Generalized Exchange Within Investment Accelerators Brad Bernthal Colorado Law

Marquette Law Review Volume 100 Article 9 Issue 3 Spring 2017

Who Needs Contracts? Generalized Exchange Within Investment Accelerators Brad Bernthal Colorado Law

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Repository Citation Brad Bernthal, Who Needs Contracts? Generalized Exchange Within Investment Accelerators, 100 Marq. L. Rev. 997 (2017). Available at: http://scholarship.law.marquette.edu/mulr/vol100/iss3/9

This Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion in Marquette Law Review by an authorized editor of Marquette Law Scholarly Commons. For more information, please contact [email protected]. 39285-mqt_100-3 Sheet No. 168 Side A 06/19/2017 09:53:44 * ERNTHAL B Abstract RAD B ) 6/12/17) 2:03 PM ELETE D OT OT N O (D WHO NEEDS CONTRACTS? NEEDS CONTRACTS? WHO DOCX . INVESTMENT ACCELERATORS ACCELERATORS INVESTMENT INAL -F GENERALIZED EXCHANGE WITHIN WITHIN EXCHANGE GENERALIZED This Article why investigates on behalf of startups that an expert volunteers M K ERNTHAL C Y participate in a novel type of smallparticipate in a novel (“VC”) venture capital fund known as a mentor-driven investment accelerator (“MDIA”). A MDIA organizes a pool – called “mentors”of seasoned individuals help new – to companies. An obvi- mentors. strategy would be to contract with ous organizational Mentors in- Legal studies of norm-basedassist. stead voluntarily exchanges do not explain conundrum”—i.e.,what this Article calls the “mentorship moti- the puzzling vation of a mentor to volunteer within otherwise for-profit environments. This theory withArticle exchange is the first to bridge the insights of generalized law and entrepreneurship. Generalized exchange, whichsystems describes when directly returned by a recipient but by another member benefits are not of a group, best explains how MDIAs induce volunteerism. Original research promotesreveals that the absence of contract a feeling of altruism while facili- tating economically startup interaction. Mentors aspects of mentor valuable / Mentor as a consideration surrogate. realize indirect benefits that function re- benefits, and enhanced professional learning wards include reputation gains, connections. The MDIA provides a study of how pro-social information shar- ing occurs in a commercial setting. * Associate Professor of Law, Colorado Law; Director of the Entrepreneurship Initiative, Sil- * Associate Professor of Law, Colorado Law; has served as a mentoricon Flatirons Center. Disclosures: the author with Techstars Boulder with Sue Heilbronner, a principal of the since 2008. The author also taught as a co-professor MergeLane and MergeLane accelerator program. Individuals affiliated with Techstars are fi- Center and Colorado Law. For helpful comments nancial supporters of the Silicon Flatirons Bernthal, Deborah Cantrell, Daniel Cooper, John and ideas, thank you to Peter Bell, John Hwang, Tim Kuhn, Orly Lobel, Sharon Matusik, Coyle, Vic Fleischer, Erik Gerding, Cathy Pierre Schlag, Peppet, Elizabeth Pollman, Jason Mendelson, Helen Norton, Paul Ohm, Scott Andrew Stock, Mike Weinheimer, Phil Weiser, Yesha Yadav, Xin (“Eva”) Yao, participants who in the Law and Entrepreneurship Workshop (San Diego, CA, January 2016), colleagues (Boulder, CO, MarchProgress session 2016), the joined the Colorado Law School’s Works In University of Colorado-Boulder Entrepreneurship Group (March 2016), and participants in Ad- the Colorado Law’s Junior Business Law Scholar’s Conference (Boulder, CO, July 2016). ditionally, thank you to Tyler Park and Malea McKeown This Article for research assistance. is dedicated to my father, John Bernthal. Any errors are the responsibility of the author. 7B 39285-mqt_100-3 Sheet No. 168 Side A 06/19/2017 09:53:44 06/19/2017 A No. 168 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 168 Side B 06/19/2017 09:53:44 , M K C Y ]. Froma finance 1 MDIA Investment Accelerators YSTEM RE S A PTION PTION O [100:997 [100:997 HERE W ...... 1023 ...... 1007 ...... Investment Accelerators ...... 1028 ENEFITS XCHANGE UTUAL B Brad Bernthal, E ...... 1045 ...... erator (a “MDIA”) presents a M See RGANIZATION OF RGANIZATION ...... 1037 ...... 1006 O AILS ...... 1046 F ONDITIONS NDIRECT Exchange entrepreneurial deals. I ?C ONSIDERATION NTRODUCTION ENTORS the Accelerator C TARTUPS ENERALIZED tivation ...... tivation ...... 1050 S I. I ) 6/12/17) 2:03 PM ...... 1017 ...... ENEFITS AND A AG ...... 1012 ...... Motivations B EGAL ...... 1024 ...... UCCEEDS OR XTERNAL ELETE ONTRACT L MARQUETTE LAW REVIEW MARQUETTE S D E ...... 998 MDIA M C ELP TO OT OT H N . 139 (2016) [hereinafter Bernthal, O REATES IN (D NSTITUTIONALIZE THE NSTITUTIONALIZE NDIRECT I I EEDS A interactions .&F S DOCX N . US 3. 1021 ...... Four types of experts participate in MDIAs Contributions 1. 1012 MDIAs experts into a mentor organize network. 2. Mentors of and help through three types self-select Conundrum System of Generalized within MDIAs ...... 1038 ...... within MDIAs INAL HO HERE MDIA C VAILABLE TO OLUNTEERISM OLUNTEER -F UBSTITUTE FOR NTERNAL AND NTRODUCTION . J.L. B A. A Short Primer on B. MDIAs Help Harness Startups Voluntary Mentor V W S A V A. indirect benefits are visible Four categories of internal A. Legal Scholarship Does Not the Mentor Resolve B. MDIAs Sweep Entrepreneurial Interactions Into a B. Volunteerism Mo B. Volunteerism A. Instrumental 1056 ...... C. Norms B. 1041 .. indirect benefits include reputation gains External 1. This is the second part of a two-part investigation into investment A accelerators. The mentor-driven investment accel TAN ERNTHAL III. A III. companion article examines opportunism issues where participants openly share infor- companion article examines opportunism issues where participants openly share mation amid informal environments. accelerator IV. I conundrum study for those who 998 I I. 7B II. MDIA II. 22 S VI. CONCLUSION ...... 1059 ...... VI. CONCLUSION V. W V. 39285-mqt_100-3 Sheet No. 168 Side B 06/19/2017 09:53:44 06/19/2017 B No. 168 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 169 Side A 06/19/2017 09:53:44 , Y- See Bern- NDREW NSIDE See :I AD P 67 (2012). Part II. The Nature of the Firm AUNCH L infra Part II. TARTUPS 3 (2006). A startup is an en- HE S 999 999 ,T OR infra Why do highly qualified F A MDIA together pools discussion 2 TROSS 5 S see duals—called “mentors”—who NNOVATION CHOOL I Section II.A. S . 187, 191 (2006). In arranging collaboration, discussion An obvious MDIA organizational Mentorshipin- valuable involves 6 3 EV infra ANDALL . See R .L.R XCLUSIVE A INANCE OF E Neither Market Network Forms of Organi- nor Hierarchy: V F OST , 92 discussion ) 6/12/17) 2:03 PM to use organizational mechanisms. Ronald Coase’s classic to use organizational mechanisms. Ronald note 1, at 142, n.8; M S See ’ See generally ELETE how WHO NEEDS CONTRACTS? NEEDS WHO D . 295, 322 (1990). OT OT ALLEY trepreneurial expertise. N V O APITAL AND THE EHAV (D C Part II. ) 386, 386-87 (1937). Network governance and social norms literature .B , Walter W. Powell, S . Chevron Step Zero N RG ILICON MDIAs dramatically the number expand of startups that DOCX ( . infra 4 ,S .O ENTURE INAL See, e.g. ES -F ,V , 12 R Investment Accelerators, supra 2. may be more specifically classified as a specific sub-species An investment accelerator 5. they The defining dimension of MDIAs, in terms of institutional innovation, is that 6. “Step zero” refers to an inquiry required to determine a framework whether should 3. is sixty-nine. Interview The average number of “active” mentors in a MDIA network 4. A MDIA “portfolio company” is a startup that participates in an investment acceler- Therein lays the mentorshipTherein lays the conundrum. discussion M K CONOMICA ERNTHAL ETRICK OMBINATOR C Y individuals give awayindividuals give company free help to a for-profit (a startup) nested within a small VC (an investment fund accelerator)? A “step for lawyerszero” consideration is whether and business people to use collaboration. legal tools to organize a step zero inquiry refers which organizational approach should be used, a decision that must a step zero inquiry refers which organizational be made before determining 4 E make vs. buy distinction underscores alternative organizational approaches. The theory of make vs. buy distinction underscores alternative organizational approaches. The of re- the firm bifurcates the use of contracts within a market (i.e., “buy”) versus integration sources within a firm hierarchy (i.e., “make” or “build”). R.H. Coase, trepreneur-driven firm that aims to solve a pain through scalable innovation amid conditions trepreneur-driven firm that aims to solve a of extreme This definition captures the type of company uncertainty. gen- that accelerators erally target for selection. roughly seventy-five experienced indivi seventy-five experienced roughly work closely with founders. startup M 2017] an investmentperspective, small a effectively is accelerator cap- venture firmital (“VC”) and aims of private startups in a portfolio that invests to investors. return capital to profitably 7B formation exchange between experts and MDIA seasoned portfolio companies. zation democratize expert mentorship to startups on an unprecedented scale, reaching a greater on an unprecedented scale, reaching a greater democratize expert mentorship to startups geographies, and spanning more industry sectors number of startups, across a wider range of than predecessor institutions. thal, shows that informal mechanisms are also available to organize collaboration and resource shows that informal mechanisms are also available to organize collaboration and exchange. with Patrick Riley, Chief Executive Officer, GAN network, in Boulder, Colo. (June 17, 2016) with Patrick Riley, Chief Executive Officer, (notes on file with author). MDIA networks commonly range in size from 60–120 mentors. See nomenclature of private equity and venture cap- ator. The term “portfolio company” mirrors A ital, which refers to companies in as portfolio companies. that their funds invest of VC firm, known as a “super angel” fund C obtain access to en obtain access to be applied to a given situation. Administrative law contemplatesbe applied to a given situation. Administrative a “Chevron Step Zero”— frameworki.e., an initial inquiry into whether the Chevron of deference applies at all. Cass R. Sunstein, 39285-mqt_100-3 Sheet No. 169 Side A 06/19/2017 09:53:44 06/19/2017 A No. 169 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 169 Side B 06/19/2017 09:53:44 M K C Y It is 10 . Q. 119, 148 CI .S DMIN This promotes vol- Structure, Identity, and Soli- , 57 A 11 [100:997 [100:997 Experts in a startup mar-a startup in Experts 7 Engineering a Venture Capital Market: ion surrogate to mentors. A . 1067, 1069 (2003). In traditional VC te is that a three to four monthte is that a three EV .L.R an accelerator nor a startup directly an accelerator nor gy and anthropology, generalized ex- gy and anthropology, generalized TAN Ronald J. Gilson, , 55 S ) 6/12/17) 2:03 PM See e.g., Thus a mentor—aof experience crucial source 9 ELETE Part II. MARQUETTE LAW REVIEW MARQUETTE D OT OT N infra O Mentors instead commonly legal contribute absent 8 (D Part II. DOCX . infra discussion INAL -F . See 10 9. That is, a mentor engages with portfolio companies outside the boundaries of privity. 7. that are desired by startup entrepreneurs. An ex- Experts possess scarce resources 8. A unique feature of a MDIA is that, while a portfolio company directly enters into a 11. “Organizations produce a kind of veil of that facilitate generalized exchange readily I investigated the behavior of mentorsI investigated the sixty of over through series discussion ERNTHAL See Lessons from the American Experience (2012). ket environment service as in exchange for cash or equity could secure member, an advisory board board director, a startup a service provider, or a consultant. unteerism even as it masks economic aspects of mentor / portfolio com- The result is a mixed-motivepany exchanges. environment where indirect benefits function as a considerat theory well developed in sociolo change, best explains how MDIAs work. This Article is the first to exchange withbridge the insights of generalized law and entrepreneur- ship literature. compensates a mentor). agreement and, moreover, a mentor secure cash or not typically does (i.e., neither equity consideration and professional connections withinand professional MDIAs—serves in a as a volunteer for-profit world.A conservative estima MDIA programmillion attracts over $1 in mentor contributions. 1000 wouldstrategy withcontract be to mentors. 7B settings, a portfolio company directly enters into a financial agreement with a VC fund, and settings, a portfolio company directly enters one of the fund’s managing the portfolio company. directors provides expertise to pert’s connections and tacit knowledge, for example, are not fungible. A challenge for new pert’s connections and tacit knowledge, for startup rich geographies, is a lack of access to ex- entrepreneurs, especially those outside of of Business Accelerators on The Effects perts. Juanita Gonzalez-Uribe & Michael Leatherbee, Chile 28 (June 16, 2016) (unpublished manu- Venture Performance: Evidence from Start-Up [https://perma.cc/7S9A-N3YG]. script), http://ssrn.com/abstract=2651158 financial agreement with a MDIA, is mentor expertise provided to the portfolio company provided outside of contractual agreements. Legal scholarship accounts of entrepreneurial of venture capital, places strong emphasis con- on the role of finance, such as Gilson’s study tracts to organize collaboration. unclear how MDIAs make work these valuable exchanges without con- tracts. interviews research shows conducted in 2015–16. This original that in- formal arrangements promote altruism.” a “veil of altruism around the movement of resources.” Robb Willer et al., darity: A Comparative Field Study of Generalized and Direct Exchange 39285-mqt_100-3 Sheet No. 169 Side B 06/19/2017 09:53:44 06/19/2017 B No. 169 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 170 Side A 06/19/2017 09:53:44 (Sept. ORTUNE F quid pro quo. Obama Surprises (Aug. 28, 2011), (Apr. 24, 2012), Almost every- 15 OHEN AMERA C G. C 1001 1001 John Aguilar, AILY AVID , D See D M ,I’ I H Everyone, it would seem, except 17 This would characterize mentor- 16 18 Subsequent participation in the Dis- Subsequent participation 14 Telephone Interview with Anonymous Mentor #5 , http://www.crunchbase.com/organization/or- This leads some mentors to view men- 19 See ASE B Sphero’s journey includes many includes journey Sphero’s aspects 12 ) 6/12/17) 2:03 PM RUNCH ELETE WHO NEEDS CONTRACTS? NEEDS WHO D The Mentor Manifesto, , C OT OT N , How Sphero brought a Star Wars droid from screen to toy, , http://www.sphero.com/starwars/bb8 [https://perma.cc/753E- , http://www.sphero.com/starwars/bb8 O (D Sphero PHERO and new opportunities made possible by technology. But made and new opportunities by technology. possible DOCX . 13 , S David Cohen, INAL -F .Id. . See .BB-8 14. Sphero in is now on its 8th round of financing and has raised nearly $80 million 16 17. Of course, one mentor, CEO Paul Berberian, directly benefitted from his role as a 13. During to Boulder, President Obama a visit robotics toy. This played with an early 19 18. Mentors help portfolio companies with the implicit understand- could, for example, 15. Daniel Roberts 12 Why MDIA mentors matter. volunteer is a contestable Implied reci- Sphero, a startup founded in 2010, is an emerging 2010, is in founded a startup Sphero, company buoyed M K ERNTHAL C Y common emerging to a successful company: a talented team, work, hard some luck, http://www.dailycamera.com/ci_20473325/obama-surprises-sink-gets-accidental-yogurt- splash [https://perma.cc/W5PJ-X47G]. outside funding. 3, 2015), http://fortune.com/2015/09/03/sphero-star-wars-droid-toy/ [https://perma.cc/R4FA-8T53]. did they mentor. But most others who volunteered time for Sphero neither own stock nor receive direct financial compensation. procity is one possible explanation. ing that help will be returned on a time deferred basis. (Apr. 8, 2015) (notes on file with author). The Sink During Boulder Visit, Gets Accidental Yogurt Splash The Sink During Boulder Visit, Gets Accidental 7URB] (last visited Jun. 5, 2017). brought some welcome attention to the startup’s product. by volunteer experts. In 2015, Sphero produced the Star Wars the Star 2015, Sphero produced experts. In by volunteer toy, BB-8 a miniature movie’s of the blockbuster version drone robot controlled smartvia a user’s phone. for most of the mentors connections with- who volunteered insights and out securing direct in return. benefits one – Sphero, its founders, and the MDIAsone – Sphero, its who invested in the company – benefitted from this arrangement. 2017] 7B Sphero had one moreSphero had one element working participation in two in its favor: MDIAprograms. Sphero met its current CEO Paul Berberian through accelerator. the Techstars Boulder ship as a form of direct economic exchange with an implicit But reciprocity is not how mentorship works. Accelerator norms spec- ify that mentee portfolio companies are not obliged to provide direct value back to a mentor, let alone return value that is commensurate to the value of expert mentorship. botix#/entity (last visited Aug. 10, 2016). ney accelerator helped the companyney accelerator helped land the BB8 deal. 39285-mqt_100-3 Sheet No. 170 Side A 06/19/2017 09:53:44 06/19/2017 A No. 170 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 170 Side B 06/19/2017 09:53:44 . ]; M K EV , 64 C Y .R SSAYS E That OC 23 The Piracy .S Studies 317, 318–19 M 21 A RTS ,28 . 1687, 1688 (2006); induce collaborator Of Coase and Cattle EV OLLECTION OF Somethingmore . J.L. & A .L.R Secrets Revealed: Protecting 20 benefits A :AC V [100:997 [100:997 OLUM , 8 ISJLP 1, 7, 12(2012) (also dis- AGIC , 92 M Along lines, in prior these 22 Jacob Loshin, Other lines of legal literature, Space, 34 C 24 e order without law lowers par- AW AND See L note 1, at 140. in , note 21, at 157. Hollywood Deals: Soft Contracts for Hard Markets . 115, 157 (1992) (discussing opting out of the public . 115, 157 (1992) (discussing opting out of supra TUD S ) 6/12/17) 2:03 PM Of Coase and Cattle: Dispute Resolution Among Neighbors in Of Coase and Cattle: Dispute Resolution Among . 623, 627 (1986) [hereinafter Ellickson, Section III.A. ELETE EV Parts III and IV. MARQUETTE LAW REVIEW MARQUETTE EGAL D Opting Out of the Legal System: Extralegal Contractual Obligations in Opting Out of the Legal System: Extralegal Contractual OT OT infra A Theory of IP’s Negative N .L.R infra O , 21 J. L (D TAN , Legal Infrastructure and the New Economy Non-Contractual Relations in Business: A Preliminary Study Non-Contractual Relations in Business: A Preliminary Investment Accelerators, supra S , Jonathan M. Barnett, DOCX . , 38 discussion Lisa Bernstein, INAL -F . See, e.g. . See . See L.J. 605, 609 Bernstein, (2015); 24. Formal and other legal agreements contracts resolve a social dilemma by promising 22 20 23. Bernthal, 21 Legal scholarship does not account for MDIA does not Legal scholarship mentorship. Law and Yet the foregoing legal scholarship does not resolve the mentorship legal scholarship does not resolve Yet the foregoing ERNTHAL UKE Gillian K. Hadfield a benefit—i.e., consideration—to prompt Further, a contract militates a party’s participation. obligations to be borne in exchange for receiving against free rider problems by prescribing a benefit. Most order without law accounts fail to describe how a bene- participation in instances where a beneficiary is not obligated to directly reciprocate factor. In contrast, benefits of collaboration are discussed in negative legal spaces scholarship about intellectual property and human capital. Magicians’ Property Without Intellectual Law Paradox: Innovation and Intellectual Property in Fashion Design ship is further discussed complex with is going on MDIAs. “order without highlight society scholars law” instances where informal norms systems and extralegal substitute for private contracts. document wher anecdotal conditions costs whileties’ net transaction reputational sanctions substitute for contract to limit opportunistic behavior. 55, 55–56 relationships). Relevant legal scholar- (1963) (highlighting the significance of social D http://davidgcohen.com/2011/08/28/the-mentor-manifesto/ [https://perma.cc/9HQL- http://davidgcohen.com/2011/08/28/the-mentor-manifesto/ 4J9Q]. 1002 shows research But contribution. public-spirited as a torship that men- in pure altruismis not an exercise torship either. the Diamond Industry 7B Shasta County legal system); Robert Ellickson, Elizabeth L. Rosenblatt, cussing opting out of the public legal system and citing examples of social norms of trust and cussing opting out of the public legal system as sources of “economic relational services”); market responses to reputation for reneging Stewart Macaulay, work with I analyzed issues associated opportunism in MDIAs. work structure of Investment described the organizational Accelerators and explained how MDIAs a role as a norm play generator and norm enforcer, allowing reputational sanctions for contract. to substitute conundrum. transaction costs in norm-based Findings of reduced ex- motivationchanges do not explain experts’ to work in for-profit envi- ronments absent direct consideration. 123–24, (Christine A. Corcos ed., 2010); Kal Raustiala & Christopher Sprigman, 39285-mqt_100-3 Sheet No. 170 Side B 06/19/2017 09:53:44 06/19/2017 B No. 170 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 171 Side A 06/19/2017 09:53:44 : . .J. EV WO REE M , 109 T . 281, F E EV ]. .L.R B HE Incomplete Incomplete , 102 A :T .L.R Self-Enforcing RGONAUTS OF OLUM TAN ,A ANTS TO S HEORY Braiding: The Inter- W T . 1105, 1106 (2000). , 110 C , 68 OC 7 (2013). ALENT .J.S ALINOWSKI A Theory of Self-Enforcing In- , Scott & Triantis, M ,T 1003 1003 M XCHANGE A Generalized Exchange IDING E Contracting for Innovation R OBEL L See, e.g. , 105 Generalized Exchange and Social Dilem- REE F OCIAL RLY RONISLAW contractual disputes in order to disputes in order contractual Incomplete Contracts and the Theory of Con- O ,S AND , See ]; Robert E. Scott, Scott, E. Robert ]; KEH Braiding literature documents Braiding un- explain the mentorship conundrum. explain the mentorship conundrum. 26 AIDS ex post P. E note 25, at 1384; Ronald Gilson, Charles F. Sabel, & note 25, at 1384; Ronald Gilson, Charles F. ,R . 1641, (2003) [hereinafter Scott, 1642 Braiding EV In generalized exchange, a “benefit given In generalized exchange, a “benefit EAKS ETER 30 . 187, 190–91 (2005) [hereinafter Scott & Triantis, . 