I often wish we could do business on a handshake.
I've been thinking about it more and more these days. We negotiate a sophisticated set of documents when we invest in a company and for the most part, those documents never come into play. Many times when things go badly, we rip up the documents and decide what to do based on an honest discussion among the interested parties. When things go well, all we need are the stock certificates.
I am not suggesting USV is going to start doing deals on a handshake. We have investors and we have a responsibility to them to act responsibly.
But if I were an angel, I might do things differently. There is something powerful that comes from establishing trust early in a relationship.
I always like to imagine the way that Andy Bechtolsheim handed Larry and Sergey that check for $100,000. I have no idea how it went down, but I always imagine they that pitched him, he said "sounds great" and whipped out his check book and wrote a check for $100,000. I sure hope that is how it happened. If instead he said "I will get my lawyers to draft a purchase agreement" I will be really bummed out.
The biggest problem with doing business on a handshake is you may not be dealing with the same folks in a few years. And when the person you are dealing with changes, things change. In those situations, you have to have a written agreement to fall back on. And it will be too late to get that document in place when the circumstances change.
So the right thing to do is get it in writing before you part with your cash. That is how I have always done it and how I suspect I will always do it.
But the most important thing in business is the understanding, the look in the eye, the handshake, and the personal trust that comes from those things. No piece of paper can beat that.
