Legal Bits

A call for folks who want to start something big in legal tech.

Legal Tech FTW!

Today’s drafting and negotiation of contracts is a process born from dragging a manual operation into the digital age. The execution and storage of contracts has recently been advanced by new digital technologies, and it’s possible to do the same for creation and negotiation of contracts. There have been a number of attempts to apply AI to today’s contracting process to make the processes more efficient, but those efforts are attempting to overlay digital solutions onto analogue systems. There’s a better way of doing this and we’re looking to fund the right people to create it.

As a former-lawyer-now-VC immersed in the technology ecosystem, the problem of applying technology to transactional legal work has always fascinated me. In 2010, I helped to curate the Series Seed documents, an open source set of financing documents for venture capital financing, which have since been used thousands of times. Along with Jason Boehmig, who went on to start Ironclad, we put these documents up on GitHub and built a series of workflow tools to enable our law practice to run more efficiently. Now as an investor at Cowboy, we’re looking to find a team to build a generalized system that could radically improve the commercial contracting process for all transactional attorneys.

Current contract process

Each year a small fortune is expended on businesses forming contractual relationships with each other. Many of these agreements occur repeatedly and are relatively standard amongst contracting parties, yet the workflow for contracts is highly manual:

• One party drafts the agreement and sends it to the other party in some form of word processing document;
• The receiving party modifies the agreement by having a person read it and insert changes in a new version;
• That receiving party sends back edits showing the changes made between their version and the original version; and
• This game of contractual volleyball continues until a mutually acceptable version is reached.

The path forward: standardization

It doesn’t need to be this way. Ironclad has taken an important step by putting agreements on a common system. That’s been a tremendous gain for the companies that use it, and it’s one of the reasons Cowboy invested in Ironclad. The contracts themselves, however, are still built in a way that is not interoperable with other systems, and it is going to take a new type of technology to solve this problem.

With the Series Seed documents, we took a page from the open source playbook, and we think that’s the best way to bring about this change. An open source set of standard contractual provisions could greatly improve the speed and quality of the corporate contracting process in the same way that TCP/IP enabled the Internet to come into bloom. These standard contractual provisions could be viewed like legos, individual pieces that when stacked together could form a set of agreements in a manner similar to object-oriented programming. Each of these “legal bits” would be translatable into plain English so that people without specialized training would be able to understand what they mean.

Freedom for parties to contract however they wish should be a core principle of this project. Just as TCP/IP enabled a broad flourishing web ecosystem, a standard set of legal terms should actually expand and improve the types of agreements between parties. Having a common starting place will enable companies to express their preferences more clearly and easily which in turn should increase the speed and clarity of the contracting process. Just as code written in python or java can run on many operating systems, this new standard should work on any platform, including Ironclad and beyond.

By working off a standard set of provisions, documents could be presented in a simpler format. Instead of having the key terms buried in secret places, the system could automatically generate summaries of the relevant business terms so that business people with no legal training could read them. Companies could publish their contracting preferences so that other parties could contract with them more efficiently. For example, imagine a world where there is a standard software contract called the Lessig agreement.

• A company like Cisco could announce that for all software vendors it will accept version 2.6 of the Lessig software license.
• A software vendor could then decide whether those terms were acceptable and, if so, submit an agreement with the knowledge that there would be no further back and forth on the contracting side.
• If there were provisions the vendor couldn’t live with, instead of drafting its own agreement, that vendor could simply present a diff file showing only the desired changes from that Lessig v2.6 agreement.
• That could then trigger an internal review, perhaps where Cisco’s contract negotiator validates that those changes are acceptable given factors such as the role the software is playing and the amount of money being paid for the license. Most likely that decision would fall to a lawyer who would be able to apply his or her judgment as to how these factors interplay and either accept the changes or suggest some alternative that could bridge the gap.

Lawyers should embrace this type of system. Spreadsheets freed accountants from the tedious task of checking vast arrays of mathematical operations and allowed them to focus on higher value services such as controls and policies. A standardized set of form agreements would do the same for lawyers. As a former lawyer, I greatly appreciate the value that lawyers can bring to any enterprise. Reading and summarizing agreements, however, are lower value services that lawyers provide, but that take a lot of their time. The highest value work a lawyer can do is delivering analysis and judgment, and this system would free lawyers to do vastly more of that.

An Offer

We would love to fund a company that is building technology aligned with the vision outlined in this post. If you are interested in doing that, please reach out to me at Ted [at] Cowboy [dot] VC . We are so excited about this idea that we’d be open to incubating a team building in this direction.

The big things we’d want to see are:

• a vision for building a series of open source documents that would be used in commerce
• a strategy for what would be the first agreement to publish and how to get it to be widely distributed, most likely taking advantage of Ironclad’s system
• a business model for the use of these documents, most likely based on an open source software model of selling “enterprise” versions of open source projects and services related to those version and
• a business plan laying out the expenses necessary to build such a company likely based on the notion that additional venture capital will be necessary for expansion once some degree of progress is made.

Toward a smarter contracting future

We are in a unique moment to build a modern version of commercial contracting software. While our world is reeling from the impact of a devastating virus, these tragic circumstances have also created an opportunity to reimagine existing workflows and create new more efficient systems. I have wrestled with this problem for many years and I am looking forward to partnering with new people to take a big step forward.