A Lesson From Morty

In the comments to "Term Sheet Manners" we got to talking about Morty, a lawyer who taught me some seminal lessons in deal negotiation almost 20 years ago now. I was going to write a post about Morty but then realized I had done exactly that a few years ago. So I doing something I've never done before. I am reblogging a previous post because it's such a good one and because I learned a lot from Morty and you can too.

I woke up thinking about Morty this
morning. I haven't seen or heard from him in over ten years. But Morty
taught me one of the most important lessons about negotiating that I've
ever learned.

Morty was Isaak's partner in Multex early on. They put up the
initial money to get it started. Morty wasn't a venture guy. He was a
real estate lawyer and sometime real estate investor. He was as
conservative as you can get and never liked the startup/venture
business. But he was Isaak's partner. And Isaak asked Morty to
negotiate the term sheet for the seed round with me.

This was late 1992 and I'd been in the venture business for five
years and was on my second or third deal on my own. I'd negotiated a
bunch of term sheets by that point, but I'd never had a negotiation
like the one I was in for with Morty. Actually I don't think I've ever
had one as rough as that since.

Morty wasn't familiar with venture terms. They didn't make sense to
him. So standing in an airport pay phone (before cell phones) I went
line by line, term by term with Morty.

We got to redemption and he started in. "Why do you need this provision Fred?". I was getting tired of his non stop push back and blurted out "Because it's standard. We always get this provision. Always have, and always will".

That got Morty pissed. He shouted over the phone:

don't give a f>>>k that you always get this provision. Doesn't
mean shit to me. This deal will be the first time you don't get it if
you don't explain why you need it.

That set me
back on my heels and I weakly explained that if the deal goes sideways
for years, we need some way to get out of the deal and redemption
provides that path. I don't even remember if he bought that argument.
But I do know that we had redemption in the Series A at Multex and
pretty much every deal I've ever done.

But the point Morty made rang true to me and I've lived by his rule
ever since. I never ever say that a specific provision is "standard".
Nothing is standard. You either need it or you don't. Explain why you
need it and most of the time you'll get it or something like it as long
as both sides really want to make a deal.

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Comments (Archived):

  1. monkchips

    as someone said on twitter the other day: “the only time i want to hear “that’s just the way it is is when we’re talking about the laws of physics”sadly twitter search can’t find it.

    1. fredwilson

      That is sad. But what’s happy is that twitter is investing heavily in this area

  2. michael

    thanks for sharing that fred. I really like morty’s mindset. makes me think back to everytime i have heard someone explain the costs to me as “standard” πŸ™‚

  3. paulhart

    Sometimes innovation involves looking at something that’s “standard” and turning it sideways.Doing this is probably crucial if you’re entering an established market. You don’t want to be playing exactly the same game as your competitors, even if your product is very similar (for instance in technology the companies that attempt to “out-Apple Apple” are doomed to fail).

    1. ShanaC

      We should be looking at life sideways more. It is quite beautiful from that perspective.It also forces me to realize that not everyone will look at my pitch, product, world, ect, the same way I do, or even not in a remotely similar way. There could be wide gulfs. And it is my responsibility to figure out why.Teaching myself to see more alternates is high on my priority list

  4. Guest

    Fred Wilson, you are my kind of guy, man! Not many people will brag how they learnt “good manners” from a guy who curses profusely…

    1. fredwilson

      i tend to do that too, but not so much on this blog

      1. fnazeeri

        Interesting that you censored f>>k but not shit πŸ˜‰

        1. fredwilson

          Not intentional. But it must say something about my perceptions of the two words

      2. Guest

        Wow?! AND you are friends with the new FCC Chairman?! Could the day be near when we may hear an occasional F-bomb on TV, without FCC shock-troops storming the station within minutes? We’ll see Republican heads literally explode then…

    2. David Semeria

      There is absolutely no correlation between manners and cussing.Like there is no correlation between wearing a suit and being ‘professional’

      1. JLM

        There are folks who know how to use profanity and there are folks who do not. I served under a Colonel (later MG) who could on ocassion raise his effort to an art form worthy of the Louvre.I remember with great clarity being summoned to his office (I was a Capt and a company commander of a separate company under his command), standing in front of his desk at attention with the door closed and being lambasted with a profane monologue which might have been written by Shakespeare and delivered by Sir Laurance Olivier. He had the most wonderful Savannah Southern accent and deep voice.It was simply the best display of profanity I had ever encountered and my Dad was a Sergeant Major!Funny thing was that when the investigation was completed, I was not even remotely guilty of what had been alleged (my soldiers had cleared out a bar in the ville and had treated a bunch of MPs in a rude manner) and he came to my HQ and apologized — with the door open so my First Sergeant could hear it all. He then again apologized at a Brigade Dining In at the offficer’s club.I ran into him some years ago in the Jet Blue terminal in NYC when I was with my wife, kids and many years distant. He apologized again.I told him it was the best ass chewing I had ever received (as a general proposition I probably needed a good ass chewing in any event) and that my only regret was that I did not have it on tape. We had a great laugh.To this day when I think about it, I laugh out loud.