187, 190–91 (2005) [hereinafter Scott & Triantis, L ) 6/12/17) 2:03 PM The Private Order of Innovation Networks EV .L.R OVE ELETE L WHO NEEDS CONTRACTS? NEEDS WHO D note 11, at 121 (citing B .L.R OLUM Braiding, supra OT OT ES C Incomplete uncertain con- theories explain contract N (1922)); P A more panoramic MDIA perspective about the net- 25 O Ronald Gilson, Charles F. Sabel, & Robert E. Scott, Ronald Gilson, Charles F. Sabel, & Robert But MDIA mentorship differs in two respects from supra . (1993); Q. 235, 235–48 Peter Bearman, contracting costs. contracting 29 W. R (D Second, a mentor participate in a simple does not two- 27 EARN TO The Emergence of Generalized Exchange , 103 28 L ACIFIC Section III.A. Section III.A. ASE note 25, at 190. P DOCX Contracting for Innovation: Vertical Disintegration and Interfirm Collaboration Contracting for Innovation: Vertical Disintegration . . 431, 435–37 (2009) [hereinafter Gilson et al., . 431, 435–37 (2009) [hereinafter Gilson et see also SYCHOL Gilson et al., EV Matthew Jennejohn, (1974); Toshio Yamagishi & Karen S. Cook, .P INAL , 56 C ex ante ]; Robert E. Scott & George G. Triantis, HOULD -F S ]. OC E .L.R ESTERN . See . See infra . See infra . See W W 26. Parties willing to trade lower back- front-end transactional costs for higher potential 27 25 28 29 30. Willer et al., This Article’s central thesis is that exchange theory pro- generalized . 1383, 1383–415 (1997). Generalized exchange stands in contradistinction to direct ex- , 56 S M K ERNTHAL HY OLUM RADITIONS OC C Y action of Formal and Informal Contracting in Theory, Practice, and Doctrine action of Formal and Informal Contracting in Robert E. Scott, C incomplete and braiding. First, a mentor contracts enter in to a does not contract at all. to a person is reciprocated not by the recipient but by someoneto a person is reciprocated not by else in work helps explain how MDIAwork helps explain / startup exchanges function. mentor that best vides valuable insights and receiving of refers to the indirect giving “Generalized exchange benefits among more three or people who belong to the same group, organization, or network.” mas party exchange. change, such as a bilateral contract, where two actors trade benefits with one another. No- change, such as a bilateral contract, where two actors trade benefits with one another. buyuki Takahashi, T W (2011). Relatedly, Orly Lobel chronicles how experts and new companies interact in a variety (2011). Relatedly, Orly Lobel chronicles how property protection measures, bypass human cap- of contexts that eschew formal intellectual ital controls, and minimize formal contracts. 2017] as incompletesuch the mentor- to solve also fail and braiding, contracts ship conundrum. 7B 281–82 (2016); S THE certain environments where frameworksagree to procedural parties left innovations are as particulars of yet-unknown that build trust even underspecified. Contracts end enforcement costs enter into incomplete contracts. Contracts, supra save on ditions that lead parties to risk lead parties ditions that Agreements tract Design 1377, (2010) [hereinafter Gilson et al., definite Agreements 39285-mqt_100-3 Sheet No. 171 Side A 06/19/2017 09:53:44 06/19/2017 A No. 171 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 171 Side B 06/19/2017 09:53:44 . M K EX Part C Y , 3 T infra This in- Custom, Con- 37 discussion See . [100:997 [100:997 Part III that they willre- indirectly other mentors (such as inves- infra s across MDIA companies; and (iii) third parties outside of the MDIA social behavior, even when such be- even when social behavior, discussion The Relational Economics of Commercial Contract 223 (Marc A. Smith & Peter Kollock eds., 1999) (dis- See utionalize generalized exchange. from a portfolio company that benefits from L.J. 645, 654 (2012) (“Generalized exchange involves more ) 6/12/17) 2:03 PM UKE relationships with ELETE D MARQUETTE LAW REVIEW MARQUETTE YBERSPACE D Two prominent MDIA characteristics attend C note 30, at 1105; Kieran Healy & Kimberly D. Krawiec, note 30, at 1105; Kieran Healy & Kimberly Instead, mentors trust 32 OT OT , 62 N The Economies of Online Cooperation: Gifts and Public Goods in Cyber- The Economies of Online Cooperation: Gifts 34 O Generalized exchange deepens exchange Generalized whyinsight about in- Chapin F. Cimino, This Article traces the movement of indirect benefits. the movement This Article traces of indirect benefits. (D 31 supra 35 Part IV. DOCX . . 91, 102 (2015) (“It is a mistake to conflate relational with altruistic. In this con- relational with altruistic. In this . 91, 102 (2015) (“It is a mistake to conflate 36 INAL 33 OMMUNITIES IN EV -F C . See generally . See infra in , 34. A MDIA of direct benefits from a portfolio com- does not preclude the possibility 31. Peter Kollock, 33. Takahashi, 35. This is significant where for-profit entities, such as MDIAs and their portfolio com- 37. this respect, this Article draws upon and contributes to relational contract schol- In 32 36 This Article makes two it is the first to scholarly contributions. One, Unilateral giving occurs where a MDIA mentor di- does not expect ERNTHAL document MDIAs how instit generalized exchange: (1) unilateral giving, and (2) indirect return of and (2) indirect unilateral giving, exchange: (1) generalized benefits. text, relational means the tendency toward both cooperation and competition. An economic text, relational means the tendency toward and anti-social (opportunistic).”). actor can and will be both pro-social (cooperative) An expert mentor the same feels like a volunteer. But at time an expert mentor: (i) strengthens tors and serial entrepreneurs); (ii) realizes learning benefits such as see- tors and serial entrepreneurs); (ii) ing technology and investment trend enjoys reputational gains vis-à-vis enjoys reputational gains vis-à-vis network. than a dyadic relation.”). becomespany to a mentor. Rather, a direct benefit and mentee a future option that a mentor may mutuallyexercise in the future. dividuals and firms engage in pro- and firms engage dividuals with maximizing in tension havior appears party’s near-term a eco- nomic self-interest. ceive benefits—sooner or later—fromsomeone else, either within or outside of the MDIA network. Original research shows that, even as social norms mentors operate in the absence of contract, realize econom- professional rewardsically significant that substitute for contractual consideration. A&M L. R 1004 the group . . . .” 7B cussing peer production as a form of generalized exchange). the mentor’s help. rect consideration in return rect consideration space tract, and Kidney Exchange panies, privately appropriate gains that flow from volunteer help. arship that locate transactions on a relational scale ranging from discrete to highly relational. arship that locate transactions on a relational scale ranging from discrete to highly relational. II. 39285-mqt_100-3 Sheet No. 171 Side B 06/19/2017 09:53:44 06/19/2017 B No. 171 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 172 Side A 06/19/2017 09:53:44 . . T .S OOD NFO LONE I G LA A See e.g., Section RIC VON E Wayne E. Wayne E. AKE Robert Put- Y FOR , 41 F infra ’ M OL EVOLUTIONARY OWLING AWS , B L See, e.g., note 21; Ian Macneil, :AR See generally J.L. & P OOD . 877, 888, 901 (2000); Ci- . 877, 888, 901 (2000); G AKE UTNAM supra Bowling Alone, T P EV Civility and “Generalized Reci- OW 1005 1005 , 8 I/S: note 24, at 178–81. Research in :H OBERT note 33, at 647–48, which provides .U.L.R IVE AND Macaulay, Macaulay, supra W , ,G See supra (citing R ONSCIENCE OBEL , 94 N John Simonett, C L RANT G See See scholarship, such as investigations of scholarship, such Making Innovation Room for Cooperative between group members”). : they act selfishly and rationally.” Along similar: they act selfishly and rationally.” Along Two, law outside of entrepreneur- and 38 DAM (2005) (documenting and explaining user based inno- (2005) (documenting and explaining user ULTIVATING ) 6/12/17) 2:03 PM ,C ELETE WHO NEEDS CONTRACTS? NEEDS WHO Paying It Forward vs. Rewarding Reputation: MechanismsPaying It Forward vs. Rewarding Reputation: of Gener- D Generalized studied within exchange is rarely le- TOUT NNOVATION 39 OT OT I homo economicus N 169–70 (2013), who use “other- explaining why generous individuals A. S Yet, generalized exchange reveals much exchange Yet, generalized about how O note 6, at 322. Legal Infrastructure and the New Economy 40 (D YNN generalized reciprocity 25 Org. Sci. 1493 (2014) (giving extended treatment of generalized reciproc- 25 Org. Sci. 1493 (2014) (giving extended treatment assumptions, see A supra ,L UCCESS DOCX . S note 32. INAL EMOCRATIZING -F . 1067, 1074 (2014) (describing open source settings of “self-enforcing swift trust . 1067, 1074 (2014) (describing open source settings of “self-enforcing swift trust Bench & B. Minn., Feb. 2003, at 27, 28–29 4 (2011). Stout critiques conventional economic wisdom that most “people act like 4 (2011). Stout critiques conventional economic EV ,D . See, e.g. supra 1, 11 (2012) (summarizing motivations to collaboration apart from “economic incentive 1, 11 (2012) (summarizing motivations to collaboration apart from “economic incentive Y 40. A notable exception is Healy & Krawiec, 39 38. Other analyze economically valuable studies innovation generated by in- significant . ’ M K ERNTHAL IPPEL PPROACH TO EOPLE OC C Y III.B Baker & Nathaniel Bulkley, alized Reciprocity, In the well-known book ity in organizational behavior literature). do this for you know without expecting anything nam explains generalized reciprocity as “I’ll even knowing you, confident that down the road immediately in return and perhaps without extended treatment in examining of generalized exchange theory kidney donor regimes. Cer- “generalized reciprocity.” tain disciplines use the closely related term lines, Orly Lobel draws upon law and behavioral economics to document the nuance of com- lines, Orly Lobel draws upon law and behavioral mercial actors’ behavior and motivations. members of the species ish” strategies perform between better than selfish actors in corporate contexts. Connections behavior is discussed further, generalized exchange and pro-social commercial gal scholarship. vation); Powell, you or someone will return the favor.” else procity”, of a property interest”); Liza S. Vertinsky, U. L. R which is based on A S Study of the relational dimensions of contract—asStudy of the relational Macauley, examined by Macneil and oth- ers—emphasizes the social context of collaboration. H P 2017] showsvestigation how MDIAs’ mingles finance of startup version mar- withket benefits norms. social Challenges and Queries Relational Contract Theory: 7B other disciplines support the view the pro-social behavior is often an effective strategy within other disciplines support the view the pro-social organizational behavior literature that questions commercial contexts. For an overview of homo economicus ship, generalized exchange deepens legal scholars’ understanding of scholars’ understanding deepens legal exchange ship, generalized behavior. pro-social mino, mino, and why profit-oriented parties share information.and why profit-oriented This potentially lines of legal could enrich other why eschew parties or minimize secure exclusive legal tools that could Gillian K. Hadfield, (1st ed. 2000)).Aside from Healy and Krawiec, legal scholars rarely examine generalized ex- (1st ed. 2000)).Aside from Healy and Krawiec, refer- change or generalized reciprocity in close detail. Generalized reciprocity is glancing enced in certain descriptions of economic production and open source software. dividuals who do not fully capture dividuals who do not wealth created by the innovation. 39285-mqt_100-3 Sheet No. 172 Side A 06/19/2017 09:53:44 06/19/2017 A No. 172 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 172 Side B 06/19/2017 09:53:44 , M K C Y ELP H ]; Yochai external 1 (Coase-San- L.J. 369, 372 (2002) OLUNTEER rm will stand the V ALE Hume’s Penguin 41 [100:997 [100:997 internal indirect benefits , 112 Y of how mentors and startup s where volunteerism will likely The summary is illustrative, not RGANIZATION OF RGANIZATION this institutional fo this institutional O TARTUPS The Problem of Creative Collaboration S TO ]. Part III of this Article addresses how generalized ex- ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE mically valuable ways: (i) D Hume’s Penguin, or, Yochai Benkler and the Nature of Peer Production . L. 963, 971 (2009) [hereinafter Hetcher, OT OT N n-based exchanges. O ECH Coase’s Penguin (D appropriated by a mentor appropriated by vis-à-vis a third party outside .&T NSTITUTIONALIZE THE DOCX I . NT S INAL -F .J.E Coase’s Penguin, or, Linux and The Nature of the Firm Anthony Casey & Andres Sawicki, AND 41. instances where parties eschew or minimize legal tools Scholarship that examines This Section details who participates in MDIAs as well as the phases This Article proceeds in five parts. FollowingThis Article in five parts. proceeds Sec- this Introduction, See ERNTHAL II. MDIA of interaction between mentors. startups and expert Subpart A provides a short primer on accelerators. B then describes howSubpart MDIAs harness mentors’ free contributions. comprehensive, in providing a snapshot portfolio companies interact within a MDIA. tion II provides a primertion II provides investment on and mentor accelerators / Next,startup relationships. generalized exchange. III describes Section exchange to of generalized features then applies descriptive Section IV reveal mentor motivation. Generalized rewards exchange a mentor par- ticipant in two econo indirect benefits of a MDIA. Finally, Section V examines steps that MDIAs take to struc- ture and promote The MDIA generalized exchange. is only a decade old. It remains to be seen whether test of time. Section V determinants distills the of when a MDIA’s gen- is sustainable versu eralized exchange realized by a mentor from another MDIA (ii) participant; and of where haul. This contributes to understanding fail over the long for- mal contracting tools are—and are not—required participa- to induce tion in informatio Benkler, 11 V dor Working Paper Series in Law and Economics, Working 2016), http://chicagoun- Paper, bound.uchicago.edu/cgi/viewcontent.cgi?article=2486&context=law_and_economics that “informal rules functioning through mecha- [https://perma.cc/AF7B-5KXH] (arguing a nisms like reputation and trust can sustain an organizational solution without a manager, hierarchical firm, or formal law allocating control rights”). On peer production, see, for ex- ample, Steven A. Hetcher, ity. 1006 economic or direct property intellectual benefits. 7B includes “negative legal spaces” and peer production literature. Anthony Casey and Andrew production literature. includes “negative legal spaces” and peer Sawicki argue that informal rules often function better than formal rules in fostering creativ- [hereinafter Benkler, change relates to negative legal spaces and peer production. 39285-mqt_100-3 Sheet No. 172 Side B 06/19/2017 09:53:44 06/19/2017 B No. 172 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 173 Side A 06/19/2017 09:53:44 48 TEP note -S Y , GAN, -B supra Growth Growth Help in- TEP 43 S Join Us 47 HE capability. Ac- :T ANUAL 49 M 1007 1007 S ’ note 45, at 2; Hochberg, WNER lacks in-house . O supra Id. Harris, TARTUP ; S ices that fill startup gaps by provision ices that fill startup 23 (2012). Startups operate under severe resource severe resource operate under Startups nths—to portfolio companies. HE 42 , T ) 6/12/17) 2:03 PM Accelerators term provide a fixed of intensive ORF OMPANY D 46 expertise, funding, work space and facilities, C ELETE WHO NEEDS CONTRACTS? NEEDS WHO D note 1, Def- at 142, 151–52 (discussing genealogy of accelerators). note 1, at 161–62 OB OT OT REAT N note 1, at 148. &B A. A Primer Short Accelerator on the G O supra supra An accelerator combines many elements of pre-existing (D Over 5,000 startups participated in accelerators between participated in accelerators Over 5,000 startups 45 supra 44 LANK B DOCX . UILDING A Yael V. Hochberg, Accelerating Entrepreneurs and Ecosystems: The Seed Accel- Yael V. Hochberg, Accelerating Entrepreneurs Bernthal, Bernthal, Cali Harris, That Sell So- Selling Social Capital: United States-Based Accelerators INAL B TEVE -F . See . See . See . See 44 48. Many are members of Global Accelerator Network (GAN) and are able accelerators 46. For example, provide financing by connect- venture capitalists and angel investors 47. Bernthal, 42. S 43 45 49 The accelerator is a relative newcomer is a relative The accelerator among insti- startup support M K ERNTHAL UIDE FOR C Y 2005 and 2015. distinguished from an incubator on two grounds. One, accelerators help companies in lock- distinguished from an incubator on two grounds. typically accepts companies on a rolling basis. step on a fixed time frame, while an incubator financing to a startup. An incubator may charge a Two, an investment accelerator provides startup in exchange for space and assistance. erator Model 16 (Apr. 3, 2015) (conference draft), http://yael-hochberg.com/assets/portfo- lio/IPEHochberg.pdf [https://perma.cc/4R9E-J2D8] initional skirmishesthe definition exist concerning of accelerators. In short, an accelerator is to offer startups third-party perks from GAN sponsors totaling over $800,000. cial Capital and the Startup Entrepreneurs Whocial Capital and the Startup Entrepreneurs Buy It 3–4 (Spring 2016) (unpublished M.S.S. author). thesis, University of Colorado) (on file with ing sources of outside capital to new companies. Incubators and co-working spaces arrange physical facilities tailored to startup needs. marketing, Fractional finance, and legal provid- ers tailor professional services to startups. G peer-to-peer learning among entrepreneurs in portfolio companies, and introductions to potential customers and funders. 2017] 7B has been fast. cludes entrepreneurial constraints. Key inputs from Key inputs constraints. a fledgling firm boundaries of outside the must fulfill functions for which a startup celerators proliferated over the past decade followingcelerators proliferated the launch of Y- Combinator, widely accelerator in 2005, and regarded as the first which accelerator pioneer, Techstars, another in 2007 developed the MDIA model it across geographies. and subsequently scaled tutions. Atutions. formed is an “organization startup a repeatable to search for business model.”and scalable institutions and professional serv institutions and of specialized resources. help—usuallythree to four mo http://gan.co/join-us [https://perma.cc/6DHR-BKMP] (last visited Jun. 5, 2017). 44, at 14. 39285-mqt_100-3 Sheet No. 173 Side A 06/19/2017 09:53:44 06/19/2017 A No. 173 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 173 Side B 06/19/2017 09:53:44 51 M K A A C Y 50 MDIAs MDIAs 55 . —around profitable 52 [100:997 [100:997 note 44, at 7 , supra lio companies to limited part- volunteer help is not as novel volunteer help is at 142. Id. note 1, at 151–52. The accelerator landscape can be divided note 1, at 151–52. The accelerator landscape ) 6/12/17) 2:03 PM While MDIA mentorship may to be surprising ELETE MARQUETTE LAW REVIEW MARQUETTE supra 54 D note 1, at 160–61; Hochberg note 45. OT OT N O supra (D , supra DOCX . Bernthal, Harris INAL -F . See . See 53 note 45. While may be material for MDIAs, these three additional sources of revenue 50. Venture are intermediaries capitalists that match outside sources of capital and ex- 51 52. from portfolio companies, there are three additional sources addition to returns In 54 55. Many economically valuable relations occur beyond the boundaries of contractual 53. Super angels are prolific investors in early stage companies. While a “regular” angel Investment are a permutation accelerators VC industry. of the The MDIA systematically organizes informal help to startups. expert ERNTHAL common arrangement an IA is that $25,000 and non-financial bundles portfolio companyhelp to a a 5–7% in exchange for ownership stake. 1008 An IA’s success hinges—at financial least in part 7B Mentors in professional experience and are “ahead” of entrepreneurs network connections. outcomes that flow from companies. in portfolio ownership an Thus, investment angel” fund, effectively is a version of a “super accelerator a small VC firm of startups and profit- that seeks to invest in a portfolio fromably return capital early stage portfo ners. those unfamiliar with practices, startup within entrepreneurial communities as one might expect. pertise to startups. Bernthal, finance perspective: non-investment accelerators into two camps from an entrepreneurial do not seek profit through equity ownership (NIA) and investment accelerators (IA). NIAs that mayin startups. NIAs instead prioritize objectives include community economic devel- impact, or affinity group support. In contrast, IAs opment, entrepreneurial education, social take partial ownership its startups. in A notable variation to the NIA model is that used by the non-profit Chicago New Venture A notable variation to the NIA model is that used by the non-profit Chicago programChallenge (NVC). Startups in this university-run compete of a million for part in cash prizes and in-kind services. Whenof fund- a winning team either raises the next round piece of the equity, based on a valuation, so that ing or exits the company, NVC takes a small sustain and support it. Telephone Interview by funds come back into the program to help Representative #25, (June 8, 2016) (notes on Malea McKeown with Anonymous Accelerator file with author). of possible MDIA revenue. One is that the MDIA solicits sponsorships, such as financial providers, and software providers. Two is contributions from legal providers, accounting that many MDIAsand organize) corporate accelerators. are paid to “power” (i.e., operate take a small management fee. Harris, sometimes Three, MDIAs that raise investment funds supra the majority of a MDIA’s success or failure will from hinge on returns portfolio companies. investor uses his or her own money, a super angel typically invests money on behalf of a investor uses his or her own money, a super angel typically invests money on fund. David Mangum, Bringing Angel Investing Out of the Shadows 3 (May 12, 2012), [https://perma.cc/L24U-http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2285575 DV6L]. protection and, without more, it is unsurprising to find informal surpris- collaboration. The 39285-mqt_100-3 Sheet No. 173 Side B 06/19/2017 09:53:44 06/19/2017 B No. 173 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 174 Side A 06/19/2017 09:53:44 58 1009 1009 Along similar lines, in 56 norms of volunteerism in 61 fostered social networks critical 60 Id. (i) pools mentor volunteers available Bill Campbell, Coach of Silicon Valley Stars, Dies at Bill Campbell, Coach of Silicon Valley Stars, norm geographies. startup in certain Upon the suggestion of venture capital- Upon the suggestion 75–78 (2011). 