Because I am stupid and like to work hard while underperforming the S&P 500, I do a bit of angel investing, mostly for MIT spinoff companies. One of my portfolio companies just received seed funding from a partner (Fortune 500 company), which means that the earlier investors are having their debt converted to stock. There are more than 100 pages of documents for me to review and sign and mostly I don’t understand them. I’m wondering if we could boost the U.S. economy a little, and perhaps reverse some of the trend away from startups that Tyler Cowen has identified, if we codified this stuff. The situation with startup companies is nearly always the same. A few insiders want to sell convertible debt to a few outsiders. Then a bigger outsider comes in to buy stock and the early outsiders get converted. The people who put up cash have preferred shares and get paid first when the company invariably fizzles and is sold for less than the total invested. Why not create a way for people to say “I want to skip out on all of the legal fees and use a standard structure”? This would save taxpayers money as well. If things go south and there is litigation, the judge doesn’t need to read 100+ pages of custom contracts to figure out who had which rights and responsibilities.
Readers: What do you think? Would this make sense? Obviously it is already being done to some extent by law firms using templates, but each law firm has a slightly different template!