reputation, and try hard to fulfill their fiduciary duties. But every serious corporate lawyer knows of the tactics that bad actors will use to push through their agendas, often with thinly veiled arguments about why they are best for the company. Some examples:

  1. Telling management that they should not be talking to outside investors (who might offer competing terms, or more competitive valuations), because it is “distracting” and they should “focus on the business.” Or that they simply “aren’t ready” for fundraising yet, despite the fact that the company will run out of cash without getting talks going.
  2. Making up reasons why their preferred lawyers / firm will offer favorable economics (lower cost) to the Company if they are engaged, and using cost savings as a reason why it’s best for the company.
  3. Running executive recruitment processes without the involvement of founders/existing management who are Board members, citing that they prefer not to distract them. The end result being that their loyalists end up getting hired, and not other candidates.
  4. Insisting that their preferred “independent” director choice be elected, despite clear loyalty issues, and holding up other key decisions until they are put in place.
  5. Using made-up data to impose onerous budget constraints on the Company, unless management “gives” on other issues they want.

Unfortunately, once you’ve allowed an asshole onto your Board, it takes constant vigilance and offense/defense to counter the many tactics they might use to push the Company in directions that increase their power and ownership, without actually benefiting the company overall.  Sometimes you have no choice but to go down that path.

But without a doubt, the best thing a team can do to ensure their Board stays aligned with its fiduciary duties is to avoid bad actors altogether, and that takes diligence before any checks are written. All money is green, but some of it is rotten.

As I wrote in Local v. Out of State VCs and Ask the Users, as startup ecosystems become more transparent and open, relying less on one or two dominant funds, the value of diligencing the reputations of investors goes up significantly.  VCs rely heavily on their reputations for deal flow, and there are many good players in startup ecosystems who will use reputational information to either push more deal flow toward VCs who play by the rules, or penalize bad actors. 

I have seen companies go deep into talks with Fund A, and then choose to go with Fund B primarily based on very negative feedback they received, off the record, from entrepreneurs and other market players who know how Fund A worked. Reputation is powerful. Use it.

Key takeaways to wrap this up:

  • The job of a Board of Directors is to do what’s best for the common stockholders of the Company, and not enrich or empower themselves at the common’s expense.
  • Even with that fact, bad actors will use shady tactics and excuses to push companies to do things that favor the VCs over the remainder of the stockholder base.
  • Your best defenses are (i) do diligence to find out who the bad actors are, and avoid their money if you can, and (ii) hire independent advisors who will hold their ground against bad actors during Board meetings.

Why Startups Need Signals

Here are a few uncontroversial facts about the general early-stage startup ecosystem:

  • The cost of starting a tech company has dramatically gone down over the past 10 years.
  • In the early days, the caliber of the founder team is at least as important for success as the caliber of the idea/technology.
  • New networks – like AngelList and LinkedIn – have dramatically increased the transparency of relationships in the market, and the ease with which currently unconnected people can become connected.

Putting the above points together, you could easily conclude that it’s never been easier for talented founder teams to obtain needed resources in the market, particularly early-stage capital. But, in some ways, you would be wrong.  Many would argue that while the difficulty of starting may have gone down, the difficulty of actually succeeding has gone up, due to increased competition (and noise) in the market. 

The reduction in cost/friction in the startup world has been met with an increase in volume, and that volume has made the market far more noisy and competitive. Far more entrepreneurs producing far more ideas, and flooding top tier resources with far more pitches. If you want a clear illustration of this, look up newly created companies on AngelList.

Where there’s an increase in noise (weak teams, weak products, me-too companies, etc.), the value of signals – credible ways to cut through the noise and indicate to the right people that you are, in fact, worth talking to – goes up. This post is about why all early stage entrepreneurs need to be very mindful of the importance of signals in the marketplace, and what those signals often look like.

First, a quick clarification: signals are ways of effectively indicating information, but they are not the information itself. In other words, they are ways of credibly sending a message to someone like “hey, we’ve got something truly interesting over here” when simply saying those words won’t work – perhaps because everyone says that, or because you simply can’t get the face-to-face time, and when hard metrics like revenue growth/customer traction may not be available (because it’s too early).  Imagine the startup world as a very dense fog – and the fog is getting denser, btw – good signals are your very visible beacons to flash into the fog so that investors and other resources can find you.