        1. David Semeria


        2. ShanaC

          That is actually the kind of thing that should be recorded in life for the Louvre.

        3. Guest

          I love this story. Somehow, mostly in corporate world, the English language got completely castrated to a set of non-abrasive cliches. This Colonel seems like the real deal.

  5. Charlottte Kim

    This was a great post. Not just Term Sheet Manners, general negotiation manners. Thank you for sharing the lesson learned, I will use it wisely.

  6. ShanaC

    Reminds me of an ex, except with curse words, and less yelling.Also reminds me of why lawyers, even at the high end V-100, do need to start with something boilerplate and have it stored somewhere normal from the point of view of lawyers.Can’t have an argument without something boilerplate…

  7. BmoreWire

    I was really hoping this post was a Morty Seinfeld reference when I saw it in my RSS feed.

    1. JayR

      This Morty could easily have been a Seinfeld character.You learn more working with the Morty Zeidmans than the J Petermans who fall in love with the sound of their own voices.

    2. kidmercury

      lol totally

  8. Dan Lewis

    There’s another reason to not say something is standard — versus a good negotiator, you’re going to lose a lot of leverage.Saying “it’s standard” is a cop-out. It’s saying that a term is important to you, regardless of reason. And what’s worse is that its importance probably overstated by the offering party, because the person making the offer (as opposed to the actual party which that person represents) can’t go back to his boss or partner or investors and say “I had to give up this <typically uncontroversial=”” standard=””> term” without shifting the risk posture onto themselves personally.And let’s face it — it’s not actually standard for both sides. It’s only standard for the offering party, in this case, the VC. The clause is there because over the course of the last few 100 or 1000 deals in the sector, a VC lawyer put it in and other VC lawyers said “yeah, that’s a good idea.” And it was uncontroversial enough where typically under-represented entrepreneurs just said, “OK.”So when the lawyer for the other side says “No,” it’s a big problem. First, you are unprepared. Second, it’s worth it personally to you to concede on another term in order to protect this one. Third, it’s one of those things that isn’t really important enough to blow a deal on, and you can’t really justify sticking to your guns in many cases. And fourth, if things do go sideways, you are going to look like a fool if you couldn’t get the standard stuff.

    1. fredwilson

      Great points dan

  9. Dan Lewis

    One objection, for what it’s worth — I think you’re understating “or something like it” in”Nothing is standard. You either need it or you don’t. Explain why you need it and most of the time you’ll get it or something like it as long as both sides really want to make a deal.”I think that’s too binary. There are many clauses which have a lot of gray space, and it behooves you to be open to exploring that space. Specifically, as an employment lawyer by training and experience, I am shocked that equity-earning employees so easily accept standard (there’s that word again!) 4 year vesting/1 year cliff plans. I understand the employer’s reasons for wanting a vesting schedule generally, but the details leave a ton of room for a true meeting of the minds. As I said in my earlier comment, I believe relying on “standard” terms as a mindset necessarily demands that the negotiator be inflexible. This is silly, as the terms themselves are typically malleable.

  10. Todd Dubner

    Taking the time to explain even the most standard provisions can be immensely important in mid-sized M&A. I had a seller once tell my that the company we were buying was “his life”. That he had invested the last 15 years building the business and it was more than just the numbers. For him the business was his family and his life’s savings. He also described the deal as being “like sending my kid off to college” followed by “and I hope you are a very good school.”For those kinds of deals, you will only get the deal done if your are candid, sincere and patient with the seller.

  11. rdeichert

    Beyond the point of never using the words “because it’s standard” from a negotiation stand point there is controlling your emotions in that kind of situation. It sounds like the conversation got you to the point of frustration, thus the standard comment slipped out. You explained every other point up until that point.

