+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

Silicon Valley's top startup factory has a clever way to make sure investors follow through on 'handshake' deals

Aug 20, 2015, 02:15 IST

Justin Sullivan/Getty

In Silicon Valley, a handshake deal can make or break a startup. Things move too fast, so investments and companies can fall apart if the funding doesn't come through.

Advertisement

It's especially hard when investors are listening to pitches from as many as 100 startups over two days and making decisions on the spot. That's why many Silicon Valley investment deals start out as handshakes.

Handshakes should mean a done deal, but that doesn't always happen, so startup accelerator Y Combinator instituted a formal "Handshake Protocol" in 2013.

A handshake deal only happens if:

  1. The investor says "I'm in for [offer]."
  2. The startup says "Ok, you're in for [offer]."
  3. The startup sends the investor an email or text message saying "This is to confirm you're in for [offer]."
  4. The investor replies yes.

That crucial step three is where handshake deals can fall apart.

Advertisement

So, why not turn to tech to solve the problem?

For this summer's Demo Day, a pitching exhibition for its startups, Y Combinator created a new "Handshake" button for investors in the audience, Y Combinator President Sam Altman said during the opening remarks.

Since investors (and press) are barraged with more than 50 pitches in three hours each day, Y Combinator has created a dashboard where investors can "like" or "handshake" a startup they are interested in. (Investors have had the option of "Liking" to express interest and get in touch with a startup for awhile.)

When an investor clicks on the handshake button, they can specify if they have already settled on the terms with the startup and it autogenerates an e-mail saying what they're in for. The startup gets the notification and can accept their virtual handshake.

Of course, most of these handshakes occur in person first, because startups have to negotiate the terms in the first place. The virtual handshake is a way to keep investors and startups responsible.

Advertisement

NOW WATCH: Venture Capital Legend Reveals How To Spot The Next Tech Superstar

Please enable Javascript to watch this video
You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article