Anthony Rose on standardising documents and deal terms

Co-founder and CEO of SeedLegals, Anthony Rose, discusses the standardisation of documents and deal terms in funding rounds, the macro effects of tech disruptors and what to consider when expanding product offering.

Anthony Rose is co-founder and CEO at SeedLegals, a legaltech platform that lets startups and investors complete the legals needed to build, grow and fund their business, at a fraction of the cost of using a law firm. More than one in six of all early-stage funding rounds in the UK are now done on SeedLegals.

In 2015 Anthony founded 6Tribes, a world of communities based on shared interests. Previously, Anthony co-founded Beamly, a social and content network for television, which was acquired by Coty in 2015.

Known as “The man behind BBC iPlayer”, Anthony ran the iPlayer and other BBC services from 2007 to 2010, taking the iPlayer from pre-launch to major success story.

In this Transaction Management episode of Shieldcast, Anthony and Geoff discuss:  

• Why and how funding rounds have changed in recent years
• To what extent documents and deal terms can be standardised
• How to use the 'software eats the world' model
• Why new tech companies need to consider the long-term impact and macro effects of their products/services
• What to consider when expanding product offering and new features

Listen to this Transaction Management edition of Shieldcast to find out more!


You can learn more about SeedLegals and the services they provide on their website: https://seedlegals.com/

Anthony contributed to our recent Transaction Management eBook. You can read his insights on how data will drive deal terms in the future by downloading the book here. 

Find other episodes in the series on our website: Shieldcast library

Podcast brought to you by Shieldpay - learn more: shieldpay.com

Transcript

Geoff: Hello, my name is Geoff and I’m Managing Director at Shieldpay, welcome to the Shieldcast. 

The Shieldcast is our podcast on which Shieldpay friends, partners and clients come to tell us about their amazing products, share industry insight and generally talk about things we think listeners will find interesting. 

In this series of the Shieldcast, we want to look at the transaction management lifecycle. I will be in discussions with legaltech companies, legal practitioners and others who are involved in the transactional process from the planning phase to the building phase and through to the closing phase. 

So much time is spent in legal talking about the tole of AI and process automation, we thought it was important to give transaction management some much-needed airtime. 

We hope you enjoy the series.

If you would like to get in contact and provide some positive criticism, you would like to appear on the podcast or you would like to find out more about the services Shieldpay has to offer, please head over to shieldpay.com, where you will find a contact us page and lots of useful additional resources. 

Geoff: On today's show, we welcome Anthony Rose, founder and CEO of SeedLegals. Welcome Anthony. 

Anthony: Hello. Thanks for having me. 

Geoff: So Anthony built the BBC iPlayer, has three start-ups under his belt and his career has included 3-D graphics, P-to-P music, internet, video, social, TV, and online communities. Yet today, we're talking about legal tech, transaction management and your latest venture, SeedLegals. 

Anthony, you may not remember, but we first met just over four years ago when you were developing SeedLegals. At the time I was working as a legal consultant and I remember leaving that meeting thinking, well, that's the business that I want to create - or at least something similar. I'm kind of glad I didn't, because you've, you've demonstrated flawless execution of SeedLegals today. So, well done to that and I looked forward to our conversations around SeedLegals and particularly around how you've since disintermediating lawyers from the transaction management process. 

So to begin with and to let listeners know a little bit more about Seed Legals, please give us the 30 second elevator pitch. 

Anthony: Okay. So, SeedLegals is a one-stop platform for a startup, UK startup, French and Irish and more to come, to build, grow their business, close funding rounds, hire their team and so on. 

So, if you're looking to raise investment, you find investors as the founder, then you hop on SeedLegals and the platform with our expert help will build everything you need to close your funding round way faster. You can give your team share options, you can manage your cap table,  you can hire it people insanely easily. I can see upcoming starters and see current team. I can see the number of share options that people have. 

We think of it as the operating system of your company and actually, just more philosophically, although it's got seed and legals in the name and people perceive us as the legals, when we started the business, my perception of was people were looking for legals. And it turns out, I learned pretty quickly, people are not looking for legals. They're looking, it sounds trite, but they're looking for solutions.

