So, you've landed a huge enterprise client. Here's how to close the deal without getting stuck in a legal maelstrom over the contract.
It's bound to happen. You close a handful of small deals with other start-ups and medium-sized customers who quickly sign your form contract. Now you've landed the "Whale"--a huge enterprise client. You send your form customer contract over to the Whale's legal team. The contract comes back to you, bleeding with red ink--or worse yet, the Whale insists on throwing out your contract and using "their paper." Is the deal in jeopardy?
Absolutely not. There are, however, a few things that you can do to help the deal close quickly and avoid getting stuck in the legal abyss.
Stay the Course.
The mere fact that the Whale's legal team does not like your form customer agreement should neither offend nor concern you. No matter how much time you spend with your counsel developing and improving your form customer contract, it is quite possible that a Whale's legal team is going to mark it up or tear it apart.
Why? Well, legal review at a large corporation is a lot more intense than at a start-up. There's a significantly lower tolerance for risk and a bigger appetite for using all available resources to minimize that risk to a ridiculously small level. There is also a great deal of internal pressure put on in-house counsel to justify their salaries. Those forces often result in very heavy-handed lawyering, like nit-picky revisions and demanding alternative language that has the exact same meaning as yours. If you accept this reality and temper your response accordingly, you can get your deals closed a lot more quickly.
Don't Drown in a Sea of Legal Details.
In closing these kinds of deals, it is critical that you and your legal counsel stay focused and avoid the temptation to battle over form documents and obscure legal points. A good start-up attorney has a lot of experience in crafting commercial contracts and closing enterprise deals--but they also bring a practical business perspective to the transaction. They know that getting the deal done is the primary goal. They strive to be flexible and help you properly understand both risk and leverage.
In an ideal world--yes--I want mutual indemnification, jurisdiction in our home state and full ownership of every piece of data that flows through our platform. In closing a deal with a multi-billion dollar Whale, however, I can be flexible. I'll settle for one-way indemnification that is less onerous on my client, jurisdiction in the Whale's home state, and a perpetual license to use the subset of data that we'll actually need.
Stay focused on the contract points that are truly important, like ensuring that you own the intellectual property underlying your application, creating certainty around payment terms, and confirming that all deliverables match the parties' expectations.
You also need to recognize that the Whale most likely has all of the leverage here. Your deal for beta integration is a small sea shell in the Whale's ocean. There are some deal points that will be "take it or leave it" for the Whale. If you can live with these points, then accept them and move on. Get this deal closed so that you can bring indispensable value to the Whale and create leverage of your own.
Triangulate. Triangulate. Triangulate.
The Whale is a large organism. You need to make sure that its various body parts are keeping the deal on track. The Whale's legal team is probably not calling the shots--but it can really bog down the process. If it seems like the Whale's lawyers are over-zealous, stubborn, or don't understand the technology, then you need to reach out to your contacts on the business side. Encourage them to help push the deal through and restrain their attorneys. Perhaps send a product description to help get their legal team up to speed, or arrange for an all-hands call so that the Whale's lawyers are pressured by the full deal team to be more reasonable. You'll be amazed at how cooperative the Whale's legal team can be when given a directive from the business principals to get the deal done.
ANDRE GHARAKHANIAN is the founding partner at Silicon Legal Strategy, the premier boutique law firm providing targeted, bottom-line-oriented advice to technology start-ups, innovative entrepreneurs, and seasoned investors.