Limiting the length of SHA’s

I was recently reviewing the shareholders’ agreement (SHA) of one of our startups. It’s over 40 pages long.

However, I noticed that I wasn’t actually reading the entire document. I was actually skimming through most of the parts to focus on those key clauses that really matter. These include the investment amount, any privileges or limitations associated with the shares (like liquidation preferences, anti-dilution rights, dividend preferences, and vesting clauses), the cap table, the structure and decision-making responsibilities of the board, drag-along and tag-along clauses, pro-rata rights for future fundraising rounds, and restrictions and rights of first refusal on share transfers. Although this SHA didn’t include them, put and call provisions are also important.

All in all, I read less than 10 pages in great detail.

I then looked at the SHA’s of some of our other companies to see how long they are. The shortest one I found was 25 pages long. The longest one was over 100 pages long.

I know that 100 page SHA’s aren’t necessary. I also doubt that 25 page SHA’s are necessary. I think that the key terms could be addressed in less than 10 pages. If we allow for 5 more pages to allow for case-specific additions and standard clauses like information rights and reps and warranties, that’s a total of 15 pages.

I think that promising to stick to this 15 page limit would be a strong differentiator for a law firm. Done right, it would help the law firm win a lot of customers.

Originally published at Thoughts of a VC.