
Ironclad (YC S15) Is an Automated Legal Assistant for Companies - kevin
http://techcrunch.com/2015/07/30/yc-backed-ironclad-is-an-automated-legal-assistant-for-companies/
======
grellas
Law is a strange business to which to apply automated functionality.

On the one hand, and especially touching on startup-related areas, the law can
have incredible complexity. When you consider that corporate law, securities
law (federal and state), tax law, contract law, employment law, and copyright
law all apply in varying degrees just to do a standard corporate formation,
you can imagine how many opportunities might present themselves for missteps
for founders trying to guide the process themselves.

In addition, there is not merely the issue of overt error in missing legal
requirements, etc. There is also the issue of omitting to make the best
strategic choices from among those potentially suitable for a venture, and
this means being able to stand back from one particular well-trodden path
(Delaware C-corp with one class of common stock) to assess whether that path
in particular is best for your venture. While many startups are well served by
following the Delaware C-corp (single class of stock) path, others may not be.
Believe it or not, there are some startups that are best incorporated in their
own local state and not in Delaware. There are others (particularly
"lifestyle" ventures, certain specialty ventures or bootstrap ventures that
want to start on the cheap and convert later) that may be best served by
setting up an LLC. Even in Delaware, there is the vanilla setup (and by this I
mean even a savvy one like the type YC uses) and there are others using super-
voting classes of stock or FF preferred or other variations. There are also
fine-point decisions within a typical Delaware C-corp setup that can easily be
missed. Do you axiomatically go for a cliff for founder vesting (like YC does)
or do you use pro rata vesting from inception? Do you prevest some founder
stock or not and, if so, in what cases? How do you handle acceleration of
vesting on certain triggers occurring? How do you best deal with IP issues for
various scenarios where multiple persons have worked on a venture prior to
company formation? Even mundane issues such as how to handle real cash
contributions sometimes made by founders without messing up the common stock
price can prove troublesome if mishandled.

All that said, and on the other hand, it is true that many legal transactions
today fall cleanly into well-established patterns that do not require any form
of specialty legal help. While founders can and do often use law firms for
such steps, it is a very legitimate question to ask, "what is the real value
from the lawyers?" and "is it worth the cost?"

So you have the two sides of law: the incredibly complex and the perfectly
mundane.

And here is the problem for many founders: not knowing which side of the line
you are on when it comes to this or that issue in the choices you make when
you form or build a venture.

Of course, when you also add the vast range of laws that apply to a venture
beyond formation, the issue gets even trickier.

No one wants to spend money unnecessarily on things that don't add value
commensurate with what is spent. But no one wants to make crucial legal errors
either. If a big one should occur, your early-stage cost-saving efforts can
quickly transmute themselves into the penny-wise/pound-foolish category.

This is where the opportunity presents itself for tools and platforms that
seek to streamline and improve legal transactions and this is what I like
about Ironclad's philosophical approach in particular.

The idea is not to have some end goal of replacing lawyers because that leaves
founders helpless when it comes to the "incredibly complex" legal aspects of
what they do in their ventures.

The goal is to streamline the process of working with lawyers while giving
founders the choice to work without them, or to work with them in limited ways
only, whenever they feel comfortable doing so. This keeps the founders in
control of the process. Any founder who has been whisked into a legal
environment where the lawyers are advising this and advising that, and are
meanwhile adding a team of departmental specialists to the mix, just to handle
what you might have thought a fairly basic set of issues knows the frustration
of losing control in such cases. Even with the best of automated tools, that
risk of losing control will never fully be eliminated, as law is indeed
complex in many, many ways. But, whenever you can take that risk out for
important classes of cases, you empower the founders to be much more in
control than they historically have been. And that is what Ironclad seeks to
do philosophically. The goal is highly commendable and should not be resisted
even by lawyers. People have problems enough to deal with and no one, even
lawyers, should have a stake in waste and inefficiency.

Even more, there is huge value in making legal transactions quick and
efficient in their processing, whether working with a lawyer or not. If you
can get your standard forms processed quickly and properly without a paper-
shuffling and delays, that is a huge value in itself.

So here is hoping for elegant execution and great success. I had spoken with
Jason about this back in the day when he was with Fenwick and he does indeed
bring a great perspective, skill set, and passion to the task. Congrats on
getting to this level and looking forward to what will follow in the
execution.

~~~
icebraining
I don't see why automation means one must follow the "well-trodden path."
Software isn't limited to a linear script.

I'm no lawyer, but all those questions (where to incorporate, classes of
stocks to use, etc) seem like they could be codified into decision trees and
similar algorithms. I can see why a human would be better at learning and
exploring to know what questions to ask, but surely applying them to a
particular startup is mostly routine work?

