[Dave Heal's] Observations & Reports

The Convertible Debt v. Equity Financing Omnibus

Shortly after I moved to Boulder in mid-August last year I became obsessively interested in the local VC/startup scene. I’d filled my RSS reader with some of the obvious must-read blogs, ordered a few nerdy books from Amazon, and jumped in hoping to meet some entrepreneurs and venture types and soak in as much information as I could. One of the nice things about the tech venture scene is that it’s relatively small, and the magic of the Internet makes it feel smaller. The big players are rabid techophiles and many of them blog and tweet regularly. So when Paul Graham tweeted that “convertible notes have won,” it triggered a massive response. As someone just starting to learn the intricacies of venture financing, this was great timing. But the sheer amount of text I had to wade through was overwhelming, and some of the best distillations of the issues were to be found buried in the comments sections.

This post is not an attempt at a comprehensive diagnosis. Instead, I’m aiming to create a resource for folks that want to understand, fundamentally, the terms of the discussion surrounding convertible debt v. equity financings in angel/seed rounds. I’m less interested in whether Paul Graham is right and more interested in what VCs and entrepreneurs are and should be thinking about when deciding how to structure their first round of financing.

World’s Briefest Executive Summary: aka The “tl;dr” Version

Convertible debt is arguably better for the entrepreneur in the short run, much less good in the long run, and often bad for the investor, which badness often redounds upon the entrepreneur thus canceling out some of the benefits.

What are we actually talking about?

Convertible Debt

Convertible debt is a security that involves issuing a promissory note to investors–a loan to the company, essentially–that automatically “converts” to equity in the company after a triggering event. This event is usually what is referred to in the documents as a Qualified Financing, which is normally (but does not have to be) a Series A Preferred Stock issuance. The Note will specify both the amount of money that will trigger the conversion and the amount of stock that the debt has been converted into, expressed in the form of a discount rate. For instance, a discount rate of 20% entitles the holder of the debt instrument to shares at 80% of the per share price. Ryan Roberts, who blogs as The Startup Lawyer, has a good, simple illustration of the process:

Here’s the basic outline of how convertible debt works:

(1) Joe Angel invests $100,000 in Startup.

(2) Startup issues Joe Angel a convertible promissory note for $100,000. The convertible promissory note has an automatic conversion feature at $1,000,000 (the “Qualified Financing”) with a conversion discount equal to 20%.

(3) Startup closes $1,000,000 Series A Preferred Stock round (the “Qualified Securities”) by a VC at a Series A Preferred Stock price of $1.00 per share.

(4) Since the Automatic Conversion feature in Joe Angel’s convertible promissory note is triggered by the Series A round, Joe Angel’s convertible debt will be converted to Series A shares at a per share price of $0.80.

(5) The Startup issues Joe Angel 125,000 shares ($100,000/$0.80 per share) of its Series A Preferred Stock. The convertible promissory note is cancelled.

And boom! Everybody’s rich! Errr…wait.

The other relevant feature of these convertible notes is the price cap. Many (most?) angels (Yuri Milner and some others excepted) will not invest without one, and the debate that Paul Graham ignited I think implicitly carries the assumption that convertible debt rounds contain a cap :

To provide upside protection, angel investors like to put a “price cap” on the convertible note discount. This price cap is expressed in terms of a pre-money valuation and effectively acts as a share price ceiling. Thus, an automatic conversion discount with a price cap might read something like this:

“The conversion discount shall be the lower of (i) a 25% discount to the Series A Preferred Stock share price, or (ii) the price per share if the Series A premoney valuation was set at $[10,000,000].”

The latter valuation figure is typically north of what the valuation would have been had the investor and company agreed on a firm price for the debt financing but lower than the best case Series A valuation. It should be obvious that this can backfire on the entrepreneur depending on how the second round of funding goes. If the investors put in $500k convertible debt at a $4.5 million pre-money valuation, at best they stand to get 10% of the company. But that next round of financing might turn out to be less than that first valuation. Essentially, the lower your pre-money Series A valuation, the larger the share of your company the investor gets.

Example from Ryan Roberts:

EXAMPLE 1: If a VC invests $2,000,000 at a $5,000,000 pre-money valuation ($7,000,000 post money) and an angel investor has a $100,000 convertible note with a 25% discount, the angel investor will own 1.9% of the startup immediately after the Series A round.

EXAMPLE 2: But if the VC invested at a $15,000,000 pre-money, the same angel investor would own 0.78% of the startup right after the Series A.

Because of this quirk, an angel investor may not have much incentive to help increase your pre-money valuation before a Series A…regardless of the conversion discount. Meanwhile, you and your co-founders are doing everything possible to increase the startup’s valuation.