And the solution is, what do I need to do? Give me some data. Is this term market or not? Show me not only what I thought I wanted todo, but actually what is much better for me to do. Am I the only schmuck in the room offering this deal term, or am I the only schmuck to say no to this deal term? Help me! 

Obviously for a founder, our goal is just to give you a package of things to help you get to the next step. But to do that, to think through the macro level piece, which is what value do lawyers bring? How does it change in the world of data? How can you productise things? How can you democratise and give openness and transparency to both parties? And is that good or bad? So into all that area, I'm sure we're going to have a fantastic discussion.

Geoff: Well, there's so many points that you've raised and each merit a session in their own right. But, I think I'd like to particularly talk through the transaction life cycle on your platform and how people build that round and the elements around that. So, how does that work through SeedLegals compared to what it was before and, what are the insights that you've gained from that process of developing that part of the product?

Anthony: That's a great question. So, let's go back even sometime before SeedLegals. Once upon a time,  there was no such thing as equity funding. You had to go to the bank and,  you sold cheese, and then you went to the bank and borrowed money to buy more cheese and sell cheese to pay back the bank.

But the bank only charges a few percent interest, so they have to have a 95 x percent chance of getting their money back again, otherwise it doesn't work. That doesn't work for a new class of venture which is spend lots of money on a risky new venture that may have a huge return or may have zero. 

And so equity finance arose, and that was initially big funds or VCs. They were risk averse because of investment committees and they could only write big check sizes because it took them ages to do the due diligence. So, they would only invest once companies already had revenue. 

That didn't help early stage startups at all and they struggled to get that initial investment. And then crowdfunding came along and completely democratised that and said, anyone can invest £10. But, that comes at a cost. Do you want a thousand shareholders? And you have to create a crowd campaign. 

And then a new thing arose which was angel investment. And that meant that individuals, anyone with from £1000 to £100,000 available, thanks to HMRC’s amazing SEI and EIS tax deductions, has really turned the UK startup scene into a world leader. I mean more than 80% of investment in early stage rounds, in other words less than £500,000 pound is SEI or EIS. Investors get a tax break, get paid no capital gains tax when they sell the shares after three years and more.  This has really created a whole new startup ecosystem.

And in that model, if an investor is investing £10,000, they have no interest in spending £3000 on lawyer fees for their £10k investment. And the founders are then also not expecting the investor to lead with a term sheet because the investors going, dude, just send me the term sheet and your pitch deck, and I'll make a decision.

And because it's ordinary shares the investors get for SEIs purposes, everything's actually dramatically simplified and much more formulaic. You can't get preference shares and anti-dilution, and various other things, or you won't get your SEIs. So there is really this perfect storm waiting for someone to come along in the UK and say, the existing way of doing things is now right to change and founders can now lead.

And that's exactly what we've done on SeedLegals. So the journey is I've had an idea, I've put it together, a pitch deck, and then I've found investors. And then what do I do next? And actually that's when you find SeedLegals. So we'll show you what valuation to raise at, what’s the median equity dilution, how much equity you should you sell/ give away, what the investor consent rights are that are reasonable for different investors. And essentially go on the SeedLegals platform and you dial the things in, and we'll then build not only every deal document for the funding round, but show you the documents that are needed, the ordering. It's a complete collaboration platform. 

But actually I think we can then go a step further. So I kind of joke that our goal initially in 2018 was to help you close a funding round faster. And then our goal in 2019 and beyond was to help you not do a funding round because actually a funding round is the solution to one problem, which is it's insanely expensive and slow to raise investment. So I'm going to do this every 12 to 18 months because you know, it's just too painful otherwise. 

But why did it have to be that way? What if it was frictionless and really super easy and super cheap to raise an investment? You still have to find investors, but the legals could start from like a hundred pounds. I guess we've inverted the buzzword of agile investment, which means instead of having to raise every 12 to 18 months, maybe do a round with a rolling close or you raise ahead of a round. 