57 OBS J . 27 (2002). help, regional development initiatives devel- ) 6/12/17) 2:03 PM Building Regional Innovation Capacity: The San Diego Experi- DUC , http://www.connect.org/about-connect CONNECT, TEVE ELETE E WHO NEEDS CONTRACTS? NEEDS WHO D , S , access to capital, and the business tools they and the business tools they , access to capital, ad hoc OT OT N IGHER O (D SAACSON &H I DOCX . (Apr. 18, 2016), http://www.nytimes.com/2016/04/19/business/bill-camp- INAL Markkula significant equity stake and an early was ultimately rewarded with a ALTER Studies of San Diego’s regional economic Studies of San Diego’s development empha- IMES -F NDUSTRY T 59 expert guidance . About CONNECT .Id. .Id. 59 60 61. Mary L. Walshok, et al., 56. As Times obituary noted, “Strikingly, Mr. a New York Campbell’s advisory role was 57. W 58 The MDIA pre-existing behavior extends , 16 I M K ERNTHAL , N.Y. C Y 1976, Mike Markkula was person who a business gave away help free basis. to startups on a regular twoThe MDIA: innovative ways. to help portfolio company entrepreneurs as part of its for-profit business model; organizes mentorship and (ii) across geographies at a scale that, role with Apple. [https://perma.cc/2J5Z-926M] visited Jun. 5, 2017) (emphasis added). Founded in 1985, (last CONNECT is rooted in efforts to bolster the San regional economy. Diego Academic leaders leaders at UC San Diego teamed with Qualcomm founder Irwin Jacobs and other community to establish a program to provide access for startups to key experts and outside resources. CONNECT remains active thirty years later. CONNECT San Diego prominently notes that it “helps entrepreneurs entrepreneurs “helps it that notes prominently Diego CONNECT San with need.” size that CONNECT, founded in 1985, Diego’s economicto nurturing San growth. ing aspect of MDIAs context where com- is that informal mechanisms prevail in a for-profit where private interests capture the gains of petitive innovation objectives are paramount, fruitful collaboration, and where formal contractual alternatives are familiar and readily available. These traits distinguish MDIAs, for example, from volunteer work for a non-profit board with a public mission. Further, the direct beneficiary in a MDIA is not an individual, but a company nested within a larger for-profit company (an investment acceler- (a startup) ator). This distinguishes MDIA types of professional mentoring such mentorship from other a bar association. as that available to new attorneys through wantedoften unpaid, at his insistence; he said he to pay back what he felt was a debt to the nation’s technology region.” John Markoff, 75 2017] behavior on a pre-existing build For example, Bill Campbell—known as “Coach”—mentored many Silicon Valley, and figures in startups assistance to early including Brin. and Sergey Larry Page Google founders of Beyond instances oped similar programsexample, volunteer assistance. For of 7B ence bell-coach-of-silicon-valley-stars-dies-at-75.html?_r=0 [https://perma.cc/NQ99-3TBE]. bell-coach-of-silicon-valley-stars-dies-at-75.html?_r=0 ist Don Markkula Valentine, a young entrepreneur named helped Steve Jobs write lifecycle of Apple a business plan early in the Computers. 39285-mqt_100-3 Sheet No. 174 Side A 06/19/2017 09:53:44 06/19/2017 A No. 174 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 174 Side B 06/19/2017 09:53:44 64 M K C Y (Feb. 4, 2015), formation sharing [100:997 [100:997 ABORATORY New Incubator Network to Help 66 L other entrepreneurial support NERGY Vast in accelerator differences lp in open in E 65 ENEWABLE R L ’ ) 6/12/17) 2:03 PM note 3. AT ELETE MARQUETTE LAW REVIEW MARQUETTE D , N supra cultures, technology capabilities, and background capabilities, and background cultures, technology The MDIA form has now been rep- of organization OT OT 63 Of is that the interest MDIA strategy organizational N O 62 In addition to MDIAs, (D 67 DOCX . INAL -F .Id. .Id. 62. A and investor in Colorado relayed to me that accelerators took serial entrepreneur 63. GAN has 122 is an organization that spun out of Techstars. As of July 2016, GAN 64 65 66. his accelerator Cairo, Egypt reported that A minor example: a managing director in 67. Efforts to spur innovation from the federal research laboratories, for example, lean MDIAstrend in startup volunteerism. lead a broad An increasingly ERNTHAL accelerator members in its network, each of whom has a strong mentorship component. In- accelerator members in its network, each terview with Patrick Riley, licated by over 100 accelerator programslicated by over locations. across disparate common world, feature of the 21st Century startup even out- observable side of MDIAs,to assemble is he expert 1010 number the expands aggregate, in the with of entrepreneurs to access expert resources. MDIAs cities such as New operate in large York City; international lo- Egypt; and even locations withcales such as Cairo, limited numbers of entrepreneurs. experienced technology environments. 7B http://www.nrel.gov/news/press/2015/16455 [https://perma.cc/8HQ5-WGCG]. http://www.nrel.gov/news/press/2015/16455 [https://perma.cc/8HQ5-WGCG]. something that was already happening in the startup community and “just made it bigger . . . the startup community and “just made it bigger something that was already happening in a lot bigger.” Interview with Jim Franklin, in Boulder, Colo. (Sept. 17, 2015) (notes on file with author). uses the informal mentor structure, however, there is not an equivalent translation for the uses the informal mentor structure, however, there is not an equivalent translation Interview “mentor” position in Arabic. So, he noted, they use the word “mentor.” Telephone author). with Anonymous Accelerator Representative #16 (Apr. 7, 2015) (notes on file with reputation, business reputation, business norms across these locations. of behaviors exist to assemble emerge did not organically experts volunteer worldwide. Accelerator the Global Net- association, the leading industry Instead work (“GAN”), a MDIA crafted based primarily playbook on the model that originated in prestige accelerator organization of Techstars, a high Colorado. Boulder, heavily on individuals who do not charge for their services. Clean-Energy Entrepreneurs 39285-mqt_100-3 Sheet No. 174 Side B 06/19/2017 09:53:44 06/19/2017 B No. 174 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 175 Side A 06/19/2017 09:53:44 , OULDER Europe ac- .B (June 15, 2016, OLO , http://ipvid- The ever- The 72 note 67. and even com- and even RENDS , U. C 71 T Bruce Brown, increasing institu- supra , 1011 1011 IGITAL , http://disneyaccelerator.com/ see, e.g., , D with some ties to economic impact. NTREPRENEURSHIP , http://www.bencolorado.org/ E tech/europe-us-canada-startup-accelera- OR F ETWORK CCELERATOR N A TR to be seen whether expert rosters available to assist bio- to available rosters expert .C corporate incumbents, corporate ISNEY 70 , D ICH M ) 6/12/17) 2:03 PM ., http://www.lifesciencetn.org/?page=LifeSciTnMentor ., http://www.lifesciencetn.org/?page=LifeSciTnMentor ELETE energy companies energy coming of federal labora- out WHO NEEDS CONTRACTS? NEEDS WHO ENN D OF NTREPRENEURS T 68 E OT OT N O , U. (D CIENCE S DOCX Innovation & Entrepreneurship New Venture Challenge Innovation & Entrepreneurship New Venture . INAL LACKSTONE IFE university spin outs, university -F 69 73 . Do Not, There is No Try or Do . Finance 629 . Entrepreneurs New Incubator Network to Help Clean-Energy 72. B 68. L 71 69 70 73. During course of this research, one accelerator principal asked me “when will the M K ERNTHAL C Y [https://perma.cc/F4PV-FKRE] visited Jun. 5, 2017). (last panies that boast $5-10 million boast $5-10 panies that revenues. in annual eos.engin.umich.edu/resources/finance-629 [https://perma.cc/L9WP-9UW4]eos.engin.umich.edu/resources/finance-629 (last visited Jun. 5, 2017); 3:04 AM), http://www.digitaltrends.com/cool- tors/#ixzz4ckKGRDto [https://perma.cc/EPM5-YA4M] (noting government involvement for annual budget such that a “significant part of the European Commission’s $900 million startups goes to accelerators”). 2017] offer pre-assembled institutions startups, technology 7B expanding roles played by volunteer experts in the startup economy in the startup by volunteer experts roles played expanding is not yet well studied. It remains tionalization of volunteerismtionalization of will sustainable over the long prove term. [https://perma.cc/S34T-FKCG] 5, 2017). (last visited Jun. [https://perma.cc/FLB7-W34B] 2017). Notably, free help is not limited (last visited Jun. 5, Network, for example, specializes in arrang- to new startups. The Blackstone Entrepreneurs so-called Gazelle companies that already have $5- ing tailored volunteer help from experts to IA, previously used a fixed-structure that 10M in annual revenues. Healthbox, a healthcare theattracted pre-seed startups. Responding to needs of their partner corporations, the pro- gram that are ready to put technology into hospitals and may al- now focuses on startups revenue. Telephone Interview by Malea McKeown ready have customers and are generating #24 (June 8, 2016) (notes on file with author). with Anonymous Accelerator Representative tories, http://cunvc.org/ [https://perma.cc/5BQ8-QT4G] (last visited Jun. 5, 2017). University in- http://cunvc.org/ [https://perma.cc/5BQ8-QT4G] to assist startups moving off the campus. Hack- cubators and accelerators rely upon experts alongside newcomers to an entrepreneurial com- a-thons mingle expert volunteers who work munity. the shakeout occur?” By shakeout the principal meant the closing or consolidation of accel- the shakeout occur?” By shakeout the principal erators. The likely answer is that or consolidation will occur around the time in a shakeout should be) returned to LPs. At that point, MDIAwhich the first accelerator funds need to (or programinvestors will have visibility about (i) individual accelerator investment perfor- mance, and (ii) accelerator investments as an asset class. Separate from private investment Startup Chile in the government sponsored accelerators, Europe has aggressively followed strategy. In those circumstances, continua- accelerator model as an economic development tion of government funding becomes a political question, On European accelerators and governmental involvement, celerates startup accelerators, while US remains on cruise control 39285-mqt_100-3 Sheet No. 175 Side A 06/19/2017 09:53:44 06/19/2017 A No. 175 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 175 Side B 06/19/2017 09:53:44 M K C Y (ii) seven- 74 [100:997 [100:997 Interviewees were promised ntor networks how further, and, and (iii) thirty-one interviews and (iii) thirty-one 76 s three dimensions of mentor net- 75 re with entrepreneurs; ion is described in detail below.ion is described tional details about MDIAtional details about mentor in- ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE note 1, at 144–45. Strategic organizational decisions about how D Each of these models are presented in a stylized OT OT 77 N O supra (D DOCX . Bernthal, INAL -F . See B. MDIAs Help Startups Harness Voluntary Mentor Contributions 74. Fourteen MDIA. of these entrepreneurs led startups that participated in a Anony- 75. All but one of these mentors were involved in a MDIA. Anonymous Mentor #6 did 76. All these accelerator representatives were involved in a MDIA. but one of Anony- 77 Semi interviews structured were un- and better conducted to study An accelerator has three alternatives in how as engage experts, Interviews reveal the institu ERNTHAL to procure expert assistance may at the firm occur at the accelerator level or level of the startup. derstand how accelerators organize me how accelerators derstand mentorsstartup and This Article interact. is informed in- by sixty-four terviews from 2015–16. Interviews of accelerator three types spanned interviewsparticipants: (i) sixteen we 1012 7B works: (1) experts voluntarily opt into a shared mentorworks: (1) experts pool; (2) mentor four different types of self-select one another; and (3) and startups often mentors Each dimens participate. volvement.subsection highlight This 1. MDIAs organize experts into a mentor network. shown in Figure 1. fashion, however, in practice they mayfashion, be used in combination and are not mutually exclusive. anonymity in order to promote candid feedback. were with representatives. accelerator mous Entrepreneurs #4 and #10 did not participate in a mentor drive accelerator. in a mentor drive accelerator. mous Entrepreneurs #4 and #10 did not participate not participate in a mentor driven accelerator. Further, mous Accelerator Representative # 31 led an accelerator that is not mentor-driven. who Anonymous Accelerator Representative # 17 led an accelerator that relied upon mentors were compensated with equity. teen interviews were with mentors; with were interviews teen 39285-mqt_100-3 Sheet No. 175 Side B 06/19/2017 09:53:44 06/19/2017 B No. 175 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 176 Side A 06/19/2017 09:53:44 ) 78 note 1, at 153 supra Network Portfolio company and expert infor- mally meet; expert offers assistance ( Accelerator assembles a pool of ex- perts, known as mentors, who are avail- able to help portfolio companies in a cohort Under the mentor- the Under 79 Bernthal, 1013 1013 See rovider p ) Contract (Buy) Accelerator and Volunteer expert enter into an agreement of- where expert fers help in con- sideration for pay- an ment (often in equity interest the accelerator co- hort Portfolio com- pany engages ex- pert through a contract for part- time assistance, such as an advi- sory board role, a consultant ar- rangement, or a professional ser- vice ) 6/12/17) 2:03 PM anies p ELETE WHO NEEDS CONTRACTS? NEEDS WHO D ) OT OT N O (D . Make Employee ( Portfolio com- pany hires ex- pert full time “in-house” as an employee, board director, and/or C-level officer Accelerator hires expert full time (e.g., as Managing Di- rector or Entre- preneur-in- Resident); ex- pert works with multiple port- folio com DOCX . Figure 1: AlternativeFigure 1: Ways to Organize Help Expert note 3. The Global Accelerator Network, led by Riley, has 122 members, each of at 155 INAL -F .Id. .Id. supra 78 79. Numerically speaking, “The [mentor-driven] Boulder model has won.” Telephone The mentor-driven accelerator model is the most widespread among M K ERNTHAL Portfo- lio Co / Expert Ar- range- ment Accel- erator / Expert Ar- range- ment C Y whom uses the MDIA model. To be clear, this is not a claim that one model is more successful on average than the other. Data for this does not yet exist. IAs overall as well as among highly ranked IAs. 2017] 7B Interview with Anonymous Mentor #8, (Apr. 15, 2015) (notes on file with author). This men- tor is closely involved in both Y-Combinator and Techstars programs. One estimate is that Patrick about 80% of investment accelerators world-wide are mentor driven. Interview with Riley, 39285-mqt_100-3 Sheet No. 176 Side A 06/19/2017 09:53:44 06/19/2017 A No. 176 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 176 Side B 06/19/2017 09:53:44 M K ND C Y A Un- 82 UDITING ,A 87 CCOUNTING an accelerator’s finan- an accelerator’s [100:997 [100:997 A F ), Lexis (database updated 2016). O A ledge intensive enterprises enterprises ledge intensive company is the information . 2511( and experts outside the startup and experts outside note 41, at 975. The non-rival character of infor- The non-rival character EC IAs often contend, however, that ANDBOOK 83 85 rmation-based insight may well be H S 104 N.W.2d 661, 665 (1960)). Tax law defines a ’ supra ., ificant value in IRC S , note 41, at 404. supra TTORNEY , 84 ) 6/12/17) 2:03 PM XPLANATION ELETE E MARQUETTE LAW REVIEW MARQUETTE D note 1, at 157–58. Hume’s Penguin OT OT EXIS N , § 9.02, 6 (Matthew 4th ed. 2015). Bender ed., O supra note 45. ., L (D Coase’s Penguin note 3. MDIA mentorof a legal status have the contributions supra 80 DOCX . supra D. Edward Martin, A EPORTING Bernthal, R INAL at 3 (observing that “accelerators sell social capital, and startup entrepreneurs See URKE ET AL -F B Expertise and access to a mentor’s social capital are central fea- Portfolio companies Portfolio know operate in .Id. .See 86 81 86. Harris, 87 81. The outside of a con- term “gift” describes something done or promised gratuitously 84. “[C]reative works are non-rival in their consumption in as much as consumption by 80. The term “coach” is common to accelerator nomenclature to refer to an individual 82. To date accelerators have largely focused upon internet, mobile and software indus- 83. production, whether a startup idea or an open source software effort, Information 85 The aggregate of mentors’The aggregate of a MDIA’s contributions is central to value ERNTHAL ARTIN INANCIAL buy it”). The main focus in the tax practice area is the proper valuation and reporting of the donated the proper valuation and reporting The main focus in the tax practice area is includes a category for services of volunteer services to non-profits. A noncash “gift-in-kind” like physical products and tangible resources, “information tangible resources, products and like physical doesn’t get used up even when it is consumed.” workers. tures of an accelerator’s value companies. to portfolio mation means that a mentor’s is not fully given away: contribution what the wayis contributed in of an info mentor.used again by the gift as “a voluntary transfer of property by a donor to a donee, without full consideration.” J. gift as “a voluntary transfer of property by M tract. Consideration, an essential element of a contract, is “something of value given in return tract. Consideration, an essential element for a performance or promise of performance that is bargained for; consideration is what v. Hasselmo, 542 N.W.2ddistinguishes a contract from a gift.” Deli (Minn. 649, 656 Ct. App. 1996) (citing Baehr v. Penn-O-Tex Oil Corp proposition. A sign startup finds cial investment, with reputational signals associated partici- accelerator of work space. and provision pation, one person does not mean there is any less—of a book, for instance—to be consumed by another person.” Hetcher, F n.65. with a portfolio company. Interview with who is paid for sharing entrepreneurial expertise Patrick Riley, 1014 model,driven compensation direct secure not usually do experts for their efforts. 7B tries where information and novel ideas are crucial inputs. the character of knowledge inputs frominvolves “quirky” attributes that distinguish tangible resources. Benkler, their most important value to a portfolio exchanges facilitated betweenexchanges facilitated startups firm. gift. and a mentor’sinformation to a startup is contribution oriented. 39285-mqt_100-3 Sheet No. 176 Side B 06/19/2017 09:53:44 06/19/2017 B No. 176 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 177 Side A 06/19/2017 09:53:44 95 A 88 91 1015 1015 in turn collects multiplein turn collects a MDIA lowers search and Four benefits are provided by Four benefits are One, 92 ng or formal engagement of advisors note 3. Meanwhile, acceptance into the acceler- supra expert’s contributions wouldto be difficult note 3. ) 6/12/17) 2:03 PM interactions. The MDIA company provides a portfolio ac- A portfolio company 93 90 ex ante. supra ELETE WHO NEEDS CONTRACTS? NEEDS WHO D note 1, at 183–84. note 1, at 168–70, 182. note 1, at 148. ad hoc OT OT N O supra supra supra (D A mentor commonly works with a startup company two DOCX . at 146–48. 89 This reduces search costs. Further, the mentor pool side- 94 Bernthal, Bernthal, Bernthal, INAL -F . See id. .See .See .See 93 89. A ratio appears to be the prevailing MDIA range of 8:1 to 10:1 expert to startup norm 90. Research one conducted for this Article found that an individual mentor averaged 94. Portfolio companies trust mentors introduced through the curated accelerator net- 95 91. This on average mentor participation across MDIAs. estimate is based It assigns the 92 88 An commonly cohort accelerator a time. at ten startups includes MDIAIn the absence of acceler- of experts benefits startups. pooling M K ERNTHAL C Y contracting costs, at least relative to alternativecontracting costs, to reach ex- strategies steps contracting costs early in a startup’s lifecycle, a time lifecycle, a a startup’s steps contracting costs early in of high un- certainty when value of an delineate and quantify ator indicates that a portfolio company has been vetted and likely to get attention to from mentors who might not otherwise meet with them. to date. Interview with Patrick Riley, mentors give 3.3 hours per week. active find that to two hours per week. Surveys by GAN Interview with Patrick Riley, work. “When evolves faster you meet someone through someone else, that relationship Entrepreneur #2, (Apr. 06, 2015) (notes than” if not. Telephone Interview with Anonymous on file with author). to four hours per week. to four hours perts, such as community such as perts, networki at the company’s outset. a mentor pool over mentors’ inputs totals aggregate of these For startups the contributions. hours per week.around five to six a conservative esti- For accelerators mate is that a single MDIA program over $1 million attracts in volunteer over a expert contributions to four monththree program. MDIA network expert critical mass achieves of mentors at an 8:1 ratio to startups. Relatedly, a startup business often shifts strategy quickly, an event Relatedly, a startup business often 2017] 7B ator (or similar)participation, a startup must engage ex- seek out and perts on an ad hoc assistance. basis for value of mentorhour. This number advising a rate of $300 per is conservative as it is consid- would commanderably lower than rates that VCs and CEOs as expert witnesses, consultants, actively involved in a cohort, fourteen-week or other roles. Assumptions: eighty mentors per week, $300 per hour. Withprogram, each mentor averages three hours these assump- exceeds $1 million. tions, the value of volunteer contributions cess to a pool of pre-screened mentors with certified areas of relevant expertise. 39285-mqt_100-3 Sheet No. 177 Side A 06/19/2017 09:53:44 06/19/2017 A No. 177 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 177 Side B 06/19/2017 09:53:44 M K The ASS C Y In- M GAINST 100 (Feb. 15, A OW note 97; ALK ACE T note 1, at 148 . (forthcoming :H ,R EV supra supra FFEE L. R Information ex- CIENCE A coming-entanglement- 99 A C :S V M , Hillis, IKINOMICS [100:997 [100:997 Bernthal, , 103 ,W MERICAN See NDREW See, e.g. A &A ILLIAMS ons is frequently required. A required. ons is frequently e ability to “combine and recombine” ideas, Erik Brynjolfsson & Andrew McAffee ob- , http://edge.org/response-detail/10707 , http://edge.org/response-detail/10707 CIENTIFIC Id. D. W , S DGE at 14. 