~~~
sandworm101
If that were true then every business would be a Delaware corporation. Many
are, but many aren't. No flowchart will get to every nuance.

~~~
icebraining
Why not? Assuming lawyers aren't working based on hunches, one should be able
to write down the process followed, which could then be encoded in software
(as a flow chart or otherwise).

In fact, even if the lawyers _are_ working from "instinct" and can't fully
describe their process, it's just a matter of getting a good sample of
existing companies (a few hundreds, perhaps, some of which not Delaware corps)
and asking the lawyer to "fake advise" each one. At the end of the process,
you'd have a pretty good model of that process.

~~~
sandworm101
Because, following the corp hypo, it isn't the lawyer's decision. A lawyer
doesn't decide which path is best for a corporation. A lawyer outlines the
various options and allows the corp's leaders to make the decision. Sometimes
there is an obvious answer, sometimes not. Therefore any accurate flow chart
would end with a series of options. The lawyer then stands ready to answer
questions about those options. It's a back-and-forth conversation and, imho,
the client rarely agrees completely with the lawyers opinion.

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jwb119
Hi everyone! I'm one of the founders of Ironclad and would be happy to answer
any questions you might have. Before starting Ironclad I was an attorney at
Fenwick & West, and my co-founder was an engineer at Palantir. Let us know how
we can help. We're excited to launch :)

~~~
biot
Minor point: the screenshot shows "Wiley E. Coyote" but it's actually "Wile E.
Coyote". Otherwise, seems like a much-needed service. A lot of what lawyers
are used for is little more than mail merge, so I'm happy to see this aspect
of their work being commoditized.

~~~
jwb119
This is an excellent bug report. Filed!

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sandworm101
Full disclosure: Actual flesh-and-blood lawyer here.

These tools are great when things are going well. If you are a business for
whom lawyers are an inconvenient expense, paperwork devoid of real value, then
go ahead and download your legal advice. You'll probably be fine with
boilerplate legal documents. But realize that as with the concept of
'technical debt' you might be pushing off minor expenses today in exchange for
huge expenses tomorrow. That can be a valid startup strategy only IF you
remain cognisant of the associated risk.

Two things could happen. First, things might hit the legal fan. Your now large
business will be in need of some actual lawyering but you won't have worked
with anyone. You don't want to be googling "IP lawyers in my area" the day
some troll's demand letter arrives. You want someone who knows you and your
business.

The far far worse option is that things don't hit the fan. You could go for
years blissfully unaware of the damoclean sword over your head. But the sword
never falls, the business grows, and eventually you want to take things to the
next level (IPO/buyout/new investors). Then you meet your first lawyer and he
or she isn't working for you. I've been that lawyer walking into a room of
wannabe millionaires who think they have all their legal ducks in a row. I
write a memo to my client about some gaping legal hole I've found, and the
next thing you know all that money goes away. You'll probably never learn why
those potential investors stopped calling.

Common big holes: Bad/fraudulent PII/PCI compliance. Improper labor practices
(common when everyone is working their first real job). Poor or absent
organization structure. Failure to abide applicable foreign laws. Tax fraud
due to reliance on tax-filing software. Failure to properly protect IP.
"Creative" accounting practices. Lack of industry-standard security measures.

And my personal favourite: Onerous contractual/financial obligations due to
failure to seek adequate legal advice at time.

~~~
tradd
Full disclosure here - attorney as well.

You absolutely raised some valid concerns. And I hope, I hope, I hope that
startups aren't using these templates as-is (or possibly at all). Each
company's business operations, policies, risk tolerance, etc. will be
different and their standard contracts need to reflect those positions. They
need to have lawyers write the agreements/policies/etc. to make sure they're
following all applicable laws.

However, I think that Ironclad (and possibly others) are trying to make the
administration of those contracts easier. Real trouble, from a business
perspective, comes when the company gets bigger and they don't know the risk
on their books because they can't manage their contracts.

I don't think these tools will cut out the lawyers, but instead help the
companies manage their contracts and be able to better use us lawyers.

~~~
sandworm101
I'm all for anything that gets people to pay attention to legal obligations. I
do agree that many lawyers are inefficient and could be helped by automated
tools. But I know of many, such as MY lawyer, who are very reasonable.

I do see many companies who don't know how to use lawyers. They do things like
ask outside counsels to attend on-site meetings in person. Or they lie,
forcing the lawyer to do things five or six times based on new information
they pull out each cycle.

