This post is Part II in a series of articles about incubating a company. See Part I about how to incubate a company here.
When analyzing a market, it is important to identify ongoing trends and to search out companies capitalizing on them.
Recently, we’ve seen huge increases in P2P commerce as well as a significant expansion in the freelance economy, with one in six American workers projected to be freelancers by 2020. As transactions of physical goods, services, and intellectual property between peers become more prevalent, the need for simple, convenient, and binding agreements has increased dramatically.
With the rise of the collaborative economy, individuals want and need to protect themselves when transacting. At the same time, people want to transact quickly and are no longer willing to spend significant amounts of time and money on the legal process. In a world where the only options sometimes seem to be foregoing legal documentation and risking future disputes or resorting to overly complex and expensive legal solutions which yield agreements neither party can understand, Shake clearly offered a much-needed solution.
We started to dig into the market and the more we learned, the more excited we became. We surveyed all of the RRE portfolio companies and saw a real need for simplified legal documents. We also did broad market research and discovered that in the US alone, there are twenty-eight million small businesses, and forty-two million freelancers (up from six million in 2007). While a variety of low-cost online legal service providers existed, we felt that most of them focused mainly on physical printouts of legal documents and/or busy online forms that didn’t address the problem of confusing legalese. Additionally, it seemed that many legal startups were attempting to replace lawyers. Shake is doing something very different.
Rather than trying to replace lawyers, a goal we found unrealistic, we saw Shake as simplifying only those legal documents that require little personalization but are still critically important. We believed that start-ups would still require lawyers for many of their legal needs: incorporation, fund raising, debt, etc, but not for all of them. By focusing on supplementing existing legal services with a fast, cost-efficient solution for simple, routine agreements, we felt strongly that Shake could completely change the way that agreements are reached and formalized while also providing an obvious benefit and value proposition to users.
Our next step was to dig into the details of what our customers needed and to understand how those needs will change going forward. We spoke to start-ups about their everyday legal document needs (NDAs, Consulting Agreements, Bill of Sales, etc.), and we kept getting the same answers: either start-ups took a significant risk and did not document these transactions at all or they called their lawyers and received a boilerplate document for which they felt they were overcharged. When we spoke to some junior lawyers, they admitted that a lot of what they do is cutting and pasting names into document templates (or instructing clients to do so on their own).
Of course, we were only focusing on simple documents. With the number of U.S. small businesses on the rise, and the number of U.S. freelancers expected to reach sixty million by 2020, we felt comfortable that the need for such documents already existed, and would only increase in the coming years. Shake is not incorporating companies or filing patents, services for which we feel lawyers are both useful and necessary. It's merely streamlining a simple, yet costly, documentation process that already exists. Moreover, we decided to focus first on the five documents that fit the most pressing needs of those freelancers and startups we initially surveyed: NDAs, Bill of Sale, Consulting Agreements, Rental Agreements and Loan Agreements (money).
And as an investor, I love Shake because the company is solving a problem which affects a large--and growing--number of people: how best to transact, simply and without disputes. But ultimately, I believe in Shake not only as a VC with over twenty years experience but also as an individual with a use for it. Although incredibly useful for VCs and start-ups, Shake solutions are not intended only for those starting or funding tech companies. America is experiencing an unprecedented trend towards freelance work, and Americans are increasingly interested in working for themselves, and transacting with their peers. I quickly became confident that Shake was offering not only a great solution but a timely one.
OK, the market passes the sniff test. Next, deciding how much to invest to get the company to its next milestone.