44 (2006). RYNJOLFSSON Id. , E B als facilitates emergent ideas where one When model, its business alters a startup “information gaps” exist. This benefit can be facilitated when a port- 96 NTHONY RIK The Dawn of Entanglement, essay in 2010: How is the Internet The Dawn of Entanglement, essay in 2010: How ) 6/12/17) 2:03 PM 101 icamerican.com/podcast/episode/the- &A ELETE VERYTHING MARQUETTE LAW REVIEW MARQUETTE D E OT OT Information Gaps and Shadow Banking N O (D HANGES APSCOTT C T DOCX ., W. Daniel Hillis, at 185. . 19 (2011). “This is the world we live in now. It’s one where computers improve 19 (2011). “This is the world we live in now. Missing on emerging out risks missing out on cost sav- tools pooling facilitates iterative exchanges among pooling facilitates mentors. ON INAL a technology-oriented startup faces the daunting task of track- startup faces the daunting a technology-oriented 97 -F Information and, across dispersed pockets is disaggregated 98 . See id. . See, e.g ACHINE 98. Complexity systems is such that no one person or en- in interconnected technology 99. Kathryn Judge, 100. D 101. Emergence is “the creation of attributes, structures, and capabilities that are not 96 97 Three, Two, M ERNTHAL OLLABORATION n.38. “The Entanglement” observes that technology tity can track all developments. For example, is at once more yet less comprehensible. interconnected Coming Entanglement: Bill Joy and Danny Hillis change between portfolio company a and multiple mentors allows a mitigatestartup to better information gaps by assembling information provided by multiple mentors. Changing the Way Think? You idea builds upon another. teraction with more individu 2012), http://www.scientif bill-joy-an-12-02-15/ [https://perma.cc/992N-HFUN]. Erik Brynjolfsson & Andrew bill-joy-an-12-02-15/ [https://perma.cc/992N-HFUN]. McAffee is improving highlight the difficulty most people have in grasping that technology at an exponential—not linear—rate. advances seem This makes the speed of surprising. For tasks not predicted as recently as 2004, example, software increasingly handles unstructured such as effectively driving cars. E access to new informationaccess to and connecti critical mass of preassembled mentors with may a range of capacities the newinclude a shift with- startup, enabling needed by the expertise costs of assembling the search out incurring a new roster of experts. and marketing relevant technological changes with its limited re- sources. from any single perspective, folio company hosts bi-weekly dinners so that its mentors interact and ings and value creation that are shifting in exponential—notings and value linear— ways. so quickly that their capabilities pass from the realmso quickly that their capabilities pass from into the everyday of science fiction or even within the span of a professional’s world not over the course of a human lifetime, career, but instead in just a few years.” 2017). C 1016 widely known as a “pivot.” 7B [https://perma.cc/7GCJ-GYKJ] (last visited Jun. 5, 2017). [https://perma.cc/7GCJ-GYKJ] (last visited serve how complementary innovations expand th inherent to any single node in the network.” THE 39285-mqt_100-3 Sheet No. 177 Side B 06/19/2017 09:53:44 06/19/2017 B No. 177 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 178 Side A 06/19/2017 09:53:44 , FFEE A C note 41, Wikipedia: A &M supra , accelerators and an “in- note 94; Telephone 106 Four, supra RYNJOLFSSON 103 Shun-Ling Chen, 1017 1017 Coase’s Penguin see also 247, 259 (2010). (“[T]he whole com- note 102; Telephone Interview with rs into the samers into the meeting with ECH gh three types of interactionsgh three types of supra .&T CI Along Techstars in 2016, lines, these note 41, at 417; . L.J. S 102 LB supra A , ) 6/12/17) 2:03 PM , 20 ELETE One example is that most of this MDIAs prohibit WHO NEEDS CONTRACTS? NEEDS WHO D 104 OT OT note 1, at 143–44, 165. N O (D supra Coase’s Penguin DOCX . ). Centralized commands that a mentor and a startup work at 186–87. 105 108 INAL number of meetings) or mating metaphors (“speed dating” is -F .Id. 107 note 98, at 20–21. They point out that with note 98, at 20–21. They point out that with fifty-two cards, there are 52! ways to arrange 104. Bernthal, 108. Telephone #2, Interview with Anonymous Entrepreneur 102. Telephone 9, 2015) (notes on file Interview with Anonymous Entrepreneur #7 (Apr. 103. Benkler, 105 106. Telephone with Anonymous Accelerator Representative #1 (Feb. 24, Interview 107. Telephone (notes on file interview with Anonymous Entrepreneur #3 (Apr. 8, 2015) An intense period where startups meet multiple mentors is common M K ERNTHAL C Y 2. Mentors throu self-select and help at the outset of an accelerator program.at the outset of an frequency of meetings The high that a portfolio company takes early in the program cast in terms is often as “mentorof psychological affliction (such madness” sane” together within a MDIA are atypical. Instead MDIA experts and port- startups at the outset of the program. at the outset of startups In this way, of men- the addition tors whocompany to a portfolio contribute the “possible ways expand in which can make individuals cooperating creative in differ- each other ent ways than they otherwise would have been.” Boulder began placing multiple began placing Boulder mento munity gradually enriches the protected software commons with everyone’s contributions.”). munity gradually enriches the protected software Interview with Anonymous Entrepreneur #7, that One CEO highlighted Anonymous Mentor #9 (Apr. 15, 2015) (notes on file with author). Similarly, “‘Would you be my mentor?’ . . . is kind of like asking someone out for a date.” between “you can usually tell in the first couple minutes as to whether there is chemistry on file people.” Telephone Interview with Anonymous Entrepreneur #5 (Apr. 8, 2015) (notes with author). which cascades and accelerates into combinatorial explosions. B which cascades and accelerates into combinatorial 2017] ideas. another’s on one build 7B common also act as a buffer to protect startupsalso act as a buffer against opportunism in their early outside interactions. mentors from time role during a startup’s taking a paid advisory in a program. at 415. with author). Republic of Science Democratized supra returns to the scale of the pool of individuals, re- the cards. This illustrates the “increasing applied.” Benkler, sources, and projects to which they can be 2015) (notes on file with author). with author). 39285-mqt_100-3 Sheet No. 178 Side A 06/19/2017 09:53:44 06/19/2017 A No. 178 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 178 Side B 06/19/2017 09:53:44 M K C Y OURCE S Open Source CCELERATOR PEN A O at 414. When the NTO Id. I note 109, at 33. This supra [100:997 [100:997 CONOMICS OF NSIGHTS I E HE note 27, at 434, 451–52, 455. T in OUNDER supra , note 41, at 408. Human creativity in infor- , :F supra person and self-select into mentor self-select into person and / , At an extreme, accelerator had its one CCELERATE 112 ) 6/12/17) 2:03 PM ., A diamonds. You have to movediamonds. You a lot of mud. [It Other in portfolio such as advising activities, ELETE MARQUETTE LAW REVIEW MARQUETTE 109 D found that accelerator companies with more experienced teams, Coase’s Penguin 57, 61, 67 (Jurgen Bitzer & Philipp J.H. Schroder eds., 2006) (noting J.H. Schroder 57, 61, 67 (Jurgen Bitzer & Philipp OT OT observe that Knightian uncertainty makes ef- it difficult to contract Contracting for Innovation N O et. al. (D et. al. One managing described the mentor director matching EERING ET AL D 111 DOCX . in transaction specific investments, a fact that makes flexibility in agreements 110 EVELOPMENT 110 at startups during intensive mentor (2014) (near term “operations suffered” INAL UKE D -F ex ante 111. L 112. with Anonymous Accelerator Representative #2 (Mar. Interview 6, 2015) (notes on 109. Benjamin Do Accelerators Acceler- Hallen, Christopher Bingham, & Susan Cohen, 110. sig- are allocated. Structures send Governance resources structures organize how The frequency of meetingsThe frequency of the mentor during matching is phase ERNTHAL ROGRAMS OFTWARE may identify be because entrepreneurs with prior experience are able to more effectively worthwhile mentor advice. Consistent withnumber this, Y-Combinator anecdotally has “a when compared to similarly experienced teams with companies that did not participate in an when compared to similarly experienced teams with accelerator, benefit from accelerator involvement. Hallen et al., file with author). Interestingly, early scholarship about accelerators suggests that portfolio file with author). Interestingly, early scholarship about accelerators suggests that company entrepreneurs with prior startup experience get significant value from accelerator participation. Hallen such that certain dimensionssuch that certain of company operations may be limited or even stalled. “courses of action” that an agent may take to- nals concerning the relative value of different ward production. Benkler, as an input for production. mation production is difficult to standardize objective of a collaborative effort is to produce a creative output where a desired product or objective of a collaborative effort is to produce attend contracting. James Bessen, service does not yet exist, unique problems Goods Software: Free Provision of Complex Public meetings at Springboard London program wheremeetings at Springboard London program eighty meetings with each company had accelerators is that “founders may waste time mentors over two weeks). A concern about conflicting feedback instead of working on meeting with too many mentors and resolving Acceleratorstheir products.” Sandy Yu, The Impact of 2 (May on High-Technology Ventures Stern School of Business) (on file with au- 2014) (unpublished thesis, New York University thor). important. Gilson et al., S P 1018 companiesfolio commonly Anpro- accelerator another. one choose cycle where a cohort’s early during vides scaffolding mentors port- and folio companies quickly meet in mentee relationships. 7B phase “like digging for phase “like digging is] worth it when it works.” company as available sign up on an to invite mentors pitch practices, whichbasis. Self-selection, allowsmaximum for flexibility amid condi- maytions of high uncertainty, provide more of efficient organization or vertical firm than alternatives such as contracts creative contributions integration. ate? The Role of Indirect Learning in New Venture Development 6 (July 2016) (unpublished Venture ate? The Role of Indirect Learning in New [https://perma.cc/S4VT-ZW3Y].manuscript), http://ssrn.com/abstract=2719810 that when “innovation is ex ante indescribable” market-based contracting may be socially market-based that when “innovation is ex ante indescribable” inefficient). Gilson ficiently 39285-mqt_100-3 Sheet No. 178 Side B 06/19/2017 09:53:44 06/19/2017 B No. 178 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 179 Side A 06/19/2017 09:53:44 su- note supra , Man- supra 114 TROSS note 107. eurs to communi- supra 1019 1019 rtise through three types of rtise through three ing of mentorsand companies, accelerator programsaccelerator supplement 117 and (iii) teach entrepren 116 ) 6/12/17) 2:03 PM ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N O Overall, of the high volume the tripartite purpose of (D 115 More common is a portfolio company conducting forty , Accelerator Representative #1, Telephone Interview with Anonymous DOCX . 113 INAL -F . See, e.g. 116. Mentor early in a program is often exhausting and emotional for entre- feedback 113. Telephone with Anonymous Entrepreneur #3, interview 117. One CEO highlighted the value of having to “explain [his company] differ- in a 100 114 115. Telephone #7 (Apr. 15, 2015) (notes on file with with Anonymous Mentor interview Mentors expe provide the benefit of their note 106. Even at forty meetings, a participant as “pretty described the initial experience M K ERNTHAL C Y aging directors in less established in less aging directors self-selection through moreself-selection match active mentorsperhaps because less motivated are to proactively engage with- out a prompt. cate effectively about their startup. cate effectively about ent ways from a 100 different perspectives.” Telephone Interview with Anonymous Entre- ent ways from a 100 different perspectives.” Telephone Interview with Anonymous preneur #9 (Apr. 10, 2015) (notes on file with author). mentor post program. Telephone Interview with Anonymous Entrepreneur #7, mentor post program. Telephone Interview 102. was “crushed” “emotional” and “so unhappy those preneurs. Entrepreneur #1 noted that she eve- that “take away showed weaknesses mentors first few days.” The harsh probing from rything you think you know.” Over the course of the accelerator program, however, things improved. “Now feeling like I’m . . . we have a new forecast. New partners. being rebuilt [We are] rebuilding everything about the business.” Telephone Interview with Anonymous Entrepreneur #1 (Apr. 6, 2015) (notes on file with author). of returnees who wanted to go through YC again with a new startup idea.” S startup idea.” to go through YC again with a new of returnees who wanted 2017] with begin startups mentor 110 meetings the program’s during first thirty days. 7B note 4, at 31–32. early mentor meetings is to (i) help a company and mentors to identify promising the pro- on-going relationships during collaboration through gram; orient a portfolio company (ii) re- to aspects of its business that quire immediate attention; to eighty mentorto eighty meetings the first month during of a program. pra overwhelming.” Concerns about whether time allocated to mentor meetings is worthwhile You “run the risk of 40 coffees / week and led one entrepreneur to conduct an experiment. get nothing done. So . . . I tested this.” Using the digital assistant service Fancy Hands, the two months, and assigned a zero or one de- past entrepreneur checked every meeting over lead to progress for the company?” The CEO pending on the answer to “did the meeting way contributed to her company’s growth. Tele- found that 96% of meetings had in some phone Interview with Anonymous Entrepreneur #10 (Apr. 13, 2015) (notes on file with au- thor). accelerator, comparing approaches); Telephone author) (mentor in high reputation and new #11 (Mar.Interview with Anonymous Accelerator Representative 25, 2015) (notes on file with self-selection by requiring a portfolio com- author). Some corporate accelerators augment from the accelerator sponsor company. En- pany to work with an assigned corporate mentor forced to have “senior [company] mentor.” How- trepreneur #7 said that he felt arbitrarily individual, the companyever, after being assigned a “very senior” met the mentor every the companythree weeks, “his advice was fantastic,” and maintained with the a relationship 39285-mqt_100-3 Sheet No. 179 Side A 06/19/2017 09:53:44 06/19/2017 A No. 179 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 179 Side B 06/19/2017 09:53:44 M K Id. C Y note 114. supra note 17. 121 [100:997 [100:997 supra outside the MDIA with on- raction is network extension. raction is network extension. note 1, at 165. lue of network whereby extension Less common, mentors occasion- ration of the program. Similarly, 120 e the accelerator network,e the accelerator (iii) post- and In addition, portfolio companies In addition, portfolio report [the MDIA’s] portfolio now has companies note 116; Telephone Interview with Anonymous Entre- note 116; Telephone Interview with Anonymous 119 Each is explained below. Each is ) 6/12/17) 2:03 PM 118 supra ELETE MARQUETTE LAW REVIEW MARQUETTE D Acceleratorac- Representative #16 noted that his OT OT N Investment Accelerators, supra 123 O (D note 102; Telephone Interview with Anonymous Entrepreneur #8 (Apr. 9 note 102; Telephone Interview with Anonymous DOCX . supra INAL That is, the initial mentors provided by the MDIA could make -F 122 .Id. 119. with Anonymous Entrepreneurs #1, 7, and 8. Telephone Interview with Interview 120. Telephone Mentor #5, Interview with Anonymous 121. One portfolio company hire people by doing diligence calls on mentor helped a 122 123. Telephone 9, 2015) (notes on Interview with Anonymous Entrepreneur #6, (Apr. A second type of startup / mentor inte After mentorscompa- portfolio one another, self-select and startups ERNTHAL celerator asks startups “what mentors do you want is] to invite? [This especially important in that Anonymous Entrepreneur #1 preneur #7, 2015) (notes on file with author). mentors whointroduce a startup to individuals are outside the MDIA Further, portfolio compa-point expertise valued by the entrepreneur. areas that lack startup depth nies in accelerators located in geographic highlight that network the best way extension is often to acquire needed outside resources. Bernthal, 118. See For example, mentors may help a team about the test its hypotheses validate companystartup’s prospects, through stra- ideas, and “pivot” direction. tegic changes in that modeling—such as how mentors frame approach problems— and is valuable in mentor interactions. tasks on behalf of a company.ally execute concrete Portfolio companies highlight the va network. One said his initial mentors experienced entrepreneur “were only one to two steps away from a mentor that I wanted to meet with.” 1020 engagement (i) close interactions: where mentors lead work directly with mentee (ii) network startups, where extension a mentor introduces outsid to an individual a startup to identify a handful of nies are encouraged mentors”“lead with whom they will regularly meetdu for the mentors com- and work closely with a single are encouraged to select pany. Mentors with engage startups to perform a wide variety of tasks. 7B involvement.accelerator warm introductions to others professional prospective employees conducted a code review for another company. and, additionally, file with author); Telephone Interview with Anonymous Entrepreneur #10, 39285-mqt_100-3 Sheet No. 179 Side B 06/19/2017 09:53:44 06/19/2017 B No. 179 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 180 Side A 06/19/2017 09:53:44 note supra note 94. note 117. note 94. Mentors occa- supra supra supra note 108. 1021 1021 Each type of mentor is 130 supra phase of mentor phase of – portfolio 129 124 Among companies portfolio inter- are the prized “athletes” of the are the prized “athletes” of note 116. Others engage as advisory board mem- note 116. Others engage as advisory board Many go forward relationships after the 126 supra ) 6/12/17) 2:03 PM Finally, interviews it is not unu- revealed that ELETE WHO NEEDS CONTRACTS? NEEDS WHO D 127 In these instances, entrepreneurs indicated that entrepreneurs indicated that In these instances, OT OT note 3. A mentor may join a mentee’s board of directors. Portfolio note 3. A mentor may join a mentee’s board note 3. N 128 note 108. Many basis. relationships simply go forward on an informal O The end of a three to four month of a three to The end MDIA program is (D supra supra 125 supra DOCX . Experienced entrepreneurs INAL
-F • .Id. .Id. 129 130. Anecdotally, suggest that a minority— discussions with accelerator representatives 126 125. Telephone #1, Interview with Anonymous Entrepreneur 128. Telephone with Anonymous Entrepreneur #2, Interview 124. Telephone with Anonymous Accelerator Representative #16, Interview 127. Sometimes post accelerator interaction is formalized. Riley esti- GAN CEO Patrick Interviews categories of MDIA identified four mentors: experienced Post accelerator involvementPost accelerator final is the M K ERNTHAL C Y learning to work with mentorslearning to work becomes they take forward a habit that accelerator program.after the end of the likely less than 10%—of mentors invest in the MDIA fund. But reliable data across MDIAs is not currently available about the percentage of mentors who invest in MDIAs. Interview with Patrick Riley, 66. 3. participate in MDIAs Four types of experts investors, and communityentrepreneurs, functional specialists, mem- bers. A majority of mentors do not have formal ties to the MDIA, how- ever, some mentors invest in the MDIA itself. bers. Telephone Interview with Anonymous Entrepreneur #2, bers. Telephone Interview with Anonymous mates that less than 10% of active mentors directly invest in a mentee company.mates that less than 10% of active mentors Interview with Patrick Riley, during the interview, planned to ask one to company #7; Entrepreneur #1 (still in a program Advisory Board member). Telephone Interview two mentors to join as Board member or with Anonymous Entrepreneur #1, after the accelerator. 2017] we that in sectors in.” experts are not companyto four month The three interactions. program accelerator timeframe for mentor a natural expiration provides company – portfolio relationships. marked a “Demo by Day” where portfolio companies present their audience. startup to a public Demograduation-type Day event. viewed,mentoreach reported that at least one relationship continued 7B sual, as one company us onto the it, that the accelerator “turned phrased idea” of mentors. described in the bullets below. sionally join a portfolio company in full time capacity. Telephone Interview with Anony- sionally join a portfolio company in full mous Mentor #9, Telephone Interview with Anonymous Entrepreneur #5, 39285-mqt_100-3 Sheet No. 180 Side A 06/19/2017 09:53:44 06/19/2017 A No. 180 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 180 Side B 06/19/2017 09:53:44 M K 132 note note C Y supra supra VCs and note 106. Most 136 The Legal Infrastruc- supra Pre-seed startups Pre-seed startups reputational bene- 135 133 [100:997 [100:997 Ronald Gilson, 134 such specialists full-time, such specialists so See financial relationship. A an indi- is entrepreneur serial 131 are individuals that possess expertise in are individuals ) 6/12/17) 2:03 PM Id. ELETE MARQUETTE LAW REVIEW MARQUETTE D OT OT bundle help to portfolio companies bundle help to with the possi- N O . 575, 577 n.10 (1999). (D EV DOCX . Functional specialists area importanta specific functional to companies such as fi- and marketing.nance, legal, technology, Investors bility of a desirable future rarely have the capacity to hire rarely have the capacity mentorsfunctional specialist outside assistance provide within their area of expertise. MDIA mentor network. vidual who has been involved in the early stages of multiple in the early has been involved vidual who Onestartups. managing screens for entrepreneurs director with at least two startup companies in their background. fits, and strategic expertise. They also have bursts of time expertise. They also have bursts fits, and strategic benefit MDIAs.availability that Experienced entrepreneurs are attractive to portfolio compa- are attractive entrepreneurs Experienced their tacit knowledge,nies because of INAL