------
sjs382
I _really_ wish the free plan wouldn't allow users to easily create NDAs.
_Anything_ but NDAs!

~~~
jwb119
Haha, you got us there. Laughed out loud at this one.

------
AndrewKemendo
I think this could be really valuable but I think there are two hurdles it
needs to get over.

1\. Confidence that the docs are really "ironclad"

2\. Flexibility with equity options

To expand on 2. I worry that having the basic stock option grant approach as
the only option just solidifies further how embedded that framework is for
employees. We discuss a lot on here how the typical option agreement is rife
with pitfalls and typically leaves early employees high and dry even if there
is a big exit.

I would suggest adding in the alternative of an Equity Incentive Plan which
sells restricted stock to employees in exchange for a promissory note held by
the employer and due at exercise. It is a bit more complicated but is better
overall as it requires no out of pocket expense for the employee upon purchase
(or even at exercise is the company chooses) and actually gives them real
shares that can't be easily written off by an acquisition or later investment.
It also requires an 83b election which is something that most companies don't
know about - and would be very helpful to have an automated way to walk them
through it.

[1][http://www.fwlaw.com/news/8-a-practical-guide-equity-
incenti...](http://www.fwlaw.com/news/8-a-practical-guide-equity-incentive-
plans)

~~~
jwb119
I think this is a really cool idea. One of the things we're designed to do, as
the administrative layer, is take these conventions that are set up by experts
and put them into software so that anyone can then execute on them. This would
be a neat example.

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cgio
I wonder whether the higher price for custom templates is warranted. I would
think that this would be a very good data source for Ironclad to mine future
templates, identify intricacies etc. On this front, I wonder how lawyers would
respond, given that this might streamline their work but it might potentially,
as a centralised data source, commoditise big chunks of it. I am saying that
because I have a similar example. I.e. I am doing system implementations for
Finance departments, and the cloud options definitely give the vendors an
easier peek at the design decisions and techniques an integrator uses. Maybe
this is not an immediate concern, but I would not rule out vendors monetising
that data source of designs from specialised integrators. E.g. a vendor
already performance profiles a huge range of their client applications and
then provides a metric on quality given the comparison (quite rudimentary
now.)

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FriedPickles
We use IronClad at Zinc and they are amazing. Whenever we have a new
contractor, we shoot them an email (actually now we click a button) and they
take care of the rest. Saves me a lot of time while ensuring we get all the
boxes checked.

------
Skrypt
Jason is on point, he's pretty much answered me back within 1-5 minutes every
time. Congrats on the TC article!

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hermanmerman
Is it template-based like Clerky (with the same Delaware C-Corp limitation),
or is there more to it (advice on which document to use based on the
situation, clauses that change depending on context, etc.)?

~~~
jwb119
Clerky is awesome. What we're going for here is more of the automated record
keeping and management. It seems like most company's legal docs are a mess
(and I know from reviewing lots of them when I was an attorney).

The templates we provide can help you automatically keep your company's legal
folder in pristine condition - we're not just setting you up with the
template, it's the whole process layer from end-to-end.

To be clear though, we don't provide any legal advice whatsoever. We're
designed to work with an attorney - so that if you need them to edit Section
2.1 of a document before it gets sent out, you can just have them hop in to
the Dropbox folder and make the edits. It's the administrative layer for
legal, not the advice layer.

~~~
swampthing
Hey Jason, congrats on the great TC writeup! I think we may have mentioned
this to you before, but Clerky is definitely all about automated record-
keeping and management as well. If it was just about templates, I'd be sitting
on a beach ;)

------
timrpeterson
Bug: Can't enter input into the enter legal name modal on iOS Safari. Can't
close the modal either.

~~~
gogwilt
Sorry about that, and thanks for reporting it! We'll get that fixed.

------
vermontdevil
Your website indicates its for Delaware C-type corporations based in
California. Is that the limitation?

~~~
jwb119
Correct in terms of default templates. Our default templates, which are used
by YC companies typically, are designed by attorneys for Delaware C-Corps in
California.

We are designed to be able to take in any type of legal document though,
including docs you already have from your attorney. So if you're not using the
default templates, or you've customized them yourself, that limitation won't
apply.

~~~
eonw
this seems like a very narrow operating space? if i understand correctly.. if
you are NOT a DE C-Corp in CA, then everything needs to be reviewed again
based on a different structure.

do you plan to offer base templates that better fit companies not following
your DE/CA method of incorporation. i would venture to guess most startups
don't have the capital nor legal advice to go this route. in fact my CA
attorney told me to skip the DE C-Corp in the beginning.