So I think what's fascinating, and where tech comes in, and I think where often the incumbent players are wrong in thinking that the world will not change and that new players have a very myopic view on the problem is that what people think about is technology will solve today's problem. But the founders building those tech platforms are often thinking way ahead and thinking about solving tomorrow's problem.

And I love it with SeedLegals, my goal initially was to help you do a funding round and now my goal is to help you not do a funding round. And guess what the goal I'm not going to tell you now is the next thing to transform the space entirely afterwards, which is maybe the cost of legals will be zero because there'll be a percent paid on rapid fire transactions between buying and selling and secondaries and all sorts of things. So, things will change beyond the incumbents often view of the problem today.

Geoff: What an amazing opening gambit - so much there to draw on. But it is interesting that standardization of documents. I think it is one of those key areas. We have model articles in the UK, why don't we have model everything else? I mean, that doesn't seem right, but I guess there are permutations and differences in each individual round.

I'm a lawyer by background but even in the funding rounds that I've been involved in, there is still total opacity around what is acceptable, what isn't acceptable, and am I asking too much? Am I asking too little from my investors? And I think that sight that you have of that must make it…on the one side incredibly insightful for people, but on the other side is you're kind of making the market - aren't you to certain extent by pushing people down a certain route?

Anthony: Exactly. And I think what's interesting is when we started SeedLegals, we had no idea. It was a bet that we could create something that  consenting parties would agree to the terms that were available on the platform. And then the question was, how much flexibility should we have?

If we spoke to lawyers, they would say every word needs to be changeable because that's what you do in Word - you just turn on red line track changes and you change everything. But the problem is, as soon as you do that, people create bad law and do bad things. And then everyone has to go back to the lawyers, which was not the intention. 

We could, on the other hand, say, you can enter the valuation amount and the amount you want to raise and, and that's it, there are no other changes. And it would be insanely easy to do a round. It would take you three clicks but zero people would ever be able to use our platform because they would always want to change something.

So the question is, how many things should we let you change? And here really the fascinating thing, what I realised was the difference, is that with lawyers the cost of changing one word is the same as any other word.

And you know, your livelihood is changing words, but that's actually not the solution to the problem. The solution to the problem is to provide standardisation. If you tell somebody you have to pick the standardised thing, they probably will not like it. But actually, if you think about all the things you use in your day, you change what you want based on what's available.

So if you have a car with two doors, you don't try and enter through the boot or something. You just open the front door and you go in. So you've changed your behaviour based on the functionality you have. 

And that's what I've actually found with SeedLegals. The secret, which maybe I shouldn't say, it's all about social engineering and actually persuading people that it's better for them to change what they want based on what's available, rather than saying, “I want X, please build exactly X”. 

Geoff: One of the things that I've always thought around legal contracts, and this is why the standardisation I think really works well, is that your contracts are ultimately there to de-risk all parties and kind of have some form of rules that surround what they're doing in order to build trust between the parties.

So an investor has trust in the company that the company is going to do what they said they're going to do. And then the company has to trust that the investors are going to not try and do something untoward towards them. And so, if you're building a set of principles and rules of things - all effectively, good behaviour, good practice that it have been validated, automatically to a certain extent by multiples different parties, consensus, you might say, but around what the behaviours should be and how good behaviours should be policed, then that's got to be better than everyone trying to, which is a lawyers job, which is to determine what the risks are and to try and mitigate those by adding additional language in lots of different places.

Anthony: Yes, I look at that in a couple of ways. Firstly, I think that when we create documents on our platform, I like to think of what would BMW do designing cars. And the idea is they will spend unbounded CapEx to come up with a safety cell that will protect you if you're drunk, driving in the rain, fall asleep at the wheel, hit a tree or whatever it is. Their goal is to protect you for stuff that you do wrong.

And likewise, on SeedLegals, when we design our documents, we like to think through and we don't put things in the documents that the parties probably wouldn't do. Don't let them select things that will let them get themselves into trouble. How might we protect you if you know what you're doing? And also if you don't know what you're doing?

