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How to Incubate a Company From Start to Finish
 

Stuart Ellman, co-founder and managing partner of RRE Ventures, explains what propelled him to work with the founders of Shake, a start-up that prepares legally binding agreements right on your smartphone.

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Incubating a company is one of the most interesting things that I do as a venture capitalist. It’s not only a lot of fun, it also puts me in the entrepreneur’s shoes, which gives me perspective on how to provide the right kind of support and advice for my portfolio companies.

Every few years, I see a great opportunity that no company is addressing and I help assemble a team to charge headlong into the market. This year, I incubated a company called Shake, which creates concise, plain English, legally binding agreements on your mobile phone. I learned so much from the process of incubating companies that I decided to write a short series for Business Insider about the experience in order to help potential entrepreneurs understand the events that go on inside a start-up that hopefully lead to that moment when after months of research and soul-searching, the co-founders look around the table at each other and say, “Let’s do this.”

The idea for Shake was the brainchild of Jon Steinberg, a longtime friend and the president of BuzzFeed (an RRE portfolio company) and Jared Grusd, the general counsel for Spotify and an adjunct professor at Columbia Business School, where I have taught a Venture Capital Seminar for over ten years. Jon and Jared sat in my offices and told me that they thought they had a great idea, but weren’t sure what to do with it.

Jon and Jared met at Google in the mid 2000s, where they worked on lots of negotiations together. They were frustrated that the complexity of the legal documents often got in the way of deals that had strong commercial benefits, especially when dealing with SMBs who didn’t have access to expensive legal counsel. The legal documents were simply too convoluted to get deals done without endless rounds of edits and discussions. Working together, Jon and Jared cut out all the extraneous “legalese” and found that two-page documents were more efficient, more easily understood, yet equally binding. It was just a better way of doing business.

Since working at Google, both had moved on to senior roles at great companies where they were personally and professionally satisfied. Neither had the time to start a new company in addition to their day jobs, but both of them saw a real opportunity. Start-up companies, freelancers, and most people participating in the collaborative economy needed basic legal documents like NDAs, loan agreements, consulting agreements, and bills of sale. Most of these needs are perfectly satisfied with boilerplate documents, yet lawyers still charge significant sums to customize these highly standardized agreements. Why not offer simple, legally binding documents, available over a mobile app, instantly executable and available for free? The goal was not to replace lawyers, but to provide a fast, cost-efficient supplement for less complicated, routine agreements.

Every year that I have taught at Columbia, there are one or two truly excellent students that I know I want to get involved with, either as a VC or an entrepreneur. When Jon and Jared approached me, I was finishing up another year of teaching and one of my students, Abe Geiger, really stood out to me. I just knew this guy was going to do something special. Coincidentally, Abe had been working on a legal tech idea of his own--simplifying the fund formation process for Private Equity, VC, and Hedge Funds--and was highly interested in the consumer driven enterprise (Dropbox, Evernote, Google Apps, etc.) as well as collaborative consumption trends (Airbnb, Taskrabbit, etc.).

After working on the fund formation idea for a while, he realized that impacting change in the legal industry wasn’t going to happen from the top down, and it needed to happen from the bottom up. So when I told Abe about the opportunity I was considering with Jon and Jared, he said he would be very interested in co-founding Shake with us. He also believed the industry’s raw size, extreme inefficiency and lack of transparency made for the ideal disruptive conditions. We all shared the same vision and philosophy for approaching this opportunity, something that is critical amongst a founding team.

The more we learned about the market, the more excited we became. We surveyed all of the RRE portfolio companies and saw a real need for simple documents and a better way to customize and manage them. When we looked at the competitive landscape we saw online DIY providers putting confusing legalese online without a mobile presence, and mobile signature products with no content. With a great entrepreneur, an interesting space, a big market opportunity, Shake had the makings of a great venture investment. Next, we needed to really dig into the market and the competition.

Stuart Ellman is a founding General Partner of RRE Ventures. He also serves as a board member of Shake, a mobile application that allows you to create, sign and send legally binding agreements in seconds.

This post originally appeared on RRE Ventures and Business Insider.

IMAGE: Getty
Last updated: Sep 27, 2013




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