~~~
jwb119
If you are a company set up on another structure, we can take the documents
you're currently using (from your lawyer for instance) and set them up on the
system for you. We're designed to be the infrastructure layer, not necessarily
the ones coming up with the templates. But we do have those DE C-Corp
templates up since many YC companies are set up that way.

~~~
eonw
makes sense, thanks for the response.

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omarforgotpwd
Looks like a really great idea guys, best of luck. I'll definitely be a
customer.

~~~
jwb119
Cool thanks! Would love to hear back from you once you've had a chance to use
it and hear what you like and don't like. One thing that's been awesome about
going through YC is really learning to take feedback from users. Give us a
shout any time at founders@ironcladapp.com

------
pmichaud
I can see this being big, It makes me wonder about the very long term.

Saying that it's a tool meant to be used by lawyers is fine, but it's going to
be fairly obvious to any lawyer who thinks about it for a moment that that is
basically bullshit.

The play is pretty obvious:

Phase 1: Lawyers use the service as a workflow tool.

Phase 2: The tool gets good enough to mostly not need the lawyers. They enjoy
a brief period in which their income is essentially automated.

Phase 3: Companies use the service as a lawyer, lawyers only used in
extraordinary circumstances.

A big part of the lawyer's value proposition is about liability/peace of mind.
Like, "I'm sure this NDA is solid because if it's not I have someone to sue,
the guy who wrote it, my lawyer." That's a valuable service, which is why they
will stay in the picture during phase 3--essentially a liability limiting sign
off.

Im sure you've thought about that, as your business model sort of hinges on
having the lawyer take all the liability. Ie, the documents you provide are
just "suggestions" or boilerplate for a professional to base their work off
of, and those professionals are the ones who are actually liable for mistakes
or oversights. It makes sense.

(Sidenote: I predict some hostility from lawyers here, similar to the
hostility in the design profession over stuff like 99designs. I don't think
it'll matter though. They will be hostile because they know that the tool, if
it becomes widespread, would drastically reduce the number of lawyers who can
work in the area, but they will each be incentivized to use the tools
individually because it'll save them time in their practice as they all race
for the bottom, hoping that they are one of the few left standing in the
aftermath.)

Anyway, you'll have access to a very large dataset of those potential mistakes
and oversights plus the tactics that work to solve them, and you'll be able to
hone the tool so that they become more and more rare (this is phase 2 from
above).

But the thing I wonder about is what the second order effects will be. Let's
say we're in a world in which Ironclad has won, and millions of businesses use
it for the legal needs.

In that world you have drastically fewer lawyers handling more clients because
the work is essentially automated and they are sign signing off. Each lawyer
probably still makes the same money overall since the revenue per client is
much lower.

At some point something will go wrong, and the lawyer will be on the hook for
having screwed up. And he'll say "Wait a minute, I'm not the one who screwed
up. I used the Microsoft of legal services, the one you can't get fired for
choosing, the huge goliath that lowly me could never hope to question because
they have the most legal expertise in the world. I used Ironclad. They said
this document was right, who am I to say otherwise? I trusted them, and they
are the ones who screwed up."

And at first it won't matter. That's not how professional liability works, so
that lawyer will get ground up in the gears. Maybe the scrappy ones will sue
you, and you'll take your knocks, mostly winning or settling.

But I wonder if maybe when there's an army of rubber stampers who are
essentially not doing anything except saying "If Ironclad screwed up this
document, then I'll take the fall," then with enough case law the environment
will change, and somehow Ironclad actually would be saddled with a greater
proportion of the liability? Normally I imagine things like that wouldn't work
because no one will fight enough to place the liability where it probably
belongs, but in this case you'll be up against LAWYERS, whose profession it is
to deal with and fight for/against laws. That might make a difference in the
very long term.

Anyway, it'd be a good problem to have since it would mean you won like 20
years ago. Good luck guys, I think it'll be big!

~~~
zekevermillion
As a lawyer, I look forward to that brief period of automated income! But
seriously, I think that there will always be a role for advice on novel
issues, and good lawyers prefer to be in that niche rather than spending all
our time mastering the ins and outs of Word macros. The problem is that people
look to corporate lawyers for two very different services -- legal advice, and
business process. Legal advice is very difficult, and I would argue,
impossible to automate. Business process can and should be automated. It does
not make sense to rely on highly trained humans for routine business process.

------
grinich
Congrats on the launch Jason & Cai!