A Series B company needs to worry far less about signaling its value proposition to investors, because its history, financials and reputation in the market can already speak volumes. Successful serial entrepreneurs don’t have much trouble either. A seed stage, or pre-seed company run by new entrepreneurs, however, is in a completely different situation, and needs a different toolkit.

Common early-stage startup signals:

  • A really good logo
  • A really good website
  • A really well-done AngelList profile
  • A strong social media presence
  • Well done blog content
  • Very well-crafted messaging
  • A great pitch at a pitch competition
  • Connections to respected people on LinkedIn
  • Acceptance into a well-respected accelerator
  • Strong academic or professional history

Notice how none of these really have anything to do with the fundamentals of your business/technology? You’re a very early-stage startup. No one really knows whether your business will be successful, and at this stage you can’t even get the face time with the right people to sell them on it. That’s what signals are for.

Remember the point about how startup investors care at least as much about the strength of the team, especially the CEO, as they do about the business? Why is that? Because talent (properly defined) is highly correlated with success, and talent is easier to analyze in the early days than the future prospects of a business. Great entrepreneurs tend to be highly talented generalists (multiple skills); it’s what allows them to hit milestones without a staff of more specialized people.

Doing any or all of the things on the above list credibly signals some kind of skill/talent. Just take a good logo (which may seem silly to an engineering type, but that’s a big mistake): it takes good judgment/taste (marketing skills), and the ability to find a talented logo designer (recruiting skills). Strong LinkedIn connections signal strong networking skills. A great pitch signals strong sales skills. A degree from a respected school, or employment with a well-respected company, certainly isn’t essential, but it clearly signals strong technical skills/training.

Getting into a top accelerator is one of the strongest signals available (because of how thoroughly they vet companies), and that’s why demo days are so well attended by early-stage capital. But getting into a top accelerator often requires its own earlier set of signals.

Yes, in many ways the world has become flatter, more transparent, more meritocratic, etc., and it’s a very good thing.  Yes, the “good ol’ boys” network is weakening in the sense that there are far fewer true gatekeepers. But don’t delude yourself for a second into thinking that this means success in the market has gotten easier. And absolutely don’t think that networking and referrals from well-respected people don’t matter.

A warm referral from someone known and respected in the market is still – simple, cold fact – an incredibly powerful signal. Think about what it takes to get a strong referral. You first had to get connected to that (usually very busy) person (networking skills). Then you had to interest them enough to think your business is worth supporting (credible business idea, sales skills). People care so much about good referrals because in a market full of noise, they are a very efficient filter. And no one has time to work without filters.  

This point is worth repeating: the “democratization” of the startup landscape has certainly reduced the power of gatekeepers – specific people (usually men) whose approval you needed to raise capital and connect with important resources – but it has not (and will not) eliminate the importance of building relationships with credible, trustworthy people who can then refer you to other people who trust their judgment. The democratization arrived in the form of diversifying the number of possible referral sources; not from eliminating the need for referrals altogether.

Utopian visions of a world in which great entrepreneurs will frictionlessly connect with capital purely based on the merit of their technology/business, eliminating all the superficialities of networking and personal marketing, are a dead end.  Someone on your team needs to be good at building relationships, because relationships are incredibly powerful signals. 

Just don’t expect your lawyers to connect you with investors. See: Why I (Still) Don’t Make Investor Intros. Signals can be negative. And the fact that, of all the people in the market whom you could’ve convinced to refer you, you chose someone you’re paying (instead of someone who refers based on merit), is very often, in today’s environment, a negative signal.

A good logo, or a well done AngelList profile, can seem superficial, but signals are often about how seemingly superficial things can help people with low information sort through noise. If it takes talent to produce it, and it’s the kind of talent needed for market success, it’s a signal worth caring about.

Negotiation and Inexperience

TL;DR: Having access to trusted advisors, and the time to consult with them, is essential for anyone negotiating terms with which they have very little experience. Don’t accept someone’s argument that you must negotiate important issues live. It’s simply untrue, and a tactic for gaining unfair leverage.

Background Reading:

A recurring theme of SHL posts is that entrepreneurs, particularly first-time entrepreneurs, need to be extremely mindful of the imbalance of experience between themselves and the many sophisticated, repeat players they’re going to be negotiating with as they build their companies. It’s obviously common for entrepreneurial personalities to be more comfortable (than most) with risk, and to go head-first into negotiations and activities without proper backup. But for really big, irreversible decisions, it will backfire, and others will happily use it against you.