Then, I think what's quite interesting is we all know from the early days of Google that do no evil. But actually what's interesting is when you're a founder, your first problems are limited technical problems. How do you get the servers working? Can I render this document? You don't even think about how you're going to change society. And as your business grows and you start getting a decent fraction of the market in this case, some like one in six (and growing) of all UK early stage funding rounds are now done on SeedLegals. So, if we offer an option on the platform, actually in a few years' time a good fraction of all UK startups will have done the things that we had suggested to them to do or not. And that starts putting, when you wake up in the morning, suddenly quite a large kind of moral and ethical responsibility.

And so when a founder says: “Why does your vesting only go up to five years? I want six years.” I know that if we put six years as an option, people will start selecting it and we don't think that's a good idea. So in fact, we have this interesting quandary. I because we know that we want to encourage certain behaviours and the behaviours are something that submits symmetry between founders and investors or companies and employees.  

Maybe a successful startup always ends up with the founders in front of some congressional committee talking about privacy and hacking the election. And it's something you never want to get to, but actually if you are really successful, then that becomes a problem to have. If business keeps growing and more companies start using us, it becomes interesting that you start having macro level effects that you actually can't not think about and should think about. 

Geoff: I think it is a fascinating point and maybe five years later down the line we'll have a very different conversation, and you'll be stroking a white cat. 

You touched on the principle of unlimited CapEx and I've heard you talk about this before - I think that's a really interesting piece. It's interesting for a lawyer's perspective that you respond to all these questions over and over again, and you don't necessarily guide your clients prior to that point. But they can learn along the way. 

So, that's one that I'd like you to explain a bit about how you guys do that. But then the other side of that question is have you heard of, or seen law firms trying to adopt similar kind of approaches and things in that way as probably as a result of you being around? Maybe, I don't know why 

Anthony: Quite possibly but I don't know the answer to the latter. On the former, I like to think for all the things we do in our business, what would a law firm do? And then let's do completely the opposite. So one of the things I love to do is to aggressively use technology, to put ourselves out of business.

Going back to the unlimited CapEx model, typically a law firm, for a fee each time, will diligently work to solve your problem. But, each one of them is done pretty much in a vacuum. Obviously the lawyer becomes more experienced, but there isn’t, to the best of my knowledge, that's sort of broader information sharing. 

Sometimes you hear people going, “oh, this legaltech is just free templates”. It pains me. We put unbelievable efforts into finding the best answer to a problem, and then productising. Which I think gets you way more legal brains on something than one person spending a couple of hours researching it.

So when we find something, what we'll do is pass it to our legal team to research it and give you an answer. And typically by the third time someone asks us the same question, we'll write an article on it. Then our chat bot will start suggesting the article and our support team will reference the article. Then if the article turns out to be popular, we'll code those documents on the platform for it to be a one-click solution. And then we'll have data to show how many people use it. 

What I love about this model is this is the ‘software eats the world’ model. And actually, although you might say it's just templates, whatever it turns out, the computer is smarter - well at least more knowledgeable, for many things, than anyone in the company. So, when you've got the insanely complicated liquidation preference in a funding round, which I bet there are no more than a dozen people in London who truly understand it, and we've spent an unbelievable number of hours coding the different permutations for participating and unparticipating, the platform knows this better than any other human. It's not AI, it's encoding human knowledge in a way that then, replicates it efficiently and easily.

And, and by the way, I'll add in that one of the things I think is most valuable in our platform and service is not just the creation of the legal documents, it's a complete customer interaction. Typically you'll get a response within 5 to 10 minutes on web chat and the web chat will show you how to solve the problem that you want. Our goal is instead of telling you, as a law firm would, 12 things you could do is to tell you one thing you should do, backed up by data. So anyway, that's the fun game-ification of a problem space.

Geoff: It's a fascinating concept. I mean, ultimately you’re disintermediating lawyers from these types of transactions by providing quality customer service responses through web chat etc. Law firms are emerging all or concepts of providing legal services, not saying in that same spirit, so it might be quite interesting to see someday who knows, that the larger law firms end up charging with a similar model that you do and encoding all of their knowledge into  a platform that their clients can operate through to create a contract.

