Terms

We’re in the midst of documentation right now, or as my CEO, Kevin, calls “corporate cleanup.” While we don’t have all the terms of our business documented and signed, we do have a product. But nonetheless as we go through our current round of financing, potential investors want to get everything that we’ve done and have agreed to on paper and signed. Hence we began the process of having lawyers (we’re represented by Cooley) giving everyone a ton of papers to review and sign. Not exactly green but necessary. Hopefully, this painstaking process will come to an end in the next few days and we can be on our way towards collecting checks and beginning official payroll.

In stark contrast, we’ve been in discussion with our Chinese partner for nearly 5 months and other than a few pieces of emails confirming that we were proceeding with a partnership, no agreements have been signed. Yet they’ve dedicated resources towards the partnership, as have we. It’s like doing business the old way, with a handshake. Scary, I know. Some people might think that I’m being naive and that we’re going to be taken to the cleaners. I certainly hope that doesn’t happen. While I would have liked to have documented everything, I do wonder how enforceable they’d be, in what jurisdiction they’d agreed to, and whether a Chinese competitor would have come on really strong and caused us to lose the opportunity to get into China. Most importantly, I worried that it’d cost us more to have the terms negotiated, documented, and reviewed, jacking up the cost of the deal to a point where we’d be in the red for months to come. At our stage (which is very early, by the way), cash flow is king. So we took a deep breath and decided to go forward with the deal based on establishing trust and value in a long term relationship.

There may just be a fundamental difference in the way Asians look at contracts versus Americans. I was taught this by our Singaporean partner, earth9, and more recently by my friend who runs a consulting agency in Taiwan. Namely, Americans seem to treat it as a definition or blueprint of the business relationship, while Asians think of it as an agreement to work together. We tend to have the approach that what’s in the contract is what needs to be followed; if either party don’t, they are liable to be penalized (often spelled out explicitly in contracts), or worse, be sued. On the other hand, Asians tend to approach a contract like a marriage certificate — they know there are going to be problems and they’re committed to solving the problems with their business partner(s).

Which is better? I don’t know. I think it depends on the level of protection you’re comfortable with. The important insight for me is that we adapt to the cultural norm of the country in which we’re doing business. This adds a layer of complexity, but in the end, I believe it will yield better results, perhaps help us close deals that we wouldn’t have otherwise closed.

I’ll keep you posted on our progress in China. In the meantime, it’s time for me to chase the rest of my partners to sign their corporate documents.