What’s the alternative?

There are obviously quite a few permutations available as an alternative, but the standard equity financing usually referred to in the debate is a priced Series A preferred stock financing. Preferred stock comes with rights that are senior to the company’s common stock (usually what is issued to founders and employees) and usually entitles the holder to any number of other attendant benefits. Preferred stock normally comes with, inter alia:

1. Liquidation preference: The LP is generally what is meant by “senior to” above. This gives “preference” to the preferred stockholder in the event of a liquidation event and means that they will get their money before the holders of common stock. This can include a company sale, merger, or, on the opposite side of the emotional spectrum, dissolution of the company. It does not include an IPO, in which all preferred stock converts to common stock. Relatively straightforward stuff at its most basic level. Liquidation preferences can get much more complicated, so if you want the advanced tutorial, check out Yokum Taku’s post.

2. Anti-dilution protection: Like the LP, this is a basic concept with a great potential for complicating nuance. This provision is used to protect the investor in the event that the company raises money at a lower valuation than previous rounds.

Yokum Taku:

Preferred stock is normally convertible at the option of the holder at any time into common stock, usually on a share for share basis, and is typically automatically converted upon the occurrence of a qualified initial public offering. Price-based anti-dilution adjustments involve increasing the number of shares of common stock into which each share of preferred stock is convertible. In addition, an anti-dilution adjustment will affect the voting rights of the company’s stockholders because the preferred stockholder is almost always entitled to vote on an as-converted to common-stock basis. The primary difference between the various anti-dilution formulas to be described in upcoming posts is the magnitude of the adjustment under different circumstances.

For a brief course in Intermediate Anti-Dilution, check out Brad Feld’s Term Sheet Series post [covering weighted-average and ratchet-based anti-dilution provisions].

Preferred stock comes in a “participating” flavor as well. Whereas generic preferred stock gives the investor the choice between getting their money back or taking the equity share of the company they purchased with that money, participating preferred stock essentially gives the investor both.

Brad Feld:

A PP is the right of an investor, as long as they hold preferred stock, to get their money back before anyone else (the “preference” part of PP), and then participate as though they owned common stock in the business (or, more technically, on an “as converted basis” – the “participation” part of PP). It takes a preferred investment, which acts as either debt or equity (where the investor has to make a choice of either getting their money back or converting their preferred shares to common), and turns it into something that acts both as debt and equity (where the investor both gets their money back and participates as if they had converted to common shares).

To illustrate, let’s take a simple case – a $5m Series A investment at $5m pre-money where the company is sold for $20m without any additional investments being made. In this case, the Series A investor owns 50% of the company. If they did not have a PP, they would get 50% of the return, or $10m. With the PP they get their $5m back and then get 50% of the remaining $15m ($7.5m), resulting in $12.5m to the Series A investor and $7.5m to everyone else. In this case, the Series A investor gets the equivalent of 62.5% of the return (rather than the 50% which is equivalent to their ownership stake). The PP results in a re-allocation of 12.5% of the exit value to the Series A investor.

Preferred stock, while it almost always comes with anti-dilution protection & liquidation preferences, can also include rights to block or compel certain actions (company sale/IPO, increase the option pool, appointing senior executives, etc.)

Who likes what and why?

Why do entrepreneurs and/or VCs like convertible debt?

In summary, the conventional wisdom (which is increasingly superannuated) is that a convertible debt financing is faster and cheaper and likely to provide more favorable terms financial terms to the entrepreneur. It’s also (dubiously, some might say) attractive because it allows the entrepreneur to punt on a firm valuation until their next round and who doesn’t like procrastinating!

  • Keeps legal costs down (reality: increasingly less so)

This is often repeated as a reason to do debt instead of equity. But most observers recognize that while this may be true up front, all this does is frequently defer the legal fees until a later round/spreads the fees out over a longer period of time. And with the emergence of a variety of streamlined seed documents, a priced equity round can be done for about the same price (~$5k with these non-negotiated “light” docs according to Fred Wilson, ~$15k with Series Seed according to Yokum Taku). For smaller rounds (

  • Faster/more expedient (reality: true but increasingly less so)

In a convertible debt financing, the entrepreneur and the VC don’t have to sit down and wrangle over what the company is worth now. The common refrain is that while the pricing conversation around the cap may be similar to a true valuation, the cap discussion takes place at a level of abstraction that reduces the potential for contention. This often results in the entrepreneur getting a better deal, but as we’ll see below that “better deal” often results in misalignment with the interests of their investors, which ultimately creates its own set of problems.