So, that might be that next big step. I mean, people now talk about a lot of tools you can use to help facilitate or better provide legal services. Yet, what you're doing is changing the way that the legal service can be provided fully, well not providing legal service as such, because you're not a regulated law firm in that way. I think it'd be quite fascinating to see how that plays out. 

On the communications piece, around that element, I think that's really interesting because that quality of exchange between your clients effectively and all of the different parties or the stakeholders, and then yourselves, this must be a huge amount of effort for your side, but it gives them a day-to-day or minute-by-minute person to contact them through one of the things that is probably the most stressful part of a founder's journey in that transaction piece. 

Anthony: Yes. I think the model for me…most systems that you use today as a founder or investor are always on and instant. So accounting on Xero, you know banking login to your bank. You expect it to be there on the weekend, at midnight, stuff just needs to work when you want. The platform is intentionally built that, as far as possible, it is always on. We're about to start weekend support as well. So the platform of course is always there, but the team are then there on the weekend as well, because we know that on a rainy Sunday, founders will log in and actually do their funding rounds on the weekends or in the evenings.

And I think, you know, the challenge will be for law firms to create a business that is responsive to the perception of the way that particularly founders, who all other things in their founding life are instant, always on, and a couple of clicks from getting you the resolution you want.

Geoff: On that, what are the next types of transactions that SeedLegals is going to try and disintermediate, or are you going to concentrate on the area that you're very good at continue doing there and leave someone else to try and create the same for say, project finance transaction, or an M&A transaction? Because I see there's elements of what you've built to be applicable to so many other types of transactions, particularly, the data stuff that we've already talked about. Do you think it's possible to do it as effectively on other side or are people too precious on those?

Anthony: That is a great question and I think I'll answer slightly generically. Founders usually start a startup because they have a particular pain point or passion points. In our case, my business partner’s an ex-VC and serial angel investor, and I'm kind of the startup founder.

So for us, that startup funding space was a key pain and passion point. We don't know, other than buying places ourselves, property or other things. The problem is that when you get outside of your own founder comfort zone, then you have to find people who know that market as opposed to building the team to help service the market you understand.

For us, it's clear that companies started on SeedLegals, we've been around four years or so, now some of those companies are at series A and beyond, so how can we grow our offering to support companies that have been with us and continue on their journey? Things for later stage rounds is a key thing on our to-do list. New features for larger companies, options, schemes, comp tables and other things which we've launched on the platform. So that's area number one. 

The second thing is tools for investors. As the five or 10,000 investors now on SeedLegals, how can we provide them tools so that they can lead with the term sheet? But unlike sending a term sheet, and then everyone's comparing bits of printout on the kitchen table, it's a beautiful interface that shows you a deal term comparator. And when both parties agree, the terms there disappear off and you can complete the round. So it's sort of tools for investors to manage their portfolio. 

On to now leverage the network effect, and that's an interesting thing, of course. On any startup phase one, just the utility as you've got a decent number of users, can you leverage the network effects?  And then adjacent or other areas I think is interesting and always has been interesting. We haven't so far found, I guess, the right person to work with to join the team, to get us into these other spaces that we've got a few other things on the roadmap for this year that I may talk about later in the year.

Geoff: I'm excited to hear what those are going to be. I know you've got certain partnerships with law firms, particularly around the future fund and stuff that you did and then other things, but do you see SeedLegals ever being utilised by lawyers in any way, as the tool for improving direct practices?

Anthony: That's a great point. If you think about the things that are needed in a funding round, there’s a term sheet, the cap table, a deal data room. And then there's the creation of the long-form docs and there's a review. Then there's due diligence and warranties and, then there's getting on a call with the investors or the other party and their lawyers. So there are quite a few pieces to it and as you get to later stage rounds, you've got more attention on due diligence, data room, the disclosure letter, negotiations. And at some point you might say that the sort of platform approach, and even our teams help, if you're raising £10 million, does it matter if you're spending £5,000 or 50,000 on legals, you might see it as less important. 

