*I’ve been running a legal tech startup for the last 4 years. I’m surrounded by lawyers. So, yeah, puns abound.
In my career and lifetime to date, I’ve now been a part of — or as lawyers would say, party to — more than a few of what I call founding moments. Some of them are not my own ideas or ventures; they’re close friends teetering on the edge of entrepreneurship, and asking me for that push off the ledge, knowing that I’ll always tell them not only, “you can!” but also, “you should!” Sometimes people actually make the leap, and it’s glorious.
Amidst various other smaller projects and side hustles, I’ve now made that leap in a real way twice. The first time was Wanderfly, beginning in 2009 and culminating in acquisition by TripAdvisor in 2012, and the second time has been Outlaw, which Dan and I first incorporated just over 4 years ago, in March of 2017.
As we just announced, Outlaw has been acquired by Filevine! I’m not going to do the usual founder post recounting our achievements leading up to this, but for those interested, here’s a recent rundown of what helped make us a breakout CLM platform. Instead, I’m going to do what’s most true to Outlaw’s DNA: examine the deal process.
It’s hard to find good information online about how startup M&A actually works. This is partly because every deal is truly unique, partly due to NDA restrictions, and partly because it’s such a taxing experience for both sides that by the time a deal is done, everyone is fucking exhausted. But I believe that analyzing and understanding the details of this arduous experience (the publicly shareable ones, of course) can ultimately make our software better and benefit our customers.
Outlaw’s mission has always been about translating the magic of agreement into legally binding contracts. This deal has been far and away the highest-stakes, most complex and challenging agreement of my life, so there’s a lot to learn by digging into the nuances of the “user behaviors” of those involved, and there will be a lot to build. Here we go.
Having been through it twice now, I see the acquisition process as having three fairly distinct phases:
1. Mutual Courtship
The first phase bears a lot of similarities to dating, or to a job interview. Only instead of one person interviewing for one job and meeting 3-5 people in the process, this was (eventually) nine people (the whole Outlaw team) interviewing for nine jobs and meeting 20-30 people, as well as talking about growth plans on both sides which will soon involve hundreds of other employees and thousands of customers.
Still, much of the foundational work entailed in this first step was the familiar, ubiquitous human experience of starting relationships: establishing trust, building rapport, identifying shared values, etc., and the most important relationship at this phase for me was the 1:1 relationship between myself and Ryan Anderson, CEO of Filevine. We saw eye to eye from the very start about where legal tech is headed, how to build SaaS software from first principles and successfully deploy it to professional legal users, and most importantly, the huge potential value to be created in the years to come by combining our two companies.
The courtship phase culminates in a signed term sheet. A term sheet spells out the key components of the deal: the price, structure, and in this case, an overview of the business plan moving forward (more on that below). It took about 3 weeks from first conversation to a draft term sheet, and one more week to negotiate and sign it. It was about 3 pages long, and was written, for the most part, in plain English.
The term sheet establishes that both buyer and seller intend to do this deal—provided that everything said in that courtship phase is real and true. And, sure, both sides know the other is on their best behavior, as this is the honeymoon phase in a relationship, but now it’s time to confirm that there aren’t two unmentioned ex-spouses demanding alimony and a secret family on the side. This process is called diligence. In short: we needed to show them everything.
Diligence boiled down to everyone walking up to me (via various emails, meetings, and Google Docs) and asking, “Tell me about this thing. What happened here? Why did you do it this way?” —across four years of activity, and across every department.
This phase took about two weeks and involved delivery or creation of thousands of pages worth of information, across hundreds of documents, and while I was the switchboard, the entire Outlaw team shared the load. If the first phase was dating x10, this was finals week x10.
While we had nothing to hide and extremely few loose ends (note: contract startup—we take them seriously!), this phase was just an incredible amount of work, and not just for the seller, but the buyer too, because they (and their counsel) needed to actually read everything we shipped over. One Filevine engineer in particular had the unenviable task of trying to inspect and understand our entire codebase of over 5,000 commits dating back to 2016… in 3 days. Remind me to book that guy a massage.
The “final” step—which is actually comprised of a dizzying number of sub-steps, the order and dependencies of which remained opaque until the hour of closing—is legal. Filevine’s counsel took about ten days from the signed term sheet (so overlapping halfway into diligence) to put forth a first draft of the “definitive agreement”. That’s the full contract, written in pure legalese and 100% incomprehensible to most humans. Unfortunately, though unsurprisingly, we weren’t able to use Outlaw to negotiate the definitive agreement, because both Filevine’s counsel and Outlaw’s counsel (both major law firms) still work exclusively in Microsoft Word. But that’s OK for now, because it’s a core value at Outlaw that nothing gets in the way of a deal. In this case, that meant suffering through a heavily manual 1995-style negotiation process on a 75+ page document with 5+ lawyers on both sides… just one last time.
Ryan and I already have a gentlemen’s agreement in place that Filevine’s next acquisition will use Outlaw for the contract negotiation, just as they used Filevine for the “data room” (sharing of diligence materials). In the meantime, suffice it to say that we collected a lot of UX and product ideas for process improvements. My personal favorite (though I wouldn’t have used the word “favorite” at the time) was the realization that it’s common practice for law firms to abstract an “issues matrix” out of the contract itself into a separate Word document, on which they then run document compare tools (aka “redlines”) for each back-and-forth, in order to track the status of issues. In other words, they were redlining their own redlines. 🤯
Still, despite such archaic practices, the continued state of alignment between buyer and seller (which both Ryan and I carefully nurtured via daily texting and phone calls) kept us moving forward together at lightning speed. The term sheet had identified a target date “on or about” which we’d close the deal, which in generally accepted legal terms, means “give or take 30 days”. We looked at that date together about a week after signing the term sheet, and agreed that we’d aim to close, in fact, on that date. And we did.
This whole deal cycle, from first conversation to close, took just over two months. This last legal piece was just over three weeks, which was easily the most stressful three weeks of my entire life. There’s no way I’d have made it through—and certainly not at such a breakneck pace—without being surrounded by a team I love. ❤️
The Next One
The Venture Capital world calls these transactions “exits”, and that’s because from their perspective, they are! Our investors had a bunch of money in Outlaw, and Filevine came in and bought everyone’s shares, so all Outlaw investors got their money back (and then some 😉)… and they’re out!
That same parlance has got people now asking me, “What are you going to do next?” —as if this were an exit for the co-founders too. Sometimes that is indeed the case, especially in scenarios where the co-founders are fed up or burnt out, or when one brand is buying another to take it out of play.
None of those things are true here. Dan and I are not fed up, and we’re not burnt out. All we want to do is build great software that fixes the end-to-end contract process. But, as our investors have been telling us from the start, we’ve been lacking a third, business-focused co-founder who is ruthlessly hellbent on mass adoption and world domination. Well, that’s Ryan to a tee, and he’s now the new Outlaw CEO. The whole Outlaw team is continuing on with Filevine, and not only are we keeping everything about Outlaw fully intact and in play; we’re doubling down to grow it aggressively, and to integrate Outlaw tech seamlessly into Filevine’s platform too.
This deal gives me and Dan air cover to continue pursuing our original vision of building the right tool for the job of contracts, and taking on Microsoft Word… but now with far greater resources to do so. So, “for the avoidance of doubt” (my favorite legal phrase), just a quick note to our CLM competitors out there: this is not good news for you.
One of my former co-founders from Wanderfly days told me recently that while he sat on the sidelines for this venture, he’ll definitely join me again for #3. Well, buddy, I’m hereby calling your bluff, cause this is #3. And yeah, we’re already hiring.
To learn more about bringing Outlaw & Filevine to your organization, speak to one of our specialists today!