One of the most overused phrases for getting naive negotiators to give in on issues they should push back on is “this is standard.” When you have no historical or market perspective – what’s normal, what’s fair, what are the risks, how will this play out in 5 years? – you can be easily manipulated into all kinds of bad outcomes. I’ve been at more than my fair share of board meetings or negotiations where someone at the table makes a completely biased, nonsensical claim that something is “standard,” at which point I’ve had to step in to set things straight, and gladly offer up data or a quick market survey.

There are two main things that I tell all companies to focus on in this regard:

  1. Have a group of experienced, trusted advisors that you can quickly communicate with on serious issues.
  2. Do not let yourself be bullied into a setting where your inexperience puts you at a substantial disadvantage.

Trusted Advisors

When I speak of trusted advisors, I’m not referring necessarily just to your Company’s “advisory board,” which serves a broader purpose of helping you on long-term strategic, business, and technological issues. I’m referring to people you can call or e-mail for specific, tactical guidance on more pressing matters; your “inner circle.” Seasoned entrepreneurs, mentors from accelerators, lawyers (who are independent from your lead VCs), and trustworthy angel investors often make up this group for most CEOs I work with. The most important thing is that they (i) have visibility into the broader market, to help you actually understand what is acceptable, and (ii) will be direct and honest with you when you most need them to.

Imbalanced Negotiation Settings

While it is far less common in the tech world than in other areas, you occasionally still encounter people (particularly VCs) who insist that the only appropriate way to “really” negotiate is live, and in person. And let me tell you: this is bullshit.

Of course, live discussion is important for communication and relationship-building; it has its place. But more often than not, attempts to force entrepreneurs and company executives to negotiate key issues live, or under a very tight deadline, is a tactic to gain unfair leverage from their inexperience. Of course the guy who’s done this type of deal 30 times wants you to agree to terms live, face to face, away from your set of advisors. It has zero to do with business norms. Plenty of high-stakes deals are negotiated asynchronously. 

How you push back and (respectfully) assert yourself in negotiations with other business parties will set the tone for your long-term relationship. If you allow them to force you into circumstances that favor them, they will do it indefinitely. There is nothing wrong with responding, diplomatically, that while you of course would love to grab beers and meet up in person for more casual matters, for real business, you expect time to consult with advisors.

If you’re working with people whom you should want to build long-term relationships with, they will respect your request.  In fact, I’ve known some great VCs and other business people who are very upfront about the experience imbalance with new entrepreneurs, and insist that companies work closely with key advisors.  Those are people playing a long game, and who know that their reputation in the market matters more than short-term opportunism.

If the person you’re negotiating with rejects your request, and dictates to you the medium of negotiation, then at a minimum you’ve gained some key information on what the relationship is going to really look like if you choose to move forward.

Founder Burnout and Long-Distance Thinking

TL;DR: “Life ain’t a track meet; it’s a marathon.” – Ice Cube

I’m prone to deep thinking about life. It’s why I quit the honors program in a great business school within weeks of entering college, and switched to Philosophy (adding Economics later). Best career decision of my life. No offense to the business school grads out there.

I’ve always had this feeling that people devote far too much brainpower toward things that ultimately amount to nonsense, and yet things that are infinitely consequential – like what you want to do in life, where and how you want to live, who and when to marry, whether and when to have kids – people seem to either follow a script, or just let their surrounding culture/peers push them in the direction of the current zeitgeist. And the truth is, the zeitgeist doesn’t give a shit about you. Slow down, and think it through. You get one shot.

And instead of asking your friends, ask people who’ve gone the distance. It’s well documented culturally / sociologically that spending all of your time with people your own age leads to all kind of mental dysfunctions and myopic thinking. The only way to get real perspective is to listen to other perspectives, and that means age / generational diversity.

A lot of the advice out there on founder burnout amounts to a kind of checklist on health and wellness. Let’s go ahead and get that checklist out of the way:

  • Sleep – Don’t delude yourself into thinking that pulling all-nighters and not hitting your 7/8 hour a day quota will make you more productive. It won’t. The data is clear.
  • Exercise – Same. Go for a run. Lift some weights. It’s not time wasted. Again, it makes you more productive.
  • Eat well – Eat shit, and you’ll feel like shit. Read up on carbohydrates, insulin, inflammation, and energy. You’ll learn some things.
  • Delegate – Build systems, and then hand those systems over to other people. If you can’t figure out a way to scale your skills, you will fail at life and at work.