note 108. When wind down, an in between companies, such as after an exit or -F • • 74 N.Y.U. L. R 133. “‘Tacit opposed to easily codifiable infor- knowledge’ is the skill or expertise, as 132. #1, with Anonymous Accelerator Representative Interview 134. MDIAs in between jobs sometimes spend tens of hours report that entrepreneurs 131. Telephone with Anonymous Accelerator Representative #2, Interview 135. Telephone #1, Interview with Anonymous Accelerator Representative 136. Anticipation of future interaction sometimes complicates interactions. A company supra ERNTHAL “coaches” that are compensated have leadership (i.e., C-level) experience in multiple“coaches” that are compensated have leadership emerg- ing companies. equity Accelerator #17, which has a select group of mentors that are given involvement, looks for mentors that have (i) built once they cross a certain level of accelerator business valued at $100 million or more, mentoring and (ii) received positive feedback from #20’s “lead mentors” are business executives that portfolio companies. Likewise, Accelerator built and sold venture backed companies. Whileworked for Fortune 500 companies or have compensated, about one-third invest in the Accelerator #20’s lead mentors are not directly on “the back-end.” Telephone Interview by accelerator and therefore receive compensation Malea McKeown with Anonymous Accelerator Representative #18 (June 2, 2016) (notes on Accelerator Representative #20, to Maleafile with author); E-mail from Anonymous McKe- own (June 23, 2016, 09:26 MST) (on file with author). mation, that employees acquire through experience.” Silicon Valley, Route 128, and Covenants Not to Com- ture of High Technology Industrial Districts: 112. pete, 1022 7B per week working with portfolio companies. Telephone Interview with Anonymous Mentorper week working with portfolio companies. #9, entrepreneur may time have extended availability that permits spending one day per week or more with the accelerator. 106 (looks for individuals who were “CFO, CTO or growth hackers”); Telephone Interview 106 (looks for individuals who were “CFO, CTO or growth hackers”); Telephone with Anonymous Mentor #17 (Sept. 17, 2015) (notes on file with author). may posture for future investment. An investor mentor may also advise with this possibility 39285-mqt_100-3 Sheet No. 180 Side B 06/19/2017 09:53:44 06/19/2017 B No. 180 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 181 Side A 06/19/2017 09:53:44 . EGAL HERE L W Corporate Corporate 137 note 79. YSTEM S 139 supra 1023 1023 UBSTITUTE FOR S es between participants in XCHANGE E nsideration and induce mentor PTION PTION nnected individuals and/or aca- nnected individuals O companies? Subsection A explains re financial help. re financial in thesis—viz., a successful MDIA bro- are a fourth and smaller are a fourth and mentor cate- UTUAL ONSIDERATION ENERALIZED M C ) 6/12/17) 2:03 PM to a mentor, combined with volunteerism mo- volunteerism with combined mentor, a to AG Like an investor, prospective partners present partners prospective investor, Like an ELETE 138 WHO NEEDS CONTRACTS? NEEDS WHO D OT OT ex ante N REATES O (D note 119 (describing corporate accelerators). Accelerator Representative ENEFITS AND A AND ENEFITS 140 B DOCX . Community members Community well-cogory. This includes demics.ability are often valuable for their Such individuals companiesto connect portfolio to in geographic ar- resources eas beyond the mentor network. accelerators also include “prospective partner” mentors “prospective partner” also include accelerators who with opportunities create business could help incumbent companies. a source of possible futu a source angels are commonlyangels mentorswithin MDIAs. supra MDIA C INAL
-F • NDIRECT 137. Roles and functional spe- blend together. For example, experienced entrepreneurs 138. #13 (Apr. 29, Telephone Interview with Anonymous Accelerator Representative 139. A accel- larger company may “partner” with a portfolio company in a deal after an 140. Volunteerism motivation is further discussed in Section V.B of this Article Why and how does mentor volunteerism alongside the profit coexist III. A I M K ERNTHAL C Y motives of a MDIA and its portfolio that legal scholarship does not provide Subsection a satisfying answer. B then sets forth the Article’s ma kers indirect yet economically significant trad a generalized exchange system. The viability of a MDIA’s strategy to attract high caliber mentors hinges on whether the promise of indirect benefits, unknown tivations and a mutual option for post accelerator engagement, are at- legaltractive enough to substitute for co participation. in mind. Entrepreneur #8, Telephone Interview with Anonymous 2017] 7B cialists also have the option—and are in fact encouraged—to also be an investor in the MDIA as well as portfolio companies. 2015) (notes on file with author). partner interactions, a portfolio company erator program concludes. In mentor/prospective Entre- is often “pitching them as a possible partner.” Telephone Interview with Anonymous preneur #8, business #13 reported that eight out of ten portfolio companies in a cohort entered into a relationship agreement with the corporate sponsor after the accelerator ended. Telephone file with Interview with Anonymous Accelerator Representative #13 (Apr. 29, 2015) (notes on author). 39285-mqt_100-3 Sheet No. 181 Side A 06/19/2017 09:53:44 06/19/2017 A No. 181 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 181 Side B 06/19/2017 09:53:44 , M K .L. C Y AND ex ante . 1 (2012) Incomplete EV , 61 V NCERTAINTY ,U note 21, at 157; .L.R To the extent ISK AND 143 supra , R note 21, at 8; Macaulay, , 65 V NIGHT , Scott & Triantis, [100:997 [100:997 K supra 6–7, 157 (2004). YCLE RANK See, e.g. C F Two, without “order law” Uncertainty information and Hadfield, 141 see behavior in lieu of formalbehavior in lieu legal ; 144 APITAL C scholars examine scholars conditions—like But incomplete contracts and braiding ENTURE 146 note 25, at 1383–84. . 83, 83–84 (1989). See Bernstein, V note 21, at 627 The New Exit in Venture Capital RG ) 6/12/17) 2:03 PM HE the startup about their startup’s capabilities, the startup about The (Not So) Puzzling Behavior of Angel Investors contractual disputes in order to save on contractual disputes in order to save supra , , T ELETE .&O MARQUETTE LAW REVIEW MARQUETTE D A Hypothesis of Wealth-Maximizing Norms: Evidence from the Whal- Braiding literature documents procedural frame- OT OT ERNER CON ex post note 140, at 231 (defining uncertainty as instances in which “an ob- N L Braiding 145 O ,E (D supra Darian Ibrahim, OSH AW , &J DOCX note 25, at 190–91. . Darian M. Ibrahim, , 5 J. L 231 (1921). NIGHT INAL See, e.g., Of Coase and Cattle, supra supra Three, peer production examines Three, peer production projects large scale digital -F , . See A. the Mentor Does Not Resolve Legal Scholarship Conundrum OMPERS 142 ROFIT G note 21, at 55. P 146. Gilson et al., 143. K 145. Parties trade lower front end transactional costs for higher potential back willing to 142. Robert Ellickson, 141. 144 Mentor environments relationships exist in uncertain / startup at- At but fail to resolve bear upon scholarship threads least three legal Incomplete contracts literature theorizes why conditions uncertain . “provides entrepreneurs 1405, 1412 (2008) (many unknowns of a startup’s early stages ERNTHAL EV AUL contracting costs. lead parties to risk end enforcement into incomplete costs enter contracts. ing Industry Contracts information is knowable, entrepreneursmore possess far information outside than individuals competitiveoperations, and landscape. supra Ellickson, tools. studies community norms that govern study formal arrangements that specify a benefit—i.e., consideration— at 4. On issues of uncertainty in entrepreneurship, at 4. On issues of uncertainty in entrepreneurship, R 1024 7B asymmetry challenges for collaboration. create unique organizational jectively measurable probability or chance is simply inapplicable”). Gompers & Lerner de- of potential outcomes for a company or project.” fine uncertainty as “a measure of the array P that aggregate fragmented considered volunteer contributions. Each is in turn. tended by asymmetric information between parties. Uncertainty is high because much is unknown startup. about an early stage MDIAs—where and information high uncertainty asymmetry present to commercialchallenges relationships. the mentorship conundrum. One, with significant informational advantages over venture capitalists and increases agency costs with significant informational advantages over venture capitalists and increases agency by making it more difficult for venture capitalists to sort between good and bad entrepre- neurs”). works used to build trust even as particulars of yet-unknown innova- as particulars of yet-unknown works used to build trust even tions are left underspecified. AND 39285-mqt_100-3 Sheet No. 181 Side B 06/19/2017 09:53:44 06/19/2017 B No. 181 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 182 Side A 06/19/2017 09:53:44 , note 30, at 1105 (“[T]he 1025 1025 supra 151 tric information and is reduced Neither incomplete nor contracts 662–63. (“[I}f the transaction turns out to be ilaterally helps a portfolio companyilaterally helps a 147 at arty exchange with ben- proportional 148 Precontractual Liability and Preliminary Agreement Id. An important between difference prelim- 149 ) 6/12/17) 2:03 PM ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N note 37, at 888. Relational contracts are further discussed in Part III of O (D . 661, 664–66 (2007). (preliminary agreements are commonly “exploratory . . supra DOCX . EV INAL . .L.R -F Instead, a MDIA mentor un .Id. 150 ARV 151. As explained in Part IV, a mentor expects to realize benefits from in a net- others 150. As we will return to below, relational contractconsiders relevant social fac- theory 149. Alan Schwartz & Robert E. Scott, 147 148. Free When riding is the flip side of this coin. resources are freely available, a party Preliminary agreements, like mentor MDIA / startup relationships, Norm-based without “order law” like mentor studies behaviors, ac- H M K ERNTHAL C Y tors outside of a formal agreement. A relational contract is not viewed seen as “an independ- tors outside of a formal agreement. A relational ent system”“integral parts of a much but rather as larger system” with “countless other goals.” Macneil, this Article work. profitable after uncertainty is resolved, the parties willprofitable after uncertainty is resolved, the make their agreement more concrete transaction turns out to be unprofitable, the par- and then conduct the transaction. But if the ties will abandon the project.”). tracts organize a relationship so that, if a deal makes sense once uncertainty is resolved, a tracts organize a relationship so that, if a participant receives direct consideration. braiding explains whybraiding in a MDIA an expert participates without the in- ducement of direct consideration. do not involve formaldo not involve Examinations contracts. of preliminary agree- ments where analyze instances discussed a deal” but post- parties “have pone formal until asymme contracting resolved. uncertainties are 2017] participation. a party’s induces that 7B that is not expected to directly reciprocate. that is not expected [as] a necessary condition for parties to pursue an efficient project later”). Preliminary con- tivities, that are not governed by legal tools. “Ordertivities, that are not governed by without law” in- vestigates how norms social in tight knit communities, direct behaviors existence of a generalized exchange is a puzzle because any member of the exchange system existence of a generalized exchange is a puzzle mitigate free rider Formal contracts can free ride. There is no guarantee of reciprocity.”) problems by prescribing obligations to be borne a benefit. in exchange for receiving may benefits without a return contribution. Takahashi, take 120 inary contracts and mentorinary contracts and the relationships, however, concerns startup Preliminarystructure of exchange. as with contracts, incomplete con- primarilytracts and braiding, contemplate two-party But a exchanges. mentor anticipate a two-p does not efits. 39285-mqt_100-3 Sheet No. 182 Side A 06/19/2017 09:53:44 06/19/2017 A No. 182 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 182 Side B 06/19/2017 09:53:44 M K 158 156 C Y First, 160 RODUCTION induce col- P benefits OCIAL S OW oin, and open source oin, and open source :H [100:997 [100:997 This line of literature fo- of literature This line ction organization bears re- ction organization 624. 154 ETWORKS N s that depend on individual ac- s that depend on Twentieth Century cattle ranch- Century Twentieth in legal scholarship, differs in two Peer production, used to create Peer production, kipedia, Bitc 152 note 21, at EALTH OF mizing’ when it operates to minimize the members’ mizing’ when it operates to minimize the supra W , 62 (2006). / portfolio company interactions. 159 property rights and net economic rights and net property effi- . 83 (1989). HE ) 6/12/17) 2:03 PM RG ,T REEDOM ELETE note 153, at 84 (1989) (“when people are situated in a close-knit note 153, at 84 (1989) (“when people are situated F Id. MARQUETTE LAW REVIEW MARQUETTE D .&O A Hypothesis of Wealth-Maximizing Norms: Evidence from the Whal- de facto note 21, at 115. OT OT ENKLER N supra CON B O ,E supra (D Of Coase and Cattle AW ARKETS AND OCHAI DOCX . Y Peer production describes collaborative efforts where Peer production mass a M Ellickson, “Order without law” less to say, however, has about a party’s , 5 J. L INAL 157 -F 155 . See . See . See id. and modern day diamond traders. day diamond and modern 154. Bernstein, 155 157 152. Robert Ellickson, 153 153. Ellickson, 158 156. particular, order without law accounts fail to describe how In 159. such as Yochai Benkler, describe how cer- Scholars who examine peer production, 160. Legal scholars observe peer production across several digital domains, including Finally, legal scholarship on peer produ Finally, legal scholarship But peer production, as described But peer production, as described ERNTHAL RANSFORMS cuses primarily on ciency. ing Industry semblance to MDIA mentor activity. projects such as Wicollective digital software, involves “production system tion that is self-selected and decentralized, rather than hierarchically as- and decentralized, rather tion that is self-selected signed.” motivation consideration. contexts of reciprocal volunteer outside to of individuals voluntarily contributes to create a good or service. contributes to create of individuals voluntarily important ways from mentor ers, T MDIAs prominent co-opt four strate- peer production organizational project; (ii) important of individuals contributes to a gies: (i) a group mentor self-select are voluntary; (iii) expert participants contributions where and how to contribute; and (iv) fragmented information-based contributions are aggregated. 1026 whalers, Century as Nineteenth such 7B objective sum of (1) transaction costs, and (2) deadweight losses arising from failure to exploit potential gains from trade.” group, they will tend to develop for the ordinary run of problemsgroup, they will tend to develop for the normsthat are wealth- maximizing”). “A norm is ‘wealth-maxi laborator participation in instances where a beneficiary is not obligated to directly reciprocate laborator participation in instances where a benefactor. tain volunteers ultimately reap economic benefits. For example, a company may volunteer tain volunteers ultimately reap economic re- to create and improve open source software, but in turn make money be selling services lated to the software. This is further discussed as Indirect External Benefits, in Section IV.B. production of complex software and operating systems (e.g., GNU / Linux, Apache, and An- droid), creation and assembly of content for digital repositories (e.g., Wikipedia, Slashdot, and legal Wikis), and other digital realms where the decentralized production of the crowd is leveraged through technology (e.g., mapping Mars craters, production of multi-player 39285-mqt_100-3 Sheet No. 182 Side B 06/19/2017 09:53:44 06/19/2017 B No. 182 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 183 Side A 06/19/2017 09:53:44 , , at Id. supra supra IPPEL Se- , , Un- H 162 161 note 103, note 6, at ON V supra supra Coase’s Penguin ETHODOLOGY OF M Coase’s Penguin Hume’s Penguin Public Goods and Club Benkler, See generally See 1027 1027 Benkler, ISTORY AND H See HE oduction projects that occur occur that projects oduction . 177, 203 (2013); Chen, :T IN .&F US note 41, at 440 (noting that volunteer AOL dis- note 41, at 440 (noting that volunteer AOL CONOMICS E 164 supra is is significant because volunteer behav- because is is significant note 41, at 408, 439–43; Hetcher, note 41, at 408, 439–43; . J.L. B , Improving Contract Quality: Modularity,Improving Contract Quality: and Technology, TAN ) 6/12/17) 2:03 PM supra , AW AND L 18 S ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N Coase’s Penguin O (D Coase’s Penguin Unlike public good, accelerator with a collectively created DOCX . 163 NCYCLOPEDIA OF Benkler, INAL 1 E -F .See note 41, at 440. Benkler discusses an academic permutation of this problem where con- note 38 (documenting and explaining user based innovation); Powell, note 38 (documenting and explaining user 161 162. Where by others, the individual event faces the an individual creates a good owned 163. A fundamental difference between a MDIA and digital peer production concerns 164. information production yields a club good that has non-rival an accelerator, In M K ERNTHAL C Y note 41, at 976–77; George Triantis, note 41, at 976–77; George Innovation In Contract Design, “sucker’s award” of having to pay for the good at a later time. “sucker’s award” of having to pay for the cond, digital peer production goods often produce goods that are open production goods often produce digital peer cond, opposed to goods thatto the public, as proprietary to a for-profit are company. mentors where help produce a club good startups may exclude public or service. access to its product games). Benkler, 2017] seldom scholars legal pr peer consider within setting. Th a for-profit wanesior often where become contributors aware private actors that outsized commercialcapture gains fromtheir free contributions. 7B cussion moderators quit when they realized that the company was making money from their cussion moderators quit when they realized of free software where some “contributors have efforts; however, also noting counterexample made billions, while some of major of the leaders have earned nothing but honor”). projects has proven sustainable in digital collec- Along these lines, some large-scale peer production such as customertive endeavors. User generated content, reviews on Amazon, Yelp, and that benefits companies in for-profit commercial Trip Advisor, are a form of volunteerism settings. Other studies document economically significant innovation generated by individ- by the innovation. uals who do not fully capture wealth created at 259 (The Free Software Movement pecuniary incentive may not be indispen- “showed that sable to the development of high-quality software . . . .”). like peer production in a non-profit setting, mentorsa non-profit setting, production in like peer creation of assist fromgoods and services which a portfolio company and MDIA owners will to a “sucker’s award” directly profit, giving rise problem. 322. supra tributors are barred from using the end product they helped create, such as academics’ free must then buy back the journals. contribution to journals’ content, whose institutions supra 441. produced. In particular, the free contributions of the private vs. public benefits of what is MDIA may benefit for-profit companies experts that limit public access to their products, a character of peer produced goods. To the significant departure from the publicly accessible produced good, in contrast, the restriction aimsextent that restrictions are placed upon a peer to ensure that public benefit is safeguarded for the future. note 41, at 440–41 (puzzling over circumstances where contributors are barred from using the note 41, at 440–41 (puzzling over circumstances where contributors are barred from content, end product they helped create, such as academics’ free contribution to journals’ whose institutions must then buy back the journals). characteristics, even where exclusion is possible. Patrick McNutt, Goods, in 39285-mqt_100-3 Sheet No. 183 Side A 06/19/2017 09:53:44 06/19/2017 A No. 183 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 183 Side B 06/19/2017 09:53:44 M K 167 to a C Y . 340, 344 access EV Relational Relational 166 Sociological Sociological U. L. R 165 Studies empha- L.J. 1751, 1753 (2010). 171 ECH T of a good versus , 73 NW. [100:997 [100:997 ERKELEY production , 25 B 169 lars is now found in a stream of Other transactions, more sensitive 168 note 40. Exchange supra at 344 (discussing relational elements in purchase of gas- at 344 (discussing relational elements in purchase ) 6/12/17) 2:03 PM note 41, at 415. In contrast, MDIA dra- mentor networks are ELETE See id. note 11, at 121–22 (“Unlike generalized exchange, direct ex- MARQUETTE LAW REVIEW MARQUETTE D Values in Contract: Internal and External note 21, at 55. OT OT supra The Illusion of the Commons , N note 32, at 96 (relational contract theory “is not grounded in law at note 32, at 96 (relational contract theory supra note 32, at 95 (discussing business social science research and empir- O 927 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000). The ability to 927 (Boudewijn Bouckaert & Gerrit De Geest supra (D supra supra Healy & Krawiec, DOCX . Ian Macneil, Sociologists broadly identify two types of systems that struc- CONOMICS INAL E 170 -F Coase’s Penguin . But see .See 170 171. Willer et al., 168. But not irrelevant. 169. Cimino, 165. Macaulay, 166. Cimino, 167 In 1963, StewartIn 1963, Macaulay of Wisconsin his classic study published Legal scholarship has largely ignored another branch of sociology has largely ignored another branch Legal scholarship ERNTHAL AW AND B. MDIAs Sweep Interactions Entrepreneurial a System Into of Generalized ical evidence showing that “relational norms and social context have instrumental, quantifi- able effects on exchange”). to social context, are highly relational. Empiricalto social context, support for the theo- of relational scho retical propositions social science research that underscores howsocial science research “relational contract behav- iors are economic behaviors.” contract exclude underscores an important distinction between good. Jonathan Barnett, contract scholars highlight that exchanges occur in a social context. highlight that exchanges occur contract scholars change refers to the transfer of resources within a dyad. Researchers have identified two a dyad. Researchers have identified change refers to the transfer of resources within size the importance empirical of exchange structure. In particular, (1983). oline). L 1028 in the Americanbusinesspeople Review. Sociological are moreCertain transactions The purchase of relational than others. example,gas for a car, for transaction—that is a relatively “discrete” is, relational elements are minimal. 7B ture exchanges: direct (i.e., bilateral) and generalized. Other differences exist between MDIAs and digital peer production as well. Notably, there is a sizable numeric between volunteers in digital peer production and MDIA difference vol- an unbounded set of resources available to an unteers. “Peer production relies on making toward and unbounded set of projects.” unbounded set of agents, who can apply themselves Benkler, research relevant to understanding collaboration: generalized ex- to understanding collaboration: research relevant change. tools are foundational to the field of relational contracts. the field of relational foundational to tools are matically smaller than the seeming “unbounded” critical mass—oftenmatically smaller than the seeming “unbounded” numbering tens of thousands or more contributors—attracted A reason to popular digital production projects. higher barriers to participation than digital peer for disparity in numbers is that MDIAs have production projects. MDIAs are not open to just anyone, only to MDIA invitees. all. Instead it is an interdisciplinary theory grounded in sociology”). 39285-mqt_100-3 Sheet No. 183 Side B 06/19/2017 09:53:44 06/19/2017 B No. 183 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 184 Side A 06/19/2017 09:53:44 A 173 175 . 205, 207 (2007) OC or network.” .J.S M note 30, at 1106 (explain- note 33, at 646 (describing 1029 1029 supra , 113 A (1996); Edward L. Deci et al., supra ONTEXT organization, C Takahashi, N I See also e entrepreneurial communitye entrepreneurial are orga- Healy & Krawiec, , 627, 627–28 (1999). REATIVITY In contrast, “[g]eneralized exchange refers In contrast, “[g]eneralized ,C See also ) 6/12/17) 2:03 PM 174 ULLETIN B ELETE WHO NEEDS CONTRACTS? NEEDS WHO MABILE D note 11, at 120 (“Benefits received through generalized exchange note 11, at 120 (“Benefits received through note 11, at 121. and (iii) the character of collaboration’s outputs. the character of and (iii) note 30, at 1106. A OT OT 172 N supra supra O supra (D ERESA ,T DOCX Building Solidarity through Generalized Exchange . e.g. SYCHOLOGICAL , INAL -F .See , 125 P 172. Willer et al., 173 174. Takahashi, 175. Willer et al., M K ERNTHAL C Y ing that social exchange theory’s roots are in sociology, psychology and anthropology); Linda D. Molm et al., distinct structures of direct exchange: negotiated and reciprocal. In negotiated exchange, the distinct structures of direct exchange: negotiated delay In reciprocal exchange, some transfer of resources between actors is simultaneous. between membersoccurs between unilateral transfers of resources of a dyad, thereby requir- exchanges are more typical than examples of gen- ing direct reciprocity. Examples of direct an item,eralized exchange, including purchasing and various trading goods, turn-taking, forms of dyadic favor-trading.”). the “division between two modes of exchange: a customary type rooted in reciprocity and a the “division between two modes of exchange: formal type built on contract”). 2017] showsresearch (i) socio-economic affects strongly that structure moti- actors; (ii) howvation of provided of value view the source participants from collaboration, Direct exchange—viz., give megive you this, you I that – is well known within “two exchanges In direct legal scholarship. exchange re- actors sources with each other.” has muchGeneralized exchange how to say about MDIA systems—and, how other parts of th potentially, 7B highlights the differencesnized. Figure 2 between direct and general- ized exchange. have a stronger impact on individuals’ views of and feelings toward the group than direct have a stronger impact on individuals’ views exchange in which individuals or dyads are more likely to be seen as the source of benefits.”). (“All forms of social exchange occur within structures of mutual dependence, that is, struc- (“All forms of social exchange occur within structures of mutual dependence, that out- tures in which actors are mutually, or reciprocally, dependent on one another for valued comes.”). Meta-Analytic Review of Experiments Examining the Intrinsic Mo- Effects of Extrinsic Rewards on tivation to the indirect giving and receivingto the indirect giving of benefits among more three or to the samepeople who belong group, 39285-mqt_100-3 Sheet No. 184 Side A 06/19/2017 09:53:44 06/19/2017 A No. 184 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 184 Side B 06/19/2017 09:53:44

