In a new essay, Paul Graham suggests Silicon Valley adopt standards for doing handshake agreements. The goal is faster deal flow. Startups and investors would be able to confidently reach a meeting of the minds on the essential terms of a transaction prior to drafting and signing any paperwork. The need for such protocol results from character traits inherent in both founders and investors. Founders, through wishful thinking and/or lack of experience, frequently misunderstand the specifics of what technically constitutes an agreement. Investors likewise tend to do business in such a way as to both avoid commitment and provide themselves with ways to back out of a deal.
PG’s proposition of a standard protocol for handshake agreements is optimistic yet reasonable. What’s missing from the idea is any means to enforce such agreements. Silicon Valley doesn’t have any sort of Omertà for doing business (as far as I know). Therefore, founders have no options to pursue a remedy for a breached deal. VC’s have nothing to lose except their reputation. And bad reputation or not, business typically follows the Golden Rule: He who has the gold makes the rules.