But in my opinion, and from what I’ve observed among certain entrepreneurs, there’s a deeper, longer-term issue at play regarding founder burnout (and life burnout in general) than just getting overworked and not taking care of your body. The best way I can explain it is using some old school philosophy concepts: higher and lower pleasures.

Speaking very generally, lower pleasures require constant replenishment, because the feeling they generate just doesn’t last. They’re the “simple carbs” of life. Sex, drugs, and rock n’ roll are the typical go-to’s when someone wants to explain lower pleasures, but lots of cleaner forms of activities in life fit this category. Once they’re over, all you’re left with is a memory, and a desire for another one.

In contrast, higher pleasures have a kind of lasting effect. They have staying power and can bring satisfaction to life even when you’re not at the moment “doing” anything about them. Long-term friendships, love, family, and a sense of meaningful (not just financial) achievement are all classic examples of higher pleasures. They can be entertaining (or the opposite) and take up your time, but that time is a kind of investment toward building something that carries you forward in life, and is still there when you’re in your 40s, 50s, 60s, and later. David Brooks wrote a good op-ed called The Moral Bucket List that is worth reading.

The deeper kind of life burnout that goes beyond health/wellness results from years, or even decades, of failing to build durable “higher” pleasures into your life. You can ensure that you’ve slept enough, exercised, eat well, and have built a great management team, and yet at 40, 45, 50, find yourself sipping martinis on Christmas Eve, alone, or with someone who means absolutely nothing to you. That end-result really burns, because there’s no checklist for resolving it. Fail to build/invest into things in life that last and will help you really go the distance, and it can eat you alive in the long run.

When asked by young law students about how to vet law firms for employment, I’ve always said to look at the older partners, and watch/listen very closely. Look for divorces, kids in therapy, anger management issues, drug addiction, alcoholism. In the legal profession, and in all areas full of high performance personalities – including entrepreneurs – they’re everywhere. People who treated life like it’s a track meet – narrow your vision and run as fast as you can – when it’s really a much longer, much more intricate marathon.  Rock stars in their earlier years, but they failed to go the distance.

So my personal advice to ambitious entrepreneurs about preventing burnout long-term is, yes, sleep, exercise, eat well, and delegate, but also build a real life, not just a company. Emphasis on the word build; as in, activities that contribute to relationships and things that will be there tomorrow, and next year, and a decade later, when you’re a different person, with different priorities. Look ahead, and plan for the distance.  Most of the people around you telling you to just “keep hustling” care more about your stock than they do about you personally, or are themselves ignoring how long the marathon is.

Look for mentors who’ve built their own companies, but while maintaining a sense of balance (even if loosely defined).  Even if zen-like balance isn’t really achievable, the simple act of trying hard to achieve it will ensure you land somewhere sustainable. Like a speed limit, you know you’ll break it, but it’ll still help pace you.  

Think things through, and spend some of your time really building a life, apart from your company. The building may take longer than just narrowing your goals and running as fast as you can, but the end-result will be something much more durable. 

More Tech Startups are LLCs

Background Reading:

If you have spent almost any time reading about the basics of startup legal issues, you know that Delaware C-corps are the default organizational structure for a “classic” tech startup (software, hardware) planning to raise angel/VC money and scale. I’m not going to repeat what you can read elsewhere, so I’ll summarize the core reasons in 2 sentences:

Delaware because DE is the “english language” of corporate law and all serious US-based corporate lawyers (and many foreign lawyers) know DE corporate law.  C-Corp largely because (i) VCs have historically favored C-Corps for nuanced tax and other reasons, and (ii) virtually all of the standardized legal infrastructure around startup finance and equity compensation assumes a C-Corp.

However, times are changing. Over the past few years, we’ve seen a noticeable increase in the number of emerging tech companies that, despite knowing all of the reasons why startups favor C-Corps, deliberately choose to organize their company, at least initially, as an LLC. To be clear, C-Corps are still the norm, by far. But the C-Corp / LLC mix has, for us at least, moved maybe from 95/5 percentage-wise to about 85/15. That’s an increase worth paying attention to.

The growth in interest around LLCs has very little, or really nothing, to do with legal issues, in the sense that nothing much has changed about LLCs or C-Corps to drive people in one direction or the other.  The main drivers, from our viewpoint, are:

  • Many tech entrepreneurs no longer view venture capital as an inevitability in their growth path, and have grown skeptical of the traditional “growth at all costs” mindset found in many startup circles; and
  • An increasing number of VCs are growing comfortable with LLCs.