M K PM PM Id.

C Y 2:03

Unilateral giving 178 [100:997 [100:997 rator 2 is not obligated to or could be left to informal to collaborator 2; collaborator 2 to collaborator 2; collaborator 2 y benefits from the contributor’s In contrast, as shownright on the 177 Reciprocated exchange leaves the terms of an agreement ) 6/12/17 ) Id. ELETE note 176, at 207–08 (describing two forms of direct exchange: MARQUETTE LAW REVIEW MARQUETTE D note 30, at 1106. note 30, at 1105–06. The left side of Figure 2 shows a straightforward OT OT N supra 176 O supra supra (D DOCX DOCX . Figure 2: DirectFigure exchange generalized versus exchange INAL -F 176. Takahashi, 178. Takahashi, 177. Molm et. al., In its pure form, generalized exchange stands in contradistinction to ERNTHAL B

a direct exchange. is observed where return a contributor does not expect consideration in from member the group who directl help. In Figure 2, at time 1 (T1), collaborator 1 provides help to collab- orator 2. Unlike in direct exchange, collabo

1030 1030 7 direct exchange: collaborator 1 gives direct exchange: collaborator 1 gives directly back to collaborator 1. The bilateral trade could be spelled gives directly back to collaborator out in a formal agreement “negotiated”) (i.e., mechanisms (i.e., “reciprocated”). of Figure 2, generalized exchange has twoof Figure 2, generalized exchange notable characteristics: (1) unilateral giving, and (2) indirect return of benefits. negotiated and reciprocated). Negotiated exchange involves up front determination concern- negotiated and reciprocated). Negotiated exchange involves up front determination ing the details of an agreement. open, however, it is expected that the benefit will be directly returned by the beneficiary. 39285-mqt_100-3 Sheet No. 184 Side B 06/19/2017 09:53:44 06/19/2017 B No. 184 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 185 Side A 06/19/2017 09:53:44 . If a par- 182 Sociologists over Sociologists over —individually reasona- 179 1031 1031 note 31, at 223, 228. supra Generalized exchange, un- Generalized exchange, social dilemma ng because one’s giving is not ng because one’s 181 ralized giving systemralized giving is not oriented ) 6/12/17) 2:03 PM ELETE WHO NEEDS CONTRACTS? NEEDS WHO note 11, at 121 (“Everyday examples of generalized exchange in note 11, at 121 (“Everyday examples of generalized D note 30, at 1107. OT OT N note 31, at 233. When realize ben- generalized exchange participants supra O supra (D supra 180 DOCX In the absence of a legal obligation that binds a participant’s that binds a participant’s In the absence of a legal obligation . at 1105. (“[F]orming a generalized exchange system is very risky because unilateral re- 183 INAL -F .Id. .Id. .Id. note 31, at 222. Contracts resolve a social dilemma by promising a benefit—i.e., consid- 182 179 180. Willer et al., 181. Takahashi, 183. Generalized exchange “has the structure of a Participation in a generalized exchange systemParticipation in than direct is riskier M K ERNTHAL C Y the last decade have observed generalized exchange within observed generalized exchange the last decade have peer digital production environments as well as networks that blend digital and an- alog features. around bilateral reciprocity. Instead, a generalized giving system is system generalized giving Instead, a bilateral reciprocity. around unilateral resource givi “characterized by the recipient, but by a third party.” reciprocated by to take benefits invites individuals contribution, generalized exchange 2017] commensurate return directly collabo- 1. Rather, to collaborator value will that benefits rator 1 trusts from return indirectly collabora- another system.tor in the time arrives at Figure 2, the benefit In from 3 (T3) 3. In this way,collaborator a gene 7B ticipant in a generalized exchange systemticipant in a generalized exchange does not receive a benefit, sue for breach of contract). Morethere is little recourse (i.e., she cannot fundamentally, generalized exchange involves the structure of a social dilemma. modern organizations are common and often spontaneously emerge, including online file modern organizations are common and mentoring, and so on.”). Kollock peer-to-peer sharing, open-source software programming, peer production, where the “setting is observes that an interesting feature of internet-based who enjoy the fruits of the project are often un- one of bits rather than atoms” is that those of peer production contributors. Such perspective known and anonymous, at least from the Kollock, contributions are more to “group as a whole.” ble behavior (gathering but not offering information) leads to collective disaster.” Kollock, supra eration—to prompt a party’s participation. source giving is an invitation to exploitation (e.g., Bearman 1997; Gillmore 1987; Yamagishi source giving is an invitation to exploitation exchange coincides with the problem that is prev- & Cook 1993). This feature of generalized problem of social dilemmas.”). A generalized alent in another research area: the free rider traditional gift ex- and riskier than generous exchange “system of sharing is both more change.” Kollock, than with efits, then the participant has greater feelings of solidarity and group identification a direct exchange system. In this way, the structure feel of exchange affects how participants about the network. The significance of this is elaborated upon in Part V of this Article like a guarantee secured through a formallike a guarantee contract, lacks the promise of exchange since Trust and risk attend generalized direct consideration. a participant seldom knowsform, exactly when, or in what from or whom a benefit will (or even if a benefit will return accrue). exchange with respect to compensation. 39285-mqt_100-3 Sheet No. 185 Side A 06/19/2017 09:53:44 06/19/2017 A No. 185 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 185 Side B 06/19/2017 09:53:44 M K ex 187 111 184 C Y ROGRAMS P note 79; Telephone Yet viewing the Mentor #8, an an #8, Mentor 188 supra 186 to a contributor, such to a contributor, note 79. CCELERATOR [100:997 [100:997 A note 31 at 233. The social di- p does not reflect pure al- p does not supra Team Production in Venture Capital NTO supra I rn benefits to a mentor. But nei- note 102 (“business karmic loop has paid off NSIGHTS I this respect, the accelerator is not a this respect, the accelerator is not mentorsex- in generalized participate supra OUNDER ) 6/12/17) 2:03 PM :F ELETE MARQUETTE LAW REVIEW MARQUETTE D note 11, at 121. This norm of mentorshi OT OT N 185 supra O CCELERATE (D . L. 949, 961 (1999). ,A ORP DOCX . C EERING INAL 24 J. -F D between a mentor a portfolio company. and Indeed a mentee port- UKE 188. invoke the word “karma” to describe the uncertain way an accelerator Interviewees 185. Observations of Isaac Saldana, Timand Jose Lopez, Founders of SendGrid, Jenkins, 186. Willer et al., 187. Mentor provided #8, a professional investor, insist an example of how actors that 184. Accountability mechanisms, such as making participants’ conduct visible to others, MDIA mentors “willing are said to be to help without an- expecting Direct within exchange obligations a MDIA prescribed are not ERNTHAL ante folio company is not obligated to retu ther does a MDIA foreclose instrumental benefits associated with direct mentor / mentee In interactions. in L system works. Telephone Interview with Anonymous Mentor #8, upon direct reciprocity get left out of the accelerator system. Mentorupon direct reciprocity get left out of the accelerator #8 said he worked with an accounting firm for many years. He helped company that had an an accelerator portfolio needed introductions to other accountants. Men-accounting-related application. The startup Mentor #8’s accounting firm responded, “who tor #8 asked for help on the startup’s behalf. firmis their accountant?” – implying that the recipro- would help the startup if the startup with this tit for tat approach, Mentorcated by engaging the accountant firm. Unhappy #8 immediately moved onto a new accounting firm. . . . then I If “[the firm] said ‘of course’ to a new would still be with them, and they’d also have a new client. Instead I moved on firm.” Telephone Interview with Anonymous Mentor #8, Interview with Anonymous Mentor #7, for me”); PC #10. (2014). 1032 from a MDIA without making system. to the contributions adequate deserved good fortune back Language portending as a “business karmic rewards loop,” is used to describe for a mentor’s MDIA absence of a specified return. participation the 7B ything in return.” ything in investor, observed that it “takes a lot of convincing for people who that it “takes a lot of convincing investor, observed are the accelerator systemnot used to it,” but “not [one of] reciprocity.” is MDIA giving system as a generalized shows that, far from luck, mentors systemparticipate in a whereif the benefits redound, even economic exact form of benefit is uncertain at the time a contribution. of truism, it highlights that rather, change wherechange indirectly repaid.” “benefits are lemma involved in MDIAs explored problems in venture capital echoes of “team production” by Gordon Smith. In particular, Smith examines the “incentive to shirk” in connection with to monitor team members perfectly and com- startup activities, stemming from the “inability Gordon Smith, pensate them based on productivity.” D. Investing, may mitigate some free rider problems. Accountability measures encourage desirable con- Kollock, tributions and discipline unwanted conduct. 39285-mqt_100-3 Sheet No. 185 Side B 06/19/2017 09:53:44 06/19/2017 B No. 185 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 186 Side A 06/19/2017 09:53:44 note arrange- supra and (iii) 192 quid pro quo (ii) a full-time job 191 note 79. 1033 1033 The socially integrated The socially integrated supra 193 .” Telephone Interview with Anon- Bilateral relations between relations Bilateral a 189 The duration of the accelerator pro- of the accelerator The duration ree types of relationships: (i) invest- ree types of relationships: 190 note 11, at 121. supra ) 6/12/17) 2:03 PM ELETE WHO NEEDS CONTRACTS? NEEDS WHO D other than opportunity to invest Freecycle has a “strict requirement” against a OT OT note 31 (discussing mixed gift and commodity economic elements note 31 (discussing mixed gift and commodity note 79 (emphasis added). N Willer et al., O (D et. al. supra See supra DOCX . INAL Kollock, -F 190. An option is a contract where a party may elect a future relationship. A mutual 189. Mixed environments are common in the real world. Healy & Krawiec, 191. that “I don’t expect anything from com- ThisMentor is reflected in #8’s comment 193. Telephone Interview with Anonymous Mentor #8, 192. Serial entrepreneur Tim Enwall, for example, mentored Revolv in the 2014 Figure 3 situates economicFigure 3 situates along two transactions axes: social im- M K see also ERNTHAL C Y mentor and a mentee program during an accelerator take on the charac- impliedter of an mutual option. 2017] systempure exchange. of generalized 7B gram period. After as a probationary acts MDIAconclusion of a the program, the mutual may option a mentor exercised by be jointly and mentee withrespect to at least th ment by a mentor into a mentee portfolio company; portfolio mentee a into mentor a by ment option exists where both parties may elect a future relationship. of blood donations). Contrast the accelerator’s mixed exchange with the Freecycle system, as of blood donations). Contrast the accelerator’s described by Willer ment of exchange. 33; opportunity for a mentoropportunity for with a mentee portfolio company; formal for a mentor advising roles with a portfolio company, such as Board member. Advisory or Board of Director governance structure of accelerators, in sum,governance structure situates mentor / mentee interactions amid exchange while generalized a mutual preserving op- tion that mentors and mentees may exercise in the future. of exchange. portance and structure panies that I’m mentoring ymous Mentor #8, Techstars class. After the program, Enwall assumed a CEO role with the company. Techstars class. After the program, Enwall assumed a CEO role with the company. 39285-mqt_100-3 Sheet No. 186 Side A 06/19/2017 09:53:44 06/19/2017 A No. 186 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 186 Side B 06/19/2017 09:53:44 M K C Y [100:997 [100:997 term relationships with close working 195 ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE Beyond Relational Contracts: Social Capital and Network Governance D note 11, at 140–44. OT OT 2 (Coase-Sandor Working Paper Series in Law & Econs., Working N supra O (D Relational dimensions are central to a transaction on the 194 DOCX . Lisa Bernstein, INAL Figure 3: Social importance 3: Social Figure of exchange structure and the -F . See 194. Willer et al., 195 Relational aspects of a transaction may be of low importance (i.e., The other axis of Figure 3 highlights the structural spectrumThe other axis of Figure 3 highlights of ex- ERNTHAL change, ranging from direct to generalized. As depicted in the upper other end of the spectrum. Long original equip- by Bernstein betweenpartners, such as those described ment manufacturers and suppliers in the Midwest, are highly relational transactional environments. “discrete” transactions). Purchasing tickets on Craig’s List as well“discrete” transactions). Purchasing the as purchase of gasoline from a convenience store are examples of discrete transactions. 1034 7B in Procurement Contracts Paper No. 742, 2016), http://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?arti- cle=2425&context=law_and_economics [https://perma.cc/CME3-NW4M]. 39285-mqt_100-3 Sheet No. 186 Side B 06/19/2017 09:53:44 06/19/2017 B No. 186 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 187 Side A 06/19/2017 09:53:44 197 1035 1035 change note 25, at 1405. ) 6/12/17) 2:03 PM occurs within ex- and direct a highly relational supra , As in the lower depicted gener- right quadrant, ELETE WHO NEEDS CONTRACTS? NEEDS WHO D note 11, at 140–44. 196 OT OT et. al., N Braiding supra O (D DOCX . INAL -F Figure 4: MDIA impact ex- the structure of entrepreneurial on 197. Willer et al., 196. Gilson et al., Investigation shows that MDIAs push entrepreneurial collaboration M K ERNTHAL C Y 2017] agreement a braided left quadrant, efforts be- innovation structures that tween pharmaceutical a large companyas startup, and a biotechnology by Gilsondetailed 7B change environment. alized exchange mayalized exchange contribution such as a relatively discrete, also be serves in relative anonymityof a volunteer who helping analyze photos of the Mars mapping project, or a bicycle given away member by a of absence of a personal relationship. Free Cycle in the into environments that are more relational and have the structure of 39285-mqt_100-3 Sheet No. 187 Side A 06/19/2017 09:53:44 06/19/2017 A No. 187 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 187 Side B 06/19/2017 09:53:44 M K 201 C Y Com- ad hoc, Second, 199 Secrets Revealed: [100:997 [100:997 MDIAs move this type 198 illing to conduct an illing to conduct 3–4 (Marc A. Smith & Peter Kollock return benefit. MDIAs heighten as it is outside of it, however,as it is outside of no saction by introducing a mechanism promise for other legal scholarly in- YBERSPACE generalized Sub- exchange structure. C note 24, at 1762–64; Jacob Loshin, also expands relational aspects of involve- also expands relational aspects of note 11, at 121 (“Everyday examples of generalized ex- note 11, at 121 (“Everyday supra Further, recent scholarship about “negative Further, recent scholarship about ) 6/12/17) 2:03 PM 200 supra which is w an expert ELETE MARQUETTE LAW REVIEW MARQUETTE D OMMUNITIES IN OT OT note 1, at 186 n.260. N O , in C (D supra , Willer, et al., at 186. DOCX . Raustiala & Sprigman, INAL -F . See id. . See, e.g. .See 198. Bernthal, 199 200 201 Generalized exchange best resolves the mentorship conundrum. the mentorshipGeneralized exchange best resolves conundrum. ERNTHAL ized). First, consider an advisory board relationship between advisory board consider an ized). First, an expe- a startup.entrepreneur and rienced is highly relational This exchange of a MDIA. in the absence and direct An member advisory board expert time often on a prescribed would trade advice, frame and cadence of for companyinteraction, in exchange equity. change in modern organizations are common and often spontaneously emerge, including change in modern organizations are common and often spontaneously emerge, and so online file sharing, open-source software programming, peer-to-peer mentoring, on.”). Kollock also consider peer production activity. Peter Kollock & Marc A. Smith, munities in Cyberspace of substantive collaboration into a of substantive collaboration termsreciprocity are specified in the MDIA of direct setting. stantive collaboration betweenstantive collaboration expert and portfolio company the is functionally similar within the MDIA discrete yet part of a startup scene’s generalized system. of a startup scene’s generalized discrete yet part On the rela- discrete because the meetingtional scale, it is is a one-off information exchange where are not nurtured. relational aspects On the structural an expert gives into a communityscale, it is generalized insofar as pool of goodwill without securing a direct the relational dimensiontran of this betweenfor repeat and regular interactions the expert and the portfolio company extend beyond a single coffee discussion. Moreover, that the MDIA makesthe expert to the portfolio company the contribution of more visible to others, which vestigations. For example, sociologists consider ways in which peer production, which Benkler and others have examined, works as a type of generalized exchange. ment of people. to a wider group This body of literature also holds legal spaces” analyze commercial environments, such as fashion and magician communities, that minimize use of available legal tools. 