Entrepreneur Lateef Johnson of Deckerton adds:

One thing I’d like to add is that delaying pricing not only shifts risk, it also protects the cap table, which may be more important. Angel investors chafe at the idea of getting worse deal terms than earlier investors, so delaying pricing means that all investors convert at the same terms, which reduces due diligence and speeds up the deal. Faster deals are probably more beneficial to some entrepreneurs than shifting risk.

  • No control/rights issues to negotiate (reality: an issue, but the non-negotiated seed docs are, like convertible debt docs, mostly about economic structure)

Debt investing typically gives investors economic rights only. You’re loaning the company X amount of dollars. Equity investments, as discussed above, typically come with a variety of control rights written into the documents (board seats, right to block certain actions, etc.), and the laws of the state of incorporation will also prescribe a basic set of shareholder rights.

In a “blubble” environment like we have now, VCs might prefer convertible debt documents because they don’t particularly care about the control rights and simply want in on the deal. In Chris Dixon’s post on the subject he relates a bit of wisdom he learned from Ron Conway:

To the extent that I know anything about seed investing, I learned it from Ron Conway. I remember one deal he showed me where the entire deal was done on a one page fax (not the term sheet – the entire deal). Having learned about venture investing as a junior employee at a VC firm I was shocked. I asked him “what if X or Y happens and the entrepreneur screws you.” Ron said something like “then I lose my money and never do business with that person again.” It turned out he did very well on that company and has funded that entrepreneur repeatedly with great success.

You can hire lawyers to try to cover every situation where founders or follow on investors try to screw you. But the reality is that if the founders want to screw you, you made a bet on bad people and will probably lose your money. You think legal documents will protect you? Imagine investors getting into a lawsuit with a two person early-stage team, or trying to fire and swap out the founders – the very thing they bet on. And follow on investors (normally VCs) have a variety of ways to screw seed investors if they want to, whether the seed deal was a convert of equity. So as a seed investor all you can really do is get economic rights and then make sure you pick good founders and VCs.

Mark Suster chimes in in the comments to talk about a deal that he lost to Sequoia when he had a term sheet all but agreed-upon except for some “niggly founder issues” and Sequoia came in and swiped the deal without any fuss. Especially when it comes to smaller investments, VCs might be inclined to do a debt deal simply in order to avoid negotiating control issues. The “light” non-negotiated documents that Fred Wilson favors, however, look more like your standard debt documents and deal mostly with economic structure.

  • Rolling fundings

Angel investor Chris Hobbs notes in a comment on Seth Levine’s post:

Another advantage of a convert is if you are going to fund in dribs and drabs. With a step up over time in the conversion discount, you can do a rolling funding more cheaply with a convert, and still have some accommodation for risk. I personally don’t like rolling fundings, however, as the founders tend not to get any work done when they are focused on raising money.

Why do entrepreneurs and/or VCs like priced equity rounds?

First let’s start with the hard sell from Ted Wang for his Series Seed documents:

· Costs should be roughly the same (if not cheaper) than using industry standard debt documents. There are a number of different convertible debt documents out there and there will likely be some back and forth whereas these are standard documents.

· Same point for speed. If parties agree to Series Seed Documents, should be faster than debt documents since there is some negotiation with debt documents from sophisticated investors.

· Series Seed Documents are transparent: no hidden gotchas can get served up in definitive documents. You can review them right now if you want.

· Equity documents give investors more clear definition around rights, more stability and less potential squabbling in the next round.

· Equity gives investors the opportunity to get long term capital gains tax treatment if early exit.

· With minor manipulation, Series Seed enables multiple board structures without tortured and non-functioning agreements (a real problem for convertible debt documents); and

· Entrepreneurs get price certainty instead of the lower of two different prices as with capped debt.

In sum, Series Seed creates a level playing field between capped debt and equity documents in terms of speed and cost. When one studies the (admittedly highly technical) benefits of Series Seed vs. price debt, Series Seed is a better solution.

  • Alignment of interests

As we saw above, your standard convertible debt instrument includes a discount rate with a cap. But when intended as a bridge to a Series A round, something strange happens. This arrangement means that the incentives for the entrepreneur and investor are now at odds. The entrepreneur obviously wants the Series A round to the priced as high as possible, but the investor now wants the Series A round to be priced as low as possible because the conversion price is based on that round.

As Mark Suster puts it:

As an investor when you do convertible debt you’re usually pricing the round when the next money comes in. But as an angel you’re usually not only taking risks but also helping the company succeed (through introductions, social proof, coaching, recruiting). So think about it – why should you be penalized for helping a company to get a higher valuation in the next round and thus your money gets converted at a higher price?