Profitability is now a serious consideration among tech entrepreneurs. 

C-Corps have 2 “layers” of tax: corporate-level tax, and then tax at the shareholder level. LLCs don’t have a corporate-level tax, and therefore have only 1 layer. Speaking in broad terms, this “disadvantage” of the C-Corp structure has not deterred tech startups for one simple reason: the corporate level tax is on profits, and many tech startups don’t intend to be truly profitably any time soon. Achieving very fast growth through reinvestment of any ‘profits’ has been the dominant growth path among tech entrepreneurs, which means no “profits,” which means being a C-Corp doesn’t really result in more tax.

However, the zeitgeist among startup ecosystems is shifting from “focus on growth, and raise VC” to “unless you’re absolutely positive you’ll raise VC, keep your options open.” Keeping your options open favors starting out as an LLC, because converting an LLC to a C-Corp is way easier than converting a C-Corp to an LLC. The reason for that is simple: the IRS welcomes you with open arms if you choose to move from 1 tax layer to 2. But going in the opposite direction costs you significantly.

As more tech entrepreneurs take seriously the possibility of building a profitable, self-sustaining business, their interest in starting their companies as LLCs is growing, because building a truly profitable business as a C-Corp is much more expensive (tax wise) than it is as an LLC. Many angel investors, and also strategic investors, are comfortable investing in LLCs, particularly under a convertible security structure that doesn’t immediately result in equity holdings.

So starting as an LLC allows you to build your company, and even raise some early capital, while letting things develop to see if you’re really building a business that needs conventional venture capital (and then convert to a C-Corp), or if you’re building one that may instead become profitable and distribute profits to investors (stay an LLC).

VCs are also growing more comfortable with LLCs.

The conventional line given for why VCs “must” invest in C-Corps is that the “pass through” treatment of LLCs can result in various negative consequences to their own investors (LPs), many of whom are tax exempt – so the C-Corp structure prevents the tax problems. However, more sophisticated VCs have realized that in most cases this problem is quite fixable. They can set up what’s often called a “blocker corp” that eliminates the possibility of pass-through income negatively impacting their tax-exempt LPs. Problem solved. It’s not that hard to do.

Truth be told, a lot of VCs still don’t want to mess with LLCs. But at this point it has more to do with inertia and a desire to minimize their own legal bills than any real legal issue. Also, most VCs are only looking for companies in a high-growth track where any net revenue will be reinvested for growth (no corporate profits, no corporate tax), so they are selecting for companies for whom an LLC structure isn’t really that appealing.

But not all VCs think that way. VCs are growing increasingly comfortable with LLCs, and when it makes sense, they will invest in them.

If you are an LLC tech startup, you need tax counsel.

If you are a tech startup that wants to be an LLC, realize that while LLCs may save you taxes, they will not save you legal fees. Equity compensation, particularly to employees, is much more complex under LLCs, and requires the oversight of true tax lawyers. It is not something to be handled solely by a “startup lawyer.” Any law firm working with LLCs should have access to tax specialists, and if they don’t, that is a red flag.

Also, as startups move from a uniform growth path to one that considers a wider variety of sources of capital (angel, non-traditional seed, strategic, private equity, debt, royalty-based, etc.), they need to accept that the standardization found in conventional Silicon Valley-style fundraising is simply not a possibility. The huge push to standardize investment documentation into templates that can be almost automated stems from the “billion or bust” mindset of classic VC-backed startups. In that world, everyone is a Delaware C-Corp. Everyone is trying to be a billion-dollar company that will eventually get acquired or go IPO. All the angels talk about the same things on twitter and are comfortable investing on the same docs. So just automate a template, plug in some numbers, and focus on growth.

But in a world where everyone isn’t a Delaware C-Corp; everyone isn’t on the same “billion or bust” growth path, and there is far more diversity among companies and investors, the conditions for heavy automation and standardization simply aren’t there, and likely never will be. It requires real financial, tax, legal, etc. advisors to handle real complexity, while right-sizing it for the stage and size of each particular business.

The truth is that outside of a few large startup ecosystems, there has always been much less uniformity among financing structures. Software engineers – frustrated with their inability to force everyone into uniform documentation that can be automated – have criticized this reality as backward and just needing to “catch up,” but to people on the ground it’s been pretty obvious they’re just hammers screaming at everyone to become a nail. More entrepreneurs are no longer comfortable being pigeon-holed into a one-size-fits-all growth path or legal structure, and long-term that’s a good thing for everyone.