When we started SeedLegals the feedback from lawyers, or even founders was, “well, you know, my previous round was always with law firm X, and so I should just continue with them”. And, of course, the stroking the cat part of me went, ”give me a few years and the answer will be, my previous round was on SeedLegals, I should continue with them”. And in fact, that was exactly my winning the hearts and minds of really early stage companies and accelerators. Now the opposite actually applies, [they say], “I've got all my data, my cap tables there. It's just one click to start my next round”. 

So clearly, some new features and ways of working are needed for larger rounds as it's slightly different to earlier stage rounds. But a combination of platform features, like our recently introduced deal data room, our upcoming document auditor comparison, which will completely revolutionize the way people track changes in documents coming up soon. And also just the way that you can add an advisor as a lawyer and as an admin on the site , and run the round, the tracking of the investments, maybe the availability of the the investor to pay right there on the platform. These are all things that are not just the legals, but the infrastructure to do it.

So, of course I've actually been quite surprised that law firms haven't done a lot more of this themselves. Four years in, we've been growing our business, doubling more than doubling year on year. At some point, somebody should go, “dude, we should improve our offering as well”. 

I've seen law firms, provide some free templates. These are obviously just to get deal flow because it's like, download this and when you can't figure it out, call us. I think the challenge for law firms is two-fold. Number one. At SeedLegals we're tech driven. I think law firms are law firms. They're not a data and tech driven organisation. I think that's a big thinking change. 

And the other thing is, people say, “are you a lawyer?”, but I'm not the lawyer. We employ lawyers. And I think it's important in a sense that I am intentionally naive. So naive means, just thinking, why is it done? Why does it have to be a deed? That's totally painful. It's like, is there any way we can do this not as a deed? So of course I need to be pushing our legal team to think of, solutions rather than just doing it the same way. Whereas a law firm, and most legaltech companies, are often thinking about if there is a way to improve the efficiency of a law firm. Whereas my goal is to just give you a solution to the problem. 

And by the way, I’d be delighted to partner with anyone that can find a suitable model that leverages the tech platform that we've got with  the knowledge that they've got - which could be either in the funding space or it could be other adjacent spaces as well. We just don't know exactly. As you said, the platform could easily, technically create contracts for loan market association, or whatever it might be that's not our domain of expertise. But the technical infrastructure exists to offer services in that space. 

Geoff: Well, I look forward to seeing how that develops and whether it's through you or whether someone comes along with those types of platforms elsewhere. 

Just before we close off for today, I've been asking people…you've got a very varied careers to date, but what has been the most, defining and the most sort of informative part of your  journey to date that's brought you to where you are today?

Anthony: There are obviously many, many moments. I think, the interesting thing is, when you started this call with saying you've done peer-to-peer and you've done music and you've done video, why legaltech now? It's got nothing to do with music file sharing, video iPlayer, or whatever it is. 

But actually, what's in common, and I think is the defining thing for me is, I love building solutions to problems. The fun thing for me and the thing that I think brings me the most pleasure is that stressful period where you go, something in the world can be done differently but everyone's telling you it won't work. So you started with this cloud of desire, nothing exists, and you know that sometime later there's going to be a team of dozens or hundreds or whatever people, revenue, something tangible, thousands or millions of people using what you've built. And how do you cross this immense chasm with this combination of a leap of faith and blind optimism backed up by some thinking that it probably will work otherwise you're an idiot and you should keep your day job.  If you're not blindly optimistic enough, nobody's going to follow you on your journey and buy into it.

And I think it's that bit for me. Will there be something else in the future? One never knows. I really love what we do and it's growing very nicely. And I think it's got endless possibility in many other spaces. I mean, it sounds trite, but you know what the problem space is. It's the journey of going from an idea to something, building a team, funded customers, and applying that to the different spaces.

Geoff: I think, Anthony, that's called being an entrepreneur and enjoying that journey. And I think that's something I share - that enthusiasm for the journey as well. 

It leads me to say, thank you very much for all your time today. And,  good luck with all of the new, exciting features that have come in, to all the new countries that you're going to go into and all the areas of law that you might disrupt. Thank you very much, Anthony, for your time today.

Anthony: All right. Thank you. And I’ve really enjoyed our discussion