If an entrepreneur wants an angel/seed investor who’s going to actually add value, doing a convertible note (without some pro-investor protection like warrant coverage or a discount rate that gets progressively more investor-favorable over time) might ultimately make less sense. The blogs of all of the prominent VCs I read reflect a unanimous desire to add value and so the choice of a financial instrument that might get in the way of that desire should not be taken lightly. As an entrepreneur you want your VC to want to help you, especially at the angel/seed stage.

Seth Levine’s take on why convertible debt might be bad for entrepreneurs:

Clearly in the short run this trend is positive for entrepreneurs because it has the effect of both deferring an often difficult conversation (around valuation) and ultimately increasing early stage company values and as a result decreasing entrepreneur dilution (by the way it’s also good for Y-Combinator, TechStars and other similar programs since the shares the program gets of each company act as founder shares in this financing equation). And I have no doubt that there will be many entrepreneurs who benefit from this trend. But it’s not clear to me that it’s sustainable (just as it wasn’t a decade ago). Ultimately investors need to be compensated for the risk they take in making their investments. With capital being relatively fluid (and the angel markets being finicky) as companies run into trouble, as valuation caps begin to be disrespected, as overall return profiles decrease because of higher early stage prices, money will flow out of the asset class. And ultimately this doesn’t benefit entrepreneurs either.

Yokum Taku also notes, regarding convertible debt deals:

Investors may request aggressive terms. For example, investors may require the company to grant a security interest in all of the company’s assets, personal guarantees from the founders, drastic measures upon an event of default (i.e. the equivalent of getting your arms broken if you don’t repay), etc. In a Series A financing, there seem to be some established norms on what is typical. In a convertible note bridge financing, creative investors may suggest some unusual terms.

Conclusion

So, in the end, what did we learn?

With the advent of the Series Seed and other “light” documents, a lot of the cost and time associated with equity financing has been reduced to levels that are competitive with a debt deal. There are still good reasons why both entrepreneurs and VCs might want to push the valuation discussion down the road, and protections can be built into the debt documents to make them more equity-like and therefore satisfy the VC. But most entrepreneurs taking seed financing want active, enthusiastic investors. And most investors want to be strategically involved in their portfolio companies. However, a vanilla convertible debt financing can misalign the parties’ interests in a way that will ultimately hurt the entrepreneur more than a low but reasonable valuation might have.

EDIT: Scott Edward Walker of Walker Corporate Law Group has a post that cautions entrepreneurs, especially ones at the helm of “hot startups” against agreeing to the Series Seed documents as-is. Solid advice that hopefully is rather obvious, but read the entire post.

Response to Paul Graham Link Round-up:

Seth Levine (Foundry Group): http://www.sethlevine.com/wp/2010/08/has-convertible-debt-won-and-if-it-has-is-that-a-good-thing

Yokum Taku (Lawyer at Wilson Sonsini): http://www.startupcompanylawyer.com/2011/01/09/is-convertible-debt-with-a-price-cap-really-the-best-financing-structure/

Mark Suster (GRP Partners): http://www.bothsidesofthetable.com/2010/08/30/is-convertible-debt-preferable-to-equity/

Jason Mendelson (Foundry Group): http://www.jasonmendelson.com/wp/archives/2010/08/the-convertible-debt-debate-an-ex-lawyers-twist-on-the-argument.php

Fred Wilson (Union Square Ventures): http://www.avc.com/a_vc/2010/08/some-thoughts-on-convertible-debt.html

Chris Dixon (Hunch): http://cdixon.org/2010/08/31/converts-versus-equity-deals/#comment-73535965

Ben Siscovick (IA Ventures): http://bsiscovick.tumblr.com/post/1043177410/advocating-the-move-from-entrepreneur-friendly-to

Why is Mark Suster recommending LegalZoom for startups?

Mark Suster, a prominent venture capitalist with GRP out of Los Angeles, runs a fantastic blog and hosts an equally great weekly segment on venture capital as part of Jason Calacanis’s “This Week In” series. Mark’s also been an entrepreneur and his posts are densely packed with excellent advice and cautionary tales for founders of companies at all stages.

Mark’s one of the few interviewers in this growing genre of long, tech-focused programs (Andrew Warner of Mixergy is also worth checking out, but he has a much different style) who also participates in the interviews as an equal with the VCs and entrepreneurs on the other side of the table. His interview with Mike Yavonditte of Hashable was so good I’ve now watched it twice, and the session with Chamillionaire (whose name I will admit to mispronouncing in my head for the past few years–the “ch” sounds like a “k”) was a revelation.

Anyways, in the interest of shortening the ass-kissing windup here a bit, I’ll just say that I’m a huge Mark Suster fan. Which is why I found it boggling that during one of the sponsor breaks in the show–Mark pauses the show briefly to deliver an earnest radioman-style pitch for a product or company that he believes in and often uses–he was pitching for Legal Zoom and recommending that startups use them for their incorporation and patent/trademark filings.

I’d really be interested in hearing from Mark whether he knows any entrepreneurs that have satisfactorily used LegalZoom for their incorporation (with or without a lawyer’s help). But my understanding is that LegalZoom files the forms directly with the Secretary of State and that you can’t have them sent to you for double-checking by a lawyer or anybody else.

Their super deluxe incorporation package comes with a CD with “over 40 business documents,” but I would be very surprised if those documents covered everything that a tech start-up needs (stock purchase agreements, technology assignment, etc.) or gave any guidance on alternative protective provisions. These kinds of concerns may not be important for Joe Briefcase, the aspiring slumlord who’s forming a company for liability shielding purposes, but making the right incorporation choices is incredibly important for startups. Problematically, LegalZoom, although it offers up a phone number for advice, needs to be careful not to hold itself out as a provider of legal services in order to avoid getting yelled at by state bar associations. And moreover, LegalZoom is arguably doing just that simply by choosing the template forms and crafting the questionnaire that auto-populates the documents. They’ve been the target of a few nastygrams from state bars demanding that they stop providing legal services under the guise of not providing legal services.

I can’t imagine the risk of creating a hash of your pet startup’s incorporation documents is worth the cost savings. If your financials are really that dire, I bet you’d be better off just talking with the folks at your local Secretary of State and saving yourself the $300+ bucks. In the end, incorporation of a company is a serious step that is usually the result of a bunch of people wanting to do something quite complicated, whether that’s obtain funding, issue stock, create & manage intellectual property, hiring employees or contractors or any of the above. And I can say this without conflict of interest as a law-talking man who’s not actually an attorney: this should all be done in consultation with a good lawyer. Don’t try and save yourself a grand or two because you think it’ll be fun and cheap to incorporate using a website that features that guy who represented OJ.

And when it comes to patents and trademarks, what happens when the application is rejected or a reply is necessary? Most patent applications aren’t accepted as filed, so there’s almost always more work to be done. Not having much familiarity with patent prosecution, I can’t be sure, but my guess is that amending a patent application or responding to rejected claims often requires the kind of intricate legal argumentation that is probably best handled by a competent, debt-ridden attorney. I suppose the response might be that you can deal with an attorney at that point in the game and gee look you’ve maybe saved yourself some money. But my guess is it’s pretty easy to bungle one of these applications if you don’t know what you’re doing, so why chance it?

In the end, I’d love to hear from entrepreneurs, tech or otherwise, that successfully used LegalZoom for any of their important documentation. But even a few anecdotes probably won’t be enough to convince me that the risk outweighs the cost savings. Maybe there are some VCs out there that routinely advise startups to do this and haven’t had a deal blow up in their face, but I’d be willing to bet a cheeseburger or two that no reputable VC actually does this.

The point of this post, incidentally, is not to call Mark out. But he mentions each show that the sponsors are frequently trusted companies with products that he has experience with (although I suspect this might not be one of those cases). And the endorsement I saw didn’t take the form of a generic product blurb, but instead he specifically mentioned trademark & patent filings (and incorporation, if I remember correctly), which struck me as strange. I’m not here to bang my fist on the table and demand answers, but I am curious whether he really thinks startups using these online services is a good idea.

EDIT: Some good resources. HT: @jakewalker

  1. http://www.docstoc.com/documents/legal/
  2. http://www.orrick.com/practices/corporate/emergingCompanies/startup/index.asp
  3. http://www.orrick.com/practices/corporate/emergingCompanies/startup/forms_corporate_formation.asp
  4. http://www.businessinsider.com/legal-documents-for-your-startup-2009 -8

Law School: Now With Less Law?

This is a re-post of a law school column I wrote about 2 years ago this week.

Three of the closing paragraphs from a recent New York Times article on the craptastic legal market:

If the downturn is prolonged, law schools will need to keep tuition and other costs in check so students do not graduate with unmanageable debt. More schools may follow the lead of Northwestern, the first top-tier law school to offer a two-year program.

Law schools may also become more serious about curriculum reform. The Carnegie Foundation for the Advancement of Teaching released an influential report that, among other things, urged law schools to make better use of the sometimes-aimless second and third years. If law jobs are scarce, there will be more pressure on schools to make the changes Carnegie suggested, including more focus on practical skills.

They may also need to pay more attention to preparing students for nonlegal careers. Law graduates have always ended up in business, government, journalism and other fields. Law schools could do more to build these subjects into their coursework.

So let’s get this straight. We’re at a professional school that might have the singular distinction of being described by both students and employers as leaving most of us woefully unprepared to do any actual work on our first day in the office. And the remedy for this is somehow to find a way to crowbar more stuff into the curriculum that isn’t the law?

Channeling, for a second, the male protagonist in Derrick Comedy’s Blowjob: that is the opposite of what is needed. The reason law graduates have always ended up in other jobs is often because they shouldn’t have gone to law school in the first place. For many students, that dual degree is a step towards gaining expertise in a field that will inform their law practice or catapult them to a teaching career. Those 12 credits of Law & “__” classes are merely satisfying an intellectual curiosity. But for others, this desire to do non-law things with their time at law school represents a lifeline thrown to a vision of themselves that they only wish they had the courage to pursue fully. And for others still it turns out that even if you enjoy the intellectual rigors of publicly sparring with Richard Primus over the finer points of constitutional interpretation, you may, surprisingly, not enjoy interminable electronic discovery or combing through an offer document looking for rogue blobs in brackets.

And I’m not merely talking about the petty but pervasive frustrations of any life that involves more than 55 minutes of sustained concentration and is infrequently punctuated by drunken burrito binges and Guitar Hero marathons. (Although, for those law students who have never held a 9 -5 job, having your introduction to the working world be 60-80 hours a week of document review is understandably sub-optimal.)

No, the heart of the matter lies in the fact that many law students are either uninterested in or ill-suited to being actual lawyers. For many, the practice of law, particularly at its lower, more mechanical levels, elicits the kind of marrow-level boredom that unmistakably means that you’ve failed in choosing a profession. Granted, the law is necessarily pyramidal; there is simply a lot of fairly mundane stuff you have to know in order to get to the ecstatic bull sessions that may characterize certain subfields of law as practiced at the highest levels. But being a lawyer is going to be really boring for a lot of people. In some circumstances being bored at work is OK, but it becomes quite a bit less OK when the boredom is a surprise and you’ve just spent 3 years of your life at law school and are severely undercapitalized as a result.

The idea that a law degree is a versatile one−”it’s the Swiss Army Knife of graduate degrees!,” says your Uncle John−while maybe true to a certain extent, is mostly a pernicious piece of self-deception transmitted from one generation of disaffected lawyers to the next. This is all in the interest of making everybody feel better about having taken out ~150k in loans and effectively wasted 3 years of prime life-living time. The truth is that not only is law school probably too long and expensive for people who actually want to be lawyers (unless we decide to make some or all of the third year a mandatory externship/apprenticeship), but it’s certainly too long and expensive for people whose ultimate goal is to do something else. The fact that some journalists are lawyers does not mean that law school is a good idea if you want to be a journalist. More than a handful of novelists and hand models are lawyers, too. These days, lots of hobos are lawyers. In fact, hobodom may in fact be the most likely alternative career path for some of today’s law students.

Current students find themselves entering the contracting legal market in medias res, where “res” equals a giant shitmist of uncertainty and plummeting job prospects. This means that a lot of people who viewed the law as camouflage for their indecision or as a cash-lined waystation en route to a career in competitive log rolling are finding themselves repeatedly kicked in their sensitive bits. And seriously in debt. Lots of debt.

So there’s a related question of don’t we think that there’s going to be something fundamentally wrong with a profession when applicants are discouraged from demonstrating an actual interest in the profession? And that once in law school students aren’t required to have any exposure to the sorts of things they’re going to be expected to do on the job.

Anna Ivey, a former Dean of Admissions at the University of Chicago and now The Authority on applying to law school, gives the traditional advice against turning your personal statement into anything resembling what she calls a “statement of purpose.” But why don’t law schools actually require or solicit something like this? While it might make Sarah Zearfoss’s job more tedious, having an additional essay expressing what people hope to get out of law school and fewer essays about manually masturbating wallabees on the Isle of Man might be a good thing. Maybe if applicants were evaluated, in part, on having thought a little bit about why they’re about to spend 150k of money they don’t have to get a legal education, we’d be one small step closer towards not producing lawyers who hate their jobs.

Because of the barriers to entry in the legal world, law school applicants are unable to get a real up-the-butcher’s-ass view of what being a lawyer actually entails. So, every year, thousands of post-graduates try to get as close as possible by being paralegals at large firms, an experience that miraculously doesn’t dissuade them from going to law school.

Business school students, on the other hand, almost always have prior experience doing something similar to what they hope to do upon graduation and are therefore more than eager to pay for two years of beer bonging, hand shaking lessons, and supervised business card exchanges, content in the knowledge that they’re going to enjoy their job upon graduation.

So, to circle back to the possibility offered up by NY Times piece: the last thing law school needs is less law. Our Law School in particular hasn’t shown any signs of mandating juggling or TV/VCR repair classes, and this is clearly a good thing. And while undeniably shitty for current students, the demise of the idea that law school is a risk-free path to riches for bored humanities majors might not be the end of the world.

HT: Prettier Than Napoleon

Pop Music Will Learn You Good

After last month’s summer music review, a number of readers wrote in with some very personal stories of how pop music has changed their lives. Jennifer from Minneapolis wrote in with a touching attempt at a poem that described how Neil Diamond helped her get through puberty without having a breakdown and “Kelly” from Brooklyn credits her ringtone version of Mims’ “This Is Why I’m Hot,” which contains the lyrics “I’m hot ‘cuz I’m fly/You ain’t ‘cuz you not,” with subconsciously teaching her enough about logical reasoning to help boost her LSAT score 5 points and catapult her into our very own Law School.

Kelly’s transformative experience notwithstanding, the plentiful linguistic gifts of popular music, it seems, are mainly lexicographic.  That is, it gives us lots of new words. For instance, Steve Miller’s “Space Cowboy” provided the world with the endlessly useful ‘pompatus,’ and hip hop is responsible for the diffusion, if not the generation of, ‘crunk’ and ‘shorty.’  In the case of Snoop Dogg’s ‘-izzle’ language we have a vocabulary so rich that some linguists believe it will soon replace both the dreaded Pig Latin and Oppish, that hideous invention of middle school girls that involved, inter alia, putting ‘Op’ at the ends of words, as the preferred nonsense language of the nation’s young people.

Some of our finest musicians, however, are not content to merely introduce new words.  They aim to influence the architecture underlying interpersonal communication – our grammar.  Bob Dylan’s “Lay Lady Lay,” known to Dylan scholars as one of his most widely popular hits, is actually an extended commentary on the disappearing colloquial distinction between “lie,” which means to recline or be situated, and “lay,” which is generally a transitive verb meaning to put down or arrange.  Moreover, it’s believed that Dylan set the lyrics to such an easy melody in order to sow the seeds of confusion among the hoi polloi while simultaneously increasing the antipathy that the traditionally upper middle class grammarians of the world feel for the untutored masses and thereby ignite the Revolution that so many were working for in the late 60s.

In the past ten years, this tradition of linguistically conscious pop music has been carried on by the warrior poet Ludacris and, most recently, by Stacy Ann Ferguson, better known as Fergie.  And but so whereas Dylan’s song seems deliberately calibrated to foment rebellion and tear our country apart, Fergie approaches her songs with a message of unity. If we all spelled the same way, her music implies, there would be no war.

Now, some of you may know Fergie as the leathery former frontlady of the Black Eyed Peas and the one responsible for one of the worst songs of the last few years, 2005’s “My Humps.” Others as the maxillofacially curious fiancé of Transformers‘ heartthrob Josh Duhamel. All of you waiting for a slightly more sophisticated reason to kneel in front of Fergie and kiss the hem of her daisy dukes can now refer to her subtle foray into the field of linguistics as evidence of her much-deserved celebrity status. I’m actually not talking about the fact that listening to a Fergie song often doubles as an advanced lesson in self-promotional orthography  – e.g., “Fergalicious,” which teaches you how to spell ‘Stacy’, ‘Fergie’, and ‘delicious’ in the same song – but instead about her slightly more controversial embrace of the ’singular they,’ one of the hobbyhorses of prescriptive linguists everywhere.

The ‘singular they’ is the use of the pronoun ‘they’ in a sentence such as “Any girl who dates a fellow law student is dumb; they must have an IQ below 100.”  The powdered wig set would insist you substitute ‘she’ for ‘they’ in the second sentence. There are complicated linguistic arguments about the different semantic work each of those choices does, but it’s safe to say that people have been using ‘they’ in this fashion since before the time of Shakespeare, and that when somebody tries to tell you it’s grammatically incorrect, they’re usually wrong.

By way of illustration, I present a verse from Fergie’s recent (and terrible) “Big Girls Don’t Cry”:

I hope you know, I hope you know

that this has nothing to do with you.

It’s personal, myself and I

we got some straightening out to do.

And I’m gonna miss you like a child misses their blanket.

 

Stephen Pinker talks extensively about the problem of nominally singular antecedents being associated with plural pronouns (them, they, etc.) in his book “The Language Instinct.” A related excerpt from page 391 of the Harper Perennial Modern Classics Edition:

“Everyone returned to his seat” [ed. What your elementary school teacher would have you substitute for the allegedly ungrammatical ‘Everyone returned to their seat.’] makes it sound like Bruce Springsteen was discovered during intermission to be in the audience, and everyone rushed back and converged on his seat to await an autograph […]

The next time you get corrected for this sin, ask Mr. Smartypants how you should fix the following:

Mary saw everyone before John noticed them.

Now watch him squirm as he mulls over the downright unintelligible “improvement,” Mary saw everyone before John noticed him.

 

Pinker goes on to explain that the dissonance we intuitively hear in the ‘improvement’ has to do with the linguistic relationship between everyone and they. That is, they are not functioning in this case as ‘pronoun’ and ‘antecedent’ but as the more obscure ‘quantifier’ and ‘bound variable,’ a distinction that while interesting is sufficiently wonky as to be beyond the ambit of this here humble column.

This is all a very long-winded way of encouraging you all to really listen to the music around you, even the stuff you think is garbage.  The music of Fergie and Bob Dylan has important lessons to teach us all about the world we live in, and for those of you who don’t read the Language Log blog on a regular basis, you’ll sleep soundly knowing that you can probably absorb a freshman course in generative grammar by listening to Top 40 radio.

If Great Literature Was Written By Law Students

Song of the Gunner by Walt Whitman

1

I raise my hand, and sing myself,

And what I assume nobody should assume,

And all I read in Hornbooks will be shared with you.

 

I never loaf or smoke a bowl,

I preen and gloat at my ease observing ev’ry post-hoc fallacy.

Torts class, every atom of my life, form’d from this toil, this school.

 

Born here of lawyers born here from gunners the same, and their

parents the same,

I, now twenty-three years old, talking begin,

Hoping to cease not till death.

 

Meads and nap’d drools forsaken,

Non-latin phrases shunned for what they are: plebes’ language, verboten.

My ardor for precedents made, I wish to share at every hazard,

Thoughts unchecked without creative energy.

 

I Am Charlotte Simmons by Tom Wolfe

G. Edward Terwilliger began twisting Charlotte’s nipples as if they were radio dials, simultaneously palpating her soft palate with his tongue, alternately flexing and relaxing the tip with strokes in a ratio that matched the vote distribution in Heller. District of Columbia v. Heller 128 S. Ct. 2783 (2008). Flick flick flick went the tongue, but it was the delicate dance of his thumb and forefinger that occupied his cerveau, was his bailiwick. Suddenly, like a flash of fluorescent light, he remembered the 20th anniversary edition of Men’s Health that his roommate had slipped under the door earlier that afternoon as he was preparing to deliver a world-historical bowel movement into the toilet’s gaping white porcelain maw.  Brown it was, inert with extinguished life, an ex post indictment of an entire day’s worth of time wasted at student org meetings.

There, on page 36 of his mind, a firm reminder to vary the deployment of one’s sexual arsenal with each new conquest. God forbid the rest of the females in Law Firms & Legal Careers catch on to his lack of imagination. Mutatis mutandis, Terwilliger retreated deep into his mind, reached deep into his quiver – oh god! And now she quivered in kind! It must be fate!  – and, caressing the entire dimpled terrain of her areola, traversing back and forth between its murky surface and the milky white mammary tissue that spread out beyond it in invisible axial rings, looking very much like the surface of Venus on a summer solstice’s eve… – and he lovingly explored her breast with the élan of Marco Polo making his way to Asia, finally pressing triumphantly on her nipple and then waiting, mouth agape, for what that venerable periodical assured him would be Her Best Orgasm Ever.

Just then, like the Mighty Colorado at its confluence with the Green River, a wash of acetylcholine overwhelmed her synaptic cleft and she reared back like a horse frightened at full gallop. “Will you still love me tomorrow when your blood is no longer saturated with the eponymous Iced Tea from Long Island?.” she asked. “I’ll never keep you at arms length,” he whispered. “Your five-pointed highlighter is poking me,” she groaned. “I’m sorry,” he said, and removed his pants.

 

The Law Student’s Odyssey by Homer

 

LEEWS, speak to us now of those study techniques

that assure him a top 1/3 finish after managing

to suck his bank account Dry.

He came to see

some undergrads’ panties, maybe learn the common law.

 

While drunk at Rick’s his spirit suffered many torments.

And he fought to buy a Shark Bowl and take some co-eds home,

but though he wanted to, he could not get their digits—

They all replied and said they had no phones, the fools.

So he feasted on the burritos of Panchero,

God of Post-Bar Food—that’s how was snatched away his chance

of sleeping without distress. So now, son of Mass Produced Study Aids

tell us his fall from glory, starting anywhere you wish.