1036 4 shows Figure exchange. generalized how MDIAs move two of types and general- (highly relational right quadrant into the upper exchanges 7B eds., 1999). consider an instance in consider an instance one time meeting exchange is This one-off over coffee with a startup. 39285-mqt_100-3 Sheet No. 187 Side B 06/19/2017 09:53:44 06/19/2017 B No. 187 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 188 Side A 06/19/2017 09:53:44 see , 30 Yet, 206 Id. VAILABLE TO note 24, at 318–19. A Generalized ex- Generalized supra RE 203 Money Ruins Everything A 1037 1037 A mentor feel- enjoys team production dilem- 205 note 24, at 7. Rosenblatt, ENEFITS 1 (2007) (working draft), http://pa- at 84–85. Payment moves an activity 67, 77–102 (2010) (summarizing behav- B See supra Id. , ENTORS OBEL L NDIRECT See RRATIONAL I I MDIA M L.J. 203, 213–14 (2008). A “negative legal space” describes L.J. 203, 213–14 (2008). A “negative legal space” ) 6/12/17) 2:03 PM T ’ : they act selfishly and rationally. ‘Economic Man’: they act selfishly and rationally. ‘Economic does not Sections III.A, III.B. ELETE XTERNAL WHO NEEDS CONTRACTS? NEEDS WHO REDICTABLY NTM D E E ,P OT OT Such assumptions Such to inaccurate predictions led N note 39, at 4. 202 O at 950 n.5 (distilling definition of Alchian and Demsetz). Collaborative at 950 n.5 (distilling definition of Alchian See supra , RIELY (D NS AND A ’ supra , note 24, at 318–19; John Quiggin & Dan Hunter, note 24, at 318–19; John Quiggin & Dan Hunter, DOCX AN . homo economicus note 39 why generous individuals who use “other’ish” strategies (explaining D note 183 at 8. OMMC TOUT supra INAL S C -F supra NTERNAL AND .Id. .See , supra 204 203 204. literature about pro-social behavior, For of organizational behavior an overview 202. Stout conventional economic wisdom that most “people act like members critiques 206 205. Mentors exchange that may be exer- and mentees have a mutual option for direct MDIA between collaborations mentors mentees and primarily occur M K ERNTHAL IV. I IV. ASTINGS RANT C Y H Rosenblatt, within exchange environment. a generalized of the species He worries only about himself, calculatingly worry about morality, ethics, or other people. greatest material ad- that brings him the of action and opportunistically pursuing the course vantage.” perform actors in corporate contexts). Team better than selfish production refers to contexts, and entrepreneurs, in which: “(1) several such as cooperation between venture capitalists is not the sum of separate outputs of each coop- types of resources are used; (2) the product used in teamerating resource; and (3) not all resources production belong to one person.” Smith, aspects of team production give rise problems. to moral hazard and shirking G an industry sector or a community of practice where parties largely forego legal mechanisms, an industry sector or a community of practice or contracts to protect human capital, in order to such as intellectual property protections promote information sharing and new idea creation. pers.ssrn.com/sol3/papers2.cfm?abstract_id=1005564 [https://perma.cc/NZ3U-G6UQ]; pers.ssrn.com/sol3/papers2.cfm?abstract_id=1005564 How Magicians Property Without Protect Intellectual Law 2017] may exchange Generalized insight enhance into how multilateral bene- in these communities.fits circulate such as Lynn legal scholars Finally, assumptionsStout question actors in commercial that are self- contexts rational. ish and 7B out of the domain of social exchange and into the market domain. This is consistent with out of the domain of social exchange and into the market domain. This is consistent ioral economics research that explains why “we are happy to do things, but not when we are ioral economics research that explains why “we are happy to do things, but not when paid to do them”). Ariely argues there is a crucial distinction between a world of “social exchanges” versus a world of “market exchanges.” change tools may pro-social be- in furthering analyses such as be useful settings and solutions to havior in corporate mas. about behavior that Stout observed in corporations. that Stout about behavior ings of volunteerism compensation. in the absence of guaranteed cised at a later time. Relatedly, Orly Lobel chronicles how experts and new companies interact in a variety of con- Relatedly, Orly Lobel chronicles how experts protection measures, bypass human capital texts that eschew formal intellectual property controls, and minimize formal contracts. 39285-mqt_100-3 Sheet No. 188 Side A 06/19/2017 09:53:44 06/19/2017 A No. 188 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 188 Side B 06/19/2017 09:53:44 M K J. 210 C Y , 125 In- 207 Asymmetric Experts Experts NVESTMENTS I 209 A Meta-Analytic Do VCs use inside . 1104, 1105 (2012) IN .F NIVERSITY U 37–65 (Neil J. Smelser & ORP [100:997 [100:997 ALE , Y , 18 J. C OCIOLOGY MDIA enables participation S ERNER 208 mpanies within a MDIA cohort mpanies within L note 174, at 653 (analyzing data over 128 note 174, at 653 (analyzing data over 128 n the MDIA(ii) ex- network; and rmation, including multiple new ive for my contributions.” Email from Peter from outside of the third parties Learning by Monitoring: The Institutions of Eco- thin a MDIA:social (i) learning, (ii) OSH J CONOMIC supra E Brian Broughman and Jesse Fried, ; see also ) 6/12/17) 2:03 PM Charles Sabel, rial finance, and (iv) job prospects. rial finance, and see also ANDBOOK OF ELETE MARQUETTE LAW REVIEW MARQUETTE note 177 D H OT OT HE N O supra see generally (D , in T DOCX . 627, 653 (1999). Deci et al., . Sharpe, 2003 4 (2003) (discussing information gaps in private markets that may be prof- ULL INAL -F .B 45, 1069–87 (1990); UNE .Id. . See :J 207 208. to individuals and Scholars document the economic value of learning available 209. As in accelerators told me, “I’m a mentor not looking for my mentees to add value 210 The range of participants in a MDIAThe range of participants composition a variety creates Learning benefits are one type of IIB. Learning benefits A. indirect benefits are visible within Four categories of internal MDIAs ERNTHAL FFICE SYCHOL INANCE of possible ways to reward contribution. a participant’s unilateral Review of Experiments Examining the Effects of Extrinsic Rewards on Intrinsic MotivationReview of Experiments Examining the Effects P terviews with members exchange system of an accelerator’s show how categories of economi- benefits (“IIBs”) circulate. Four internal indirect IIBs are observed wically significant capital, (iii) entrepreneu value non-public information that they can use to identify under-valued opportunities and exploit asymmetric information environments. exposes a mentor to non-public info business ideas, emerging technologies, and investor trends. pattern recognition associated with exposure to multiple companies. associated withpattern recognition to multiple exposure companies. to see ten (or so) new co The opportunity F O empirical psychology which suggests that tangible direct rewards adversely affects work in intrinsic motivation al., for otherwise interesting tasks. Edward L. Deci et 1038 a mentorof economic kinds two realizes rewards: indirect (i) internal benefits—i.e., from gains others withi benefits—i.e.,ternal indirect gains 7B MDIA network. in turn. Each is described studies). engagement. For example, banks compete at be- companies through monitoring and active low marketnew clients because of the information advantages that prices for the business of over time. flow from such relationships and prove valuable Steven A. Sharpe, model of customer relationships, a stylized information, bank lending and implicit contracts: itably exploited by experts). Richard Swedberg eds., 1st ed. 1994). other back to me (although they sometimes do). I expect that the value of networking with mentors, of ideas and the additional credibility on my access to a ‘first look’ at a range LinkedIn profile will be the compensation I rece Bell to author (July 14, 2016, 06:44 PM) (on file with author). rounds to dilute founders? Some evidence from Silicon Valley rounds to dilute founders? Some evidence from (discussing asymmetric advantages associated with(discussing asymmetric advantages associated informational lock-in). On learning and monitoring broadly, nomic Development 39285-mqt_100-3 Sheet No. 188 Side B 06/19/2017 09:53:44 06/19/2017 B No. 188 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 189 Side A 06/19/2017 09:53:44 , EX 211 note FFECT E supra IRL G HE , http://sprintac- (Feb. 15, 2017), What Corporate In- 1039 1039 CCELERATOR Similarly, Mentor #10 NTREPRENEUR A The Sprint Accelerator is a Hub for E 212 note 44, at 16, 44; PRINT S supra Corporate accelerators facilitate in- 216 Hochberg, see ) 6/12/17) 2:03 PM 214 ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N O (D , https://www.startupbootcamp.org/about-us/ , https://www.startupbootcamp.org/about-us/ DOCX . Corporate accelerators include Europe’s Startup Bootcamp, Europe’s include Corporate accelerators , http://girleffectaccelerator.com/ [https://perma.cc/BWG2-RNX6] (last vis- MDIA mentors gain insight about emerging tools, tech- Interview with Accelerator Rep #14 (June 23, 2014) (notes on file with author); Interview with Accelerator Rep #14 (June 215 INAL 213 , https://lexmachina.com/media/press/lexisnexis-launches-new-legal-tech-ac- -F . See . Startupbootcamp is a global family of industry-focused startup accelerators 215 214. Telephone Interview with Anonymous Mentor #2 (Apr. 6, 2015) (notes on file with 213. Telephonewith Anonymous Mentor Interview #10 (Apr. 16, 2015) (notes on file 212. Telephone Interview with Anonymous Mentor #1 (Apr. 6, 2015) (notes on file with 211. For working with other mentors in example, mentor #5 highlighted the value of 216 Corporate accelerators, whereCorporate accelerators, incumbent companies sponsor a M K ERNTHAL ACHINA CCELERATOR TARTUPBOOTCAMP C Y cubators and Accelerators Can MeanBusiness, for Your Interview with Accelerator Rep #29 (June 22, 2016) (notes on file with author). For general Interview with Accelerator Rep #29 (June overview of corporate accelerators, author). with author). author). 17. niques, and industry trends. Mentorniques, and industry a MDIA #2 underscored that re- veals “what is emerging.” helping a portfolio company. Telephone Mentor #5, Interview with Anonymous teraction between managementincumbent startups and an sponsor’s and employees, who provide free mentorship that frequently to startups [https://perma.cc/5Q3V-SALJ] (last visited Jun. 5, 2017); Corporate Innovation & Entrepreneurial Engagement, cel.com [https://perma.cc/9DLS-SR6B] (last visited Jun. 5, 2017); T ited Jun. 5, 2017). LexisNexis Launches New Legal Tech Accelerator in Silicon Valley, L ited Jun. 5, 2017). LexisNexis Launches New Legal Tech Accelerator in Silicon Valley, https://www.entrepreneur.com/article/287495 [https://perma.cc/6AUF-24MV]. https://www.entrepreneur.com/article/287495 A M 2017] Some MDIA of aspects as a mentor insofar are reciprocal learning gets workinginsight by with directly a mentee company. portfolio But other are indirect learning benefits significant and flow from inter- peripheral actions with other companies as well as other mentors system. in the Mentor with value associated the learning #1 highlighted other hearing company. portfolio a on comment mentors 7B celerator-in-silicon-valley/ [https://perma.cc/7XLS-6MKP]. Techstars’ corporate branded accelerators (knownTechstars’ corporate branded as “Powered by Techstars”), the Nike Girl a legal startup Effect Accelerator, and even accelerator offered by LexisNexis. highlighted the value of exposure tohighlighted the “cutting edge things and smart people.” MDIA, bet that accelerators provide learning benefits for managers and participate as mentors.executives that is a The corporate accelerator somenotable trend that the accelerator believe represents the future of industry. S 39285-mqt_100-3 Sheet No. 189 Side A 06/19/2017 09:53:44 06/19/2017 A No. 189 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 189 Side B 06/19/2017 09:53:44 M K C Y (Aug. OCIAL S LOG B Physical 221 e. For angel in- ONTACT C note 108. ULL NTRODUCTION TO F I rtunities to invest in Mentors also interact [100:997 [100:997 N supra 220 :A Mentor #9 observed, “I don’t LOSURE 222 C trepreneurial financ Other who specialists, industry are not 217 FullContact Acquires Conspire, ) 6/12/17) 2:03 PM ROKERAGE AND flow”—i.e.,leads to oppo note 44, at 1. The corporate accelerator promises accelerator The corporate the incum- ELETE , B MARQUETTE LAW REVIEW MARQUETTE D 218 OT OT URT note 4, at 3. supra B N O Bart Lorang, (D supra Accelerators amplify network activi- benefits through , See 219 ONALD DOCX . R Hochberg, ETRICK INAL -F This reflects an assessment that the mentor’s contri- unilateral 4 (2005). .See . See 223 222. Techstars Mentor (on file with author). The message 2015 Q1, Mar. Newsletter 10, 220. For example, Techstars program with a mentor dinner where mentors dine kicks off 221. M 217 218. companies may also realize outsource research and development gains. Incumbent 219 223. Telephone Interview with Anonymous Mentor #9, A third type of IIB relates to en A to MDIA second IIB available mentors cap- is social capital. Social ERNTHAL APITAL together, new mentors are introduced, and a sneak peek at the incoming cohort is revealed. together, new mentors are introduced, and know how much it would my- have cost to organize [this network for] self.” C 1040 aim industry. upend their to 7B notes that the “network size as of January 2015, is 936 members, which connect to 736,952 notes that the “network size as of January 2015, is 936 members, which connect to contacts. TS network members have sent first-degree contacts and 3,233,818 second-degree each other 1.5 million messages it ac- to date.” In August 2016, FullContact announced that quired Conspire. butions toward company a portfolio were, in turn, rewarded by high accelerator network.value connections to others in the vestors, the opportunity to interact with other MDIAvestors, the opportunity to interact mentors expands an individual’s “deal part of incumbentpart of company accelerator join the corporate sponsors, mentor pool as well. ties and tools designed to broker useful connections. An event that to broker useful connections. ties and tools designed convenes mentors in a common as a mentor-only such dinner, setting, of accelerator programs.is typical at the outset proximity mentors, between moreover, is augmented by technology For example,tools. a dedicated the application Conspire offered Techstars network that promised to inform a mentor“exactly how to get the best introduction to whoever you want to meet —a customer, employer and as a mentor.” or investor bent access to new talent and ideas. Startups participate, in turn, in or- in turn, Startups participate, and ideas. to new talent bent access knowledge access to industry der to get professional connections. and in a structure of re- created by a person’s location ital is an “advantage lationships.” withone another while advising portfolio companies contemporane- or a group mentor pitch practice ously, such as a meeting. 17, 2016), https://www.fullcontact.com/blog/fullcontact-acquires-conspire/ [https://perma.cc/YV4N-UA8C]. 39285-mqt_100-3 Sheet No. 189 Side B 06/19/2017 09:53:44 06/19/2017 B No. 189 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 190 Side A 06/19/2017 09:53:44 225 226 An indirect An indirect 229 231 note 134. note 108. 1041 1041 supra supra ng director with venture capital ng director with 233 ird parties who of the are not part mentoring Horn met Van another financing of their own ventures. of their own financing e system itself. Pecuniary gains are Van Horn became involved with with involved became Horn Van Id. volves future employment opportuni- giving systems also gives rise to re- 227 in the Boulder program. on with Foundry Group was already in on with Foundry ) 6/12/17) 2:03 PM When to found his next ven- Van Horn went ELETE 230 WHO NEEDS CONTRACTS? NEEDS WHO D note 53, at 28. While a MDIA portfolio company might engage a OT OT For entrepreneurs, the opportunity to interact with to interact the opportunity entrepreneurs, For N 232 O 224 supra (D , Van Horn a day of help gave a unilateral contribution: DOCX . B. External indirect benefits include reputation gains 228 ANGUM INAL Id. -F .Id. .Id. .Id. .Id. 224. M 225. Telephone Interview with Anonymous Mentor #9, 226. Telephone Anonymous Mentor Interview with 21, 2014) (notes on file #14 (June 227. 228 229 230 231 232. Telephone Interview with Anonymous Mentor #17, 233. Functional specialists, such as legal providers, also feel compelled to sponsor accel- Finally, a fourth type of IIB in Participation in generalized M K ERNTHAL C Y benefit subsequently circulated back to Van Horn through a relation- circulated back to Van Horn benefit subsequently Through ship with an investor. managi a Techstars mentor, Feld, Brad fund Foundry Group. Techstars. ties. Functional specialist mentors—such as lawyers, finance experts, and marketers—know that MDIA portfolio companies with operate limited resources. 2017] companies.other of MattThe experience Van Horn an example provides of how general- rewardsized exchange MDIA participation of contract. in the absence Van Hornwas having co-founded entrepreneur, an experienced Zimride (now known as Lyft). 7B other MDIA mentors may lead to functional specialist after a program concludes, a more likely benefit for mentor engages the specialist or a functional specialist is that another recommends the specialist to others. mentoring portfolio companies place. Foundry Group funded June Life in Aprilplace. Foundry 2014. ture, June Life, the connecti June Life, ture, with author). erators so that they are visible and present. wards, defined here as external indirect benefits (“EIBs”) that are cap- wards, here as external indirect defined tured from interactions outside th found through interactions with th MDIA network. Figure 5 diagrams how MDIA participants capture EIBs 39285-mqt_100-3 Sheet No. 190 Side A 06/19/2017 09:53:44 06/19/2017 A No. 190 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 190 Side B 06/19/2017 09:53:44 M K PM PM