    1. fredwilson

      True. He made me go line by line and defend every term. It was frustrating

    2. JayR

      I remember the same thing happening to me on a non-VC deal when I was younger, and I got away with it because my client had a huge amount of leverage in the deal. I felt like an ass, and while I have from time to time told someone in a negotiation that a provision was standard, I won’t do it without explain the underlying justification for it.There is another side to this story that Fred isn’t detailing here, and that is the amount of negotiation we had over other terms that most people in the VC business know are almost never called into play. We spent endless drafts and hours haggling over co-sale rights and rights of first refusal. With redemption, Fred had to explain the reason for a provision that Morty had never seen. Right of first refusal was a concept that Morty knew very well, because unlike in venture deals, ROFRs are often important in real estate deals. The only way we were going to be able to get this deal done was to be willing to be flexible and accommodate Morty’s issues, no matter how irrelevant they were in the context of a VC deal (and perhaps because of it). These days, it seems to me that VCs (or their counsel) are less willing than ever to make those kinds of accommodations. We have the NVCA’s “model legal documents” (which a number of firms have customized for their own purposes) and tighter fee caps, and it seems that there isn’t a lot of appetite for that kind of accommodation.

  12. Justin Breitfelder

    Great lesson on negotiating- especially in the interactive age were living in. Nothing is standard. We need to know our own story well and be ready to defend or change it at any moment. I love what Morty said to push back – this may be the first deal where you dont get that if you dont explain it to me well. Gone are the days of one way communications and business. This is a true with partners and advisers as it is with customers.

  13. willcole

    What a wake up call.It’s a strange profession. Much of the process must feel standard to you, but for the person across the table it is one of the biggest moments in his life.

    1. derrinyet

      It seems kind of like working weddings or funerals, in that respect!

    2. JLM

      Of course a great part of the opportunity is to make the other party WANT to do business with YOU. Funny thing is that this costs absolutely nothing.I have never known a “good” contract make a “bad” deal good but I have known good folks who resolve a problem without even looking at the contract because they respect each other and know what is fair.The most important element of any deal is the people and the character they were born with and the character they possess and how it was developed by their life experiences.Never cross a short guy from Del Rio, Texas.

    3. fredwilson

      I want to print this out and hang it on the wall in our office. This is so true and we in the VC business forget it all the timeI will reblog this at fredwilson.vc. Such a great comment

  14. plaudenslager

    I love the lesson that “nothing is standard – you either need it or you don’t”. I think there is also a larger lesson – you have to know your business. The truth is, Fred, you probably asked Morty or his colleagues pretty hard questions about their business plan, and “its standard” would not have satisfied you.We all have things in our life / business / profession that are “standard”. These are things that by training or experience or lore, we believe are important, and we are reluctant to part with out of fear of loss. But when we keep them because they are “standard” rather than because they are important, we don’t really know our business.

    1. fredwilson


  15. JLM

    Have you ever expressed your appreciation to Morty for the education?

    1. fredwilson

      Yup. But he’s not a guy who takes thanks or compliments. He’s a crumudgeon in the best sense of the word

  16. kriswood

    I totally agree. I learned a lot working with a great mentor who really made me appreciate that the “art” and the “science” of the deal go hand in hand. Understand what you need and why. Understand what the other side wants and needs and why. Craft solutions that make sense for everyone.The other thing I learned was to listen to all points and discuss all points in totality. I am much more willing to concede certain points if I get other ones. The only way to do that is to negotiate the deal as a whole, not point-by-point.

    1. fredwilson

      I agree that you need to negotiate in totality. But I don’t like to horsetrade. There are four or five points I want/need. I’ve outlined them on this blog a few times now. I negotiate from principal more than trying to get my fair share of wins. I’d rather lose all of the points I don’t care about and get the few I do care about

      1. kriswood

        Totally agree. It’s a matter of getting a good deal in principal and not who wins the most points. I simply find that if I give on all the points I don’t care about BEFORE I hold firm on those that I do, it’s more difficult. It’s much easier to say, “I’ll give you points A, B, & C but I need points 1 & 2.” Often, principal-to-principal discussions, like you said, can work it out much better than over zealous representatives. Which reminds me of another lesson – your representatives do, in fact, represent you. So make sure that they do business the same way you do.

  17. Keenan

    Reminds me of a lesson I learned a long time ago as well. I was at a conference for the disenfranchised, called The Men of Color conference. I was only 28 years old. I was listening to speaker after speaker explain why men of color can’t get jobs and can’t raise themselves up. After about 45 minutes of this “can’t” language I raised my hand, stood up and said; “all of these things your talking about are why men of color HAVEN’T – not why they CAN’T. If they can’t then there is no need for us to be here at this conference because there is nothing we can do. Can’t is definitive, if it is concrete, it is incapable of happening, and that’s just not true.”Far too often in business we replace won’t with can’t. We can change the language in a contract, we just won’t. We can extend service for free for screwing up, we just won’t. Can’t is our our way of not wanting to explain our motives or take ownership for the process.I’ve learned that once I accept I can do just about anything, I am forced to listen more and explain more and this ultimately ends up benefiting both parties.

    1. JLM

      A very profound comment on a number of different levels. I believe from whence we derive personal motivation is one of the most insightful things we ever learn about ourselves. If you can summon it at will, then you have a real advantage in life.Tell me I “can’t” do anything and I will put spike marks on your forehead — but, hey, that’s just me.I once was playing golf w. Michael Jordan (long story but one of my best friends in the whole world is a former NBA all star but we knew each other a long long time before that happened) and he told the story of not making the junior varsity team at his high school and how it motivated him to excell.Wow! It was like watching a nuclear power plant spool up to divine the emotion, pain and anger that he had harnessed to become what he ultimately became. At the moment he was telling this story, he was transported back to that instant in time and all the pain it had caused. You could feel the heat. It was almost scary in a very, very nice sort of way. But you could also perceive that he NEEDED this kind of affront to get to where his demons lived and to turn them loose on the world.The only guy to hold MJ under 20? DEAN SMITH!

      1. kidmercury

        damn you roll with MJ….that’s awesomewhen i am interviewing people for jobs, i look for all the standard stuff — talent, humility, honesty, ambition, etc — but i also try to pry into the person’s past (without making it look like i am prying of course). i secretly hope i will find a troubled childhood — i.e. divorced parents, runaway from home, etc. that always creates internal insecurity and a compensatory need to overachieve later in life. when you meet that type of person, and their sane, it’s money in the bank!

        1. JLM

          Crazy enough to be an over achiever but not crazy enough to go postal. A very fine line indeed. LOLWhen I was a developer building high rise office buildings, I often had a recurring dream of machine gunning the City Council in a certain town. The dream was very vivid and included the actual City Council Chambers. I told my wife about it and she said I was not crazy because I realized it was nuts.Of course, I never actually told her that the essence of my dream’s conflict was whether I would have to reload or not! LOLYes, we are all crazy and I pity the poor fools who think they are not!

      2. fredwilson

        Great point. I know where my drive comes from JLM and I still have a chip on my shoulder (hopefully in a good way) because of it

    2. fredwilson

      That’s an inspiring story

  18. Christian Brucculeri

    I’ve had similar experiences in the music industry. When “websites” starting turning standard deals on their heads, all bets were off and almost every new contract had to be created from scratch.It’s interesting how quickly “standard” can turn into completely unreasonable. For music, all it took was Myspace.

    1. fredwilson

      ‘Standard’ analog business terms are almost always unworkable in a digital world

      1. Christian Brucculeri

        So it goes with standard revenue streams. I must be one of a very small handful of people that kind of miss old record labels. Bruce Springsteen never would have broken in today’s market.

        1. fredwilson

          I think he would have done fine. Those 70s songs he wrote are amazing

  19. elginthompson

    The Bible needs to be rewritten for what actually happened after the Sixth Day … God did not rest, His attorney wrote “It’s Standard.” For obvious reasons, it is an ineffective fall back phrase. Way back in my first career (corporate law), I foolishly uttered the same and received the same response as Fred.Think of a deal and the documents used to memoralize it, as a canvas. Just as a painting may have similar colors and even texture, the result can never be viewed as the standard. Which is “the standard” – Picasso’s Three Musicians or Pollack’s Number 1 (1950)? In a transaction, all participants bring different perspectives, history and expectations. Therefore, the composite (deal terms) will be violently different from anything the same participants may have created previously.Like all real lessons, Fred’s example is one I chalk up to LTP – Learning Thru Pain.

    1. fredwilson

      The only real way to learn, unfortunately

  20. tmarman

    Definitely one of my favorite posts the first time around…

  21. GeekMBA360

    Great tip on negotiation. I would add that if the other party said that “it’s standard” or “it’s based on 3rd-party independent assessment”, one should always challenge that during negotiation. You have nothing to lose, but a lot to gain by getting to the bottom of what’s going on.A simple example: my car was hit by another car, and the liable party’s insurance company gave me a low-ball offer that is based on “3rd-party, independent appraisal of the fair market valuable of the car”. I challenged that notion of “3rd-party appraisal”, and in the end the insurance company had to back down. Very few things in life is “standard”, and anything is negotiable. πŸ™‚

    1. ShanaC

      Then how did you value the car in the end?

      1. GeekMBA360

        I did thorough research, and provided examples of several comparable cars with higher selling price in the area where I live. Also, in term of the condition of the car, there is a subjective component (i.e. how well-maintained is an used car?) I reached a compromised with them.

        1. ShanaC

          Noted for when I want to buy a car.

        2. fredwilson

          Just like morty and I did πŸ™‚

  22. arv43

    Most of your posts, I try to see what it means in the field of interaction design as what you say (to me and IMHO) apply not just to VCs or a small group, but to a much broader group.I’ve always thought that not taking anything for granted or standard just because it has been done before is the best way in designing a new product or service. Of course, I am still trying to figure out whether it is the right attitude all the time or what/where the balance lies at. For example, if one is designing a service for a new environment (think computers in developing countries), not accepting anything as standard is what I believe the attitude should be, and not doing this has caused a few failures. But at other places, bootstrapping with ‘standard practices’ might be a quicker way to get through some of the initial stuff.My question and what am hoping to learn from you guys here is, does the ‘nothing is standard’ slow you down? Or is it (as I hope and suspect) a much better way to go in the longer run as only the necessary things go in. Thanks a lot, I love reading this blog and the discussions.

    1. fredwilson

      Yes, it slows you down a lot. But sometimes its best to slow down

  23. Scott

    Particularly in the venture business where the status quo is always being challenged. It’s that much more important to prove that something is required versus a tradition or bad habit. I see that in myself sometimes and some of our portfolio companies who respond by saying, “well, that’s the way we’ve always done it”, without knowing the underlying driver.

  24. Ivan Kirigin

    I liked this post, then read something very similar, but in a completely different field. It’s from Dustin Curtis, a designer who doesn’t want to accept the shit that is pumped out of larger firms.”I resent the attitude that leads to the statement “it’s just the way it is.”‘Read the whole thing: http://dustincurtis.com/the…By the way, Dustin works for Frog Metrics, a YC company in NYC (among other places)

    1. fredwilson

      Thanks for the link ivan

  25. Jordan

    Morty Seinfeld?

    1. fredwilson

      Nope. But close

  26. Alasdair

    Sounds like your making the case for a slide 15 in yesterday’s deck…

  27. RacerRick

    More Morty posts, please.

    1. fredwilson

      Jay Rand will have to write them

  28. steveopti

    Yes, there’s nothing can be termed as ‘standard’ unless you require it!!

  29. Steven Kane

    Whenever I am told a deal term is “standard”, I use this response:”My mommy told me just because Jimmy jumps off a bridge doesn’t mean I should too.”

    1. fredwilson

      And you never pay VC’s legal fees which is about a standard a provision as I’ve ever seen

      1. Steven Kane

        :)VC’s compelling portfolio companies to pay for legal closing costs (andsometimes other due diligence costs) is ridiculous, and a blight on theindustry and asset class. Its bad for innovation, bad for entrepreenurs, badfor portfolio companies, and bad for LPs (the investors who fund VCs)Maybe 0.5% of any funding goes to closing costs (sometimes more). That means0.5% of venture funds are NOT being used to fuel portfolio companies work Β­at $30 billion/year of venture investment, that’s $150 million year thatshould be working on portfolio company milestones and goals.Oh, and by the way, its a de facto $150 million compensation boost for VCgeneral partners, who pocket more of the management fees instead of usingthem for the actual costs of operating the funds, e.g. the legal, closingand other due diligence costs.Perhaps VC general partners feel they are under compensated and they thinkwe should feel their pain…?

  30. jsrand

    I think you’ve got a book in here somewhere – “Tuesdays with Morty”?

  31. John Greer

    Very interesting.This could not have come at a better time for me…

    1. fredwilson

      That’s good to hear

  32. GraemeHein

    A great man once said “In this house we obey the laws of thermodynamics!”Morty sounds like a great influence.

  33. fredwilson

    I’d love to explain to you sometimes why liq prefs are really reasonable.

  34. fredwilson

    My dad is big on thermodynamics particulalry the second law

  35. fredwilson

    Thanks charles. I’ll go read the whole thing

  36. shafqat

    Fred – would be awesome to see this explained point explained more in a post. I’ve debated this point with fellow entrepreneurs a lot, and would be good to hear from the other side of the table.

  37. David Semeria

    They are reasonable only if the founders bring little or no IP to the table.