![]() ![]() Unless and until this process is completed, there is no handshake deal. You agree to fund your investment no later than 10 business days from the date of your acceptance of this offer." This offer is valid for 48 hours, please confirm acceptance. The startup sends the investor an email or text message saying "This is to confirm you're in for.Here are some example offers:Īccording to the protocol, you have a handshake deal if and only if the following happens: The protocol defines an offer as an amount to be invested, plus a valuation or valuation cap (or no cap), plus an optional discount. We're going to start using this within YC, and we hope it will spread to the rest of the startup community. The Protocolįortunately there is a way to fix most of these problems: to define a standard protocol for handshake deals. They haven't actually committed, so it costs them nothing, but if the startup turns out to be a hot one, they can retroactively claim that their almost-yes was an actual yes, and that the startup is morally obliged to let them invest. If investors say no in a way that sounds like yes, they can essentially take a free option to invest. The problem is compounded by the fact that some investors deliberately mislead startups about how interested they are in investing. Without video of the conversation it's hard for us to be sure whether there really was a deal and the investor welched, or there wasn't and the founders are just victims of their own wishful thinking. Many participants in the funding market are noobs, and some are dishonest.Įvery cycle we get reports of supposed handshake deals that fell through. This is not a closed community of pros who deal with one another day after day. Unfortunately, things don't work as smoothly in Silicon Valley as among diamond dealers. Diamond dealers apparently use them a lot. They tend to arise wherever trust is sufficiently high and speed is sufficiently important. ![]() ![]() Handshake deals are not unique to Silicon Valley of course. Founders need it because creating documents and getting them signed would slow down their fundraising, and investors need it because if they had to wait for documents to get created and signed before they could commit, they'd miss out on the hotter deals. So both investors and founders need a way to reserve space in a transaction. ![]() Why do we need handshake deals? Why not just wait till the actual transaction? Because things can happen fast in the startup world. The actual transaction comes later, when documents are signed and money changes hands. A handshake deal is a verbal commitment to a transaction. Intro Silicon Valley runs on handshake deals. ![]()
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