C Y note 2:03

Open Open supra , 235 Coase’s Penguin [100:997 [100:997 of EIBs: (i) exploitation of Benkler, . Learning benefits, as dis- as . Learning benefits, See note 165, at 1805, 1809, 1811 (“sponsor is not part of the MDIAis not part network. how learning benefits mayre- be supra Open source software, for example, il- generalized system. generalized Collaborator 1 uni- 234 , present a type of IIB available to mentors. mentors., present a type of IIB available to tem participant ) 6/12/17 ) supra ELETE MARQUETTE LAW REVIEW MARQUETTE D OT OT N O (D Contributors to open source projects often do not secure Contributors to open source projects DOCX DOCX . 236 at 371 n.2, 386. INAL -F .Id. Figure 5: External indirect benefits External indirect Figure 5: sys- by a generalized realized 235 236. is estimated that over half of the developers in open source projects are employ- It 234. Benkler labels this “indirect appropriation.”

Investigation shows two common types ERNTHAL B

firms can accrue premia . . . that run on that base”). on proprietary applications ees with for-profit or non-profit entities. Barnett, 41, 405 n.76 (“appropriation of the value of one’s effort by means other than reliance on the 41, 405 n.76 (“appropriation of the value of one’s effort by means other than reliance excludability of the product of the effort”). lustrates how economic EIBs present benefits that flow from learning benefits associated with participation. generalized exchange

1042 1042 fromof a parties outside third 2. Collaborator helps collaborator laterally 1 is later rewarded in a trans- action withwho party outsider a third 7 source software collectively created through fragmented is voluntary terms,contributions and, subject to license then given awayfor free to the public. alized vis-à-vis third parties. cussed in Section IV.A often realized through external interac- The value of learning benefits is production contexts show Peer tions. learning benefits; and (ii) reputation gains learning benefits; and (ii) reputation 39285-mqt_100-3 Sheet No. 190 Side B 06/19/2017 09:53:44 06/19/2017 B No. 190 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 191 Side A 06/19/2017 09:53:44 239 242 IBM supra (Aug. , infor- CNET supra , Don Clark, note 211. Accelerators See, e.g. (Sept. 16, 2013, 5:57 PM), supra note 100, at 70; Bessen, 1043 1043 LOG that burnish reputations to those , supra , epreneurial ventures exhibit epreneurial ventures .J.B T pecuniary terms through third S conditions of high information conditions of high ILLIAMS rial skills and capabilities are dif- rial skills and capabilities n in server sales revenue from sales revenue n in server a $1 software through their involvement ALL &W y settings. The accelerator imprimatur ,W 240 As III.A discussed in Section APSCOTT 241 ) 6/12/17) 2:03 PM IBM’s Overtake Servers, Linux Revenue: Services to But contributing firms and individuals, who be- individuals, and firms contributing But note 213, at 4 (citing high variance in performance at twenty- note 213, at 4 (citing high variance in performance ELETE WHO NEEDS CONTRACTS? NEEDS WHO D 237 Reputation established through MDIA Reputation established through participa- OT OT supra N 243 , O (D ERNER DOCX L . at 1809 n.128. at 1805, 1809, 1811 (“sponsor firms can accrue premia on proprietary applica- at 1805, 1809, 1811 (“sponsor firms can accrue INAL OSH -F The magnitude from of gains significant. strategies can be EIB .Id. .Id. .Id. 238 240. Stephen Shankland, 242. terms of past performance, information can be hard to access and reliable data In 243. Telephone Interview with Anonymous Mentor #1, 237 238 241. J 239. IBM development, and other alone invested over $200 million annually to Linux Mentors similarly benefits through third appropriate reputational M K ERNTHAL C Y tion may Where serve as a bond. also a mentor misbehaves vis-à-vis a third party, a network of administering capable reputational sanctions mation asymmetries exist between what entrepreneurs know about their companieswhat versus others know about their companies. Much information about entrepreneu ficult to obtain in private compan 2017] compensation.direct IBM $2 billio that it earned reported investment.billion open source that the mentorsignals to those outside an accelerator “know[s] things,” a reputational enhancement captured in 7B party interactions. note 110, at 1. party interactions withparty interactions the accelerator system. parties outside Reputa- shortcut to identify wealthtion serves as a opportunities and creation mitigate behavior amid opportunistic high variance in outcomes. asymmetryand uncertainty. Private entr five and seventy-five percentiles in private equity). performance affected the outcome individual’s points can be difficult to surface about how an of a startup (e.g., did market conditions and timing create a(n) (un)lucky outcome?). in its creation, then sell complementaryin its creation, par- goods to third services and ties. come familiar with the open source http://blogs.wsj.com/digits/2013/09/16/ibm-again-pledges-1-billion-to-a-linux-effort/ [https://perma.cc/UFR2-PMDJ]; T outside of the MDIA network. highlight mentors in myriad ways, as discussed in Part IV 2, 2014, 5:44 PM), http://www.cnet.com/news/ibms-linux-revenue-services-to-overtake- servers/ [https://perma.cc/6XXQ-XFRA]. way, open source software may be under- In this a participant’s unilateral contributions to a project stood as a form of generalized exchange: results in rewards latently captured through others. indirect interactions with tions . . . that run on that base”). companies such as Intel, HP and Novell pursue similar strategies. Again Pledges $1 Billion to a Linux Effort 39285-mqt_100-3 Sheet No. 191 Side A 06/19/2017 09:53:44 06/19/2017 A No. 191 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 191 Side B 06/19/2017 09:53:44 M K C Y Over time, time, Over 250 note 79. Reputational bene- [100:997 [100:997 247 What Do Entrepreneurs Pay for supra and Mentor#6 said that the to portfolio companies in an He initially viewed acceler- 246 249 ped by Mentor #8 within an ac- moreover, are willingto take a David Hsu, See 244 . 1805, 1805–06 (2004). ) 6/12/17) 2:03 PM IN for example, is an angel investor whofor example, began F ELETE MARQUETTE LAW REVIEW MARQUETTE note 1, at 146, 178–79. D 59 J. , OT OT N supra O (D DOCX . The expanded deal flow pipeline complements other aca- An investor that provides help Bernthal, 251 252 . . Mentor helped his dig- benefits that reported reputational #7 INAL -F 245 .Id . See .Id 252. “Offers made by VCs with a high reputation are three times more likely to be ac- 251 244 250 247. Telephone Interview with Anonymous Mentor #6 (Apr. 9, 2015) (notes on file with 248. Discussion with former student who recently left a “unicorn” startup and was look- 249. Telephone Interview with Anonymous Mentor #8, 245. Telephone with Anonymous Mentor Interview #13 (Apr. 29, 2015) (notes on file 246. Telephone #7 (Apr. 15, 2015) (notes on file with with Anonymous Mentor Interview Investors similarly benefit from gains associated with reputation Investigation showsInvestigation ways that mentors interac- vis-a-vis third party 248 ERNTHAL accelerator powerfully affected his PR business. accelerator powerfully however, the investment over 50% pipeline shifted. Today of Mentor #8’s investment deals, while outside of the MDIA networks, come re- hel ferred by individuals that were once celerator. accelerator, to the extent such help is visible to third parties, sends a accelerator, to the extent such help fits are such that one individual, whofits are such that was in between reported that jobs, hima recruiter advised try and join an accelerator network to as a men- tor. mentorship. Mentor #8, MDIA mentoring 2009. in accelerators in demic about the economic research in venture value of reputation capital. David Hsumore found that entrepreneurs are likely to accept offers from high reputation VCs and, significant discount in an VC deal in order to work with higher reputa- tion VCs. 1044 for misbehavior available. is 7B cepted, and high-reputation VCs acquire start-up equity at a 10–14% discount.” Hsu explains cepted, and high-reputation VCs acquire start-up equity at a 10–14% discount.” Hsu explain that high reputation VCs provide a startup greater “certification value.” This helps lesser deal terms from a high reputation VC why a startup would accept what appears to be rather than work with a lesser known VC. Venture Capital Affiliation? tions capture reputational benefits. Mentor reputational tions capture that accelerator #13 reported engagement promoted work her fractional as a CFO the accel- outside erator. author). author). ing for next position. ital marketing work with outside parties, ators as a direct pipeline for investmentators as a direct opportunities. with author). 39285-mqt_100-3 Sheet No. 191 Side B 06/19/2017 09:53:44 06/19/2017 B No. 191 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 192 Side A 06/19/2017 09:53:44 MDIA HERE W AILS 1045 1045 F Sustaining volunteer mentor Sustaining volunteer active in the community in the active is and ere informal tools substitute for 255 ONDITIONS ONDITIONS deals on better termsdeals on in the future. What Makes a Founder-Friendly Investor? One ?C This Section distills academic work UCCEEDS OR S at examine conditions where general- (Apr. 10, 2016), https://medium.com/@Fly- LOG B ONTRACT ) 6/12/17) 2:03 PM C Such activity burnishes an investor’s reputa- burnishes Such activity ELETE 253 WHO NEEDS CONTRACTS? NEEDS WHO note 11, at 145 (“critical mass of contributions can be harnessed, note 11, at 145 (“critical mass of contributions D at reputation is enhanced, this makes is enhanced, at reputation it more likely EDIUM OLUNTEERISM OT OT MDIAto attract mentors strategies function in sim- M N V EEDS A supra O 254 N (D HO DOCX . INAL -F V. W V. 256 253. On the competitive importance to a startup that an investor is viewed as “friendly” 254. These tools are detailed in Section V.A–C below. 255. Willer et al., 256. This as the “mentor driven” part of a MDIA observation is tautological insofar re- This Section identifies conditions whThis Section identifies The insight that MDIAs are a generalized exchange system points M K ERNTHAL C Y contract to induce mentorcontract to induce A range of tools promote contributions. men- tor volunteerism. 2017] market to the signal is investor that the friendly. entrepreneur 7B tion. To the extent th tion. To investor willthat the secure desirable ilar ways and shape insofar as they incentivize to contractual provisions exchange systems Effective generalized behavior of participants. gen- erate economic for participants when benefits virtuous cycle promotes a and deters free riding. unilateral giving up the utility of prior studies th ized exchange succeeds and fails. ized exchange succeeds and fails. ingBenji/what-makes-a-founder-friendly-investor-6573b770cf18 [https://perma.cc/ST5T- ingBenji/what-makes-a-founder-friendly-investor-6573b770cf18 MCUB] (noting that investors “strive to set themselves apart by building a ‘founder-friendly’ reputation.”). participation is a necessary, if not sufficientparticipation is a of a viable MDIA part, sys- tem. and its management team, see Ben Marcus, founder’s perspective, it may to spark a sort of ‘virtuous cycle’ that leads groups featuring generalized exchange This stands in stark contrast to direct exchange to the maintenance of giving in such systems. to function. Such systems can survive on self- systems, which should not require solidarity interest”). lies upon volunteers. Beyond the tautology, however, the interesting question surrounds lies upon volunteers. Beyond the tautology, over the long term. In order to prove an how expertise will be organized within accelerators enduring institutional form, private MDIAs must return on capital to in- provide sufficient vestors after fees and costs are paid to accelerator intermediaries. To accomplish this, MDIAs startup must provide value to startups that justifies an entrepreneur’s decision to exchange equity as well as accept the opportunity costs associated with three to four months of MDIA participation. Mentors provide the expertise required to help MDIAs create morevaluable portfolio companies. If high caliber experts refuse to volunteer for a MDIA, then another organizational approach will be required to mobilize expert inputs. achieve productivity and maintain group members’ giving . . . At the same time, generalized giving members’ achieve productivity and maintain group exchange systems that are unable to overcome this ‘start-up’ problem are likely to crumble, pro-groupas their low productivity will fail to produce sentimentsare uniquely critical that 39285-mqt_100-3 Sheet No. 192 Side A 06/19/2017 09:53:44 06/19/2017 A No. 192 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 192 Side B 06/19/2017 09:53:44 M K C Y 257 [100:997 [100:997 ralized exchange. ange. Where the Viability Factors als active withinals active MDIAs. 6 Figure in Figure 7, three Viability Factors drive rticipate in gene rticipate ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE A. Instrumental Motivations A. Instrumental D feelings associated with mentor involvement with mentor involvement feelings associated economic benefits in exchange for mentor par- economic benefits OT OT N O (D expected behavior within a MDIA environment within a MDIA environment expected behavior Figure 6: Classes of Motivation For Participation DOCX . INAL -F Volunteerism: Norms: Classes of Motivation Instrumental: 257. Diviningacross in- the motivation behind behavior is not easy. Motivation varies For each Class of Motivation, this Section identifies factors that de- Instrumental motivationsto economic refer to benefits available ERNTHAL ticipation termine whether a MDIA facilitates the Class at high or low levels. termine whether a MDIA facilitates the Class at high or low levels. These factors, called the “Viability Factors,” are determinants of where volunteerism is viable over time. Where Viability Factors are present at MDIAhigh levels across each Class, a environ- enjoys a collaborative ment that facilitates generalized exch are low, alternative methods— in contrast, it should be expected that such as formal legal tools with direct compensation—are required to structure collaboration between experts and startups. Subsections A–C below examines each of the Classes of Motivation and their respective Viability Factors in turn. MDIA participants. As set forth whether generalized exchange is economically system attractive: (i) quality, (ii) cost of mentor / mentee agreements, and (iii) circulation of indirect internal benefits (IIBs) and benefits (EIBs). external indirect 1046 combines and exchange on generalized it with collected evidence interviewsthrough with individu motivation three types of highlights (“Classes of Motivation”) that best for willingnessaccount to pa 7B dividuals. Individual mentors, moreover, self-report a mix of different motivations. Finally, self-reporting of motives is not fully reliable, makingthe moti- it difficult to accurately know vation behind a behavior. 39285-mqt_100-3 Sheet No. 192 Side B 06/19/2017 09:53:44 06/19/2017 B No. 192 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 193 Side A 06/19/2017 09:53:44 e g admission mentors y Exchan an compensation p public profiles of 1047 1047 do not need direct do not need direct and portfolio com- MDIA Strategies to MDIA Selectivity in mentor Selectivity in mentor Recruit mentors who Recruit mentors Boost mentor-mentor Boost mentor-mentor interactions; heighten Promote Generalized Promote Generalized —are more promising where at general exchange will fail and th exceptional potential, the pos- supra High system quality enhances the EIBs ng entrepreneurs mentored by highly ments Factors Quality Viability Mentor / High Cost of High System Free Circula- Mentee Agree- MDIA strategies associated with selectivity tion of IIBs and ) 6/12/17) 2:03 PM 258 ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N eco- O is determined by the skill level of individuals involved (D DOCX . INAL Figure 7: SummaryFigure 7: of Instrumental Class Motivation of -F participation 258. Legendary basketball coach Pat Summit highlighted this advice from Tennessee System quality Motivation Class Motivation Class M K change for mentor change for mentor Instrumental: ERNTHAL nomic benefits in ex- nomic benefits C Y a MDIA attracts high functioni skilled mentors. Moreover, when a MDIA has a high reputation vis-à- vis third parties outside of the MDIA, mentor engagement can reliably recall that mentorsbe expected to generate EIBs. Finally, mentees and have a mutual post accelerator engagement. option for Where portfolio companies are led by entrepreneurs wi is moresibility of a future relationship attractive. The importance of system quality underscores why successful MDIAs “don’t take donkeys to the Kentucky Derby.” likelihood of valuable indirect benefits. For example,likelihood of valuable indirect benefits. learning benefits— IV.Aa type of IIB described in Section in a MDIA combined with a MDIA’s reputation. In economic external terms,risk discount is involved in generalized exchange due to the a fact that direct compensation is neither specified nor secured via con- tract. Participants must bear the risk th that benefits will circulate back. not 2017] 7B her father about the importance of recruiting talented, high caliber players. Following a loss, 39285-mqt_100-3 Sheet No. 193 Side A 06/19/2017 09:53:44 06/19/2017 A No. 193 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 193 Side B 06/19/2017 09:53:44 M K See C Y NSWERS FROM A between ex- HANGING ex ante note 79. See Frