How to get your deal through legal
A salesperson's guide
“We’re stuck in legal” is undoubtedly one of the top 3 problems that slow down B2B sales and probably the most frustrating. While there’s no single magic pill to solve it there is a lot you can do by following some best practices for structuring your agreements for maximum clarity and minimum escalation.
In my experience, a lot of startups have poorly structured agreements because a lot of startup founders’ lawyers reuse old contracts to save time on drafting without adequately reflecting on how realistic the contract is for their client’s size and stage.
This post lays out eleven best practices for structuring your agreements as an early-stage startup to ensure a speedy legal review. Note that this post is not legal advice. I am not a lawyer. Think of it more as a checklist to evaluate your current paperwork and discuss it with your own lawyer.
1. Use a separate Master Services Agreement (MSA)+ Order Form to speed up review.
Doing this separates your legal terms (in the MSA) from your commercial terms (in the order form), allowing for each document to be reviewed and negotiated by the relevant expert (the MSA by a commercial affairs lawyer, the order form by finance/procurement) and reduces the likelihood of lawyers trying to become procurement heroes and vice-versa.
2. Write in plain language to reduce misinterpretation
Lawyers distrust unclear drafting and will respond with heavy edits. To avoid this happening write in short sentences, make minimal use of defined terms, avoid triggering terms like “including without limitation” and “sole discretion” and avoid confusing double negatives such as “fail not to”, “not uncommon”, “cannot not” and so on.
3. Start from market-standard positions to avoid redlining battles.
While there are no official industry-approved terms for buying and selling software, there are many terms that usually pass buyer review so use them as your starting point, including:
Mutual confidentiality
Mutual IP indemnity (avoid one-sided indemnities)
Reasonable liability caps (see below)
Termination for cause (not for convenience)
Governing law tied to vendor’s HQ
4. Make the license grant simple and narrow to prevent IP ownership fears.
Best practice is to make your software license grant non-exclusive, non-transferrable, limited to internal business purposes and with no implied rights.
Explicitly state that the vendor retains all IP and there is no work-made-for-hire.
5. Use liability caps that match buyer expectations.
Disagreement over liability caps is probably the most common reason MSA negotiations stall, with the root cause being all types of liabilities bundled into a single cap. Get ahead of this by creating three groups, each with its own cap, allowing you to negotiate each cap individually.
A general liability cap of fees paid in the last 12 months.
A second, higher liability cap for IP infringement or breach of confidentiality.
A third, highest liability cap for fraud and willful misconduct.
6. Provide a clean and narrow indemnity for IP infringement to reduce risk review.
Limit the indemnity to software as provided by the vendor and used as authorized. Include standard carve-outs for customer modifications, combination with non-vendor products and open-source misuse.
7. Keep data protection modular to allow for flexibility.
If your software is processing personal or customer data, you will need a Data Processing Agreement (DPA). Don’t embed your DPA in your MSA. Instead reference a standalone DPA document so that their privacy counsel can review it in parallel. This also gives you flexibility to use their DPA instead of your own without changing the whole MSA.
8. Make termination and exit reasonable.
Buyers do not like being locked into a vendor however at the same time its unreasonable to sign a one year deal with discounted pricing and expect to be able to terminate it for convenience after a few months.
The best practice is to allow termination for cause with a cure period and no early termination penalties and to allow termination for convenience only at renewal time.
9. Separate software license terms from professional services terms.
Software licenses are governed by an MSA and order form as described above, whereas professional services are typically governed by a separate services section in your MSA + and a Statement of Work (SOW) which describes the services and deliverables.
10. Avoid landmines that trigger escalation to senior counsel.
Here are some common ones:
Injunctive relief carve-outs that override liability caps
Assignment bans without corporate transaction carve-outs
Audit rights without limits
Auto-renewals without notice rights
11. Use your executive sponsor to make your deal a priority for their legal team
Legal is a mostly reactive function in a company; they work on whatever the highest priority is at any given time.
If a mid-level manager asks Legal to review a vendor contract it goes into their queue with whatever the “normal” SLA is. If a higher ranking executive asks Legal to do the same thing, it jumps straight to to the top of the queue.
This is why you need to leverage your exec sponsor to ping their Legal about the contract status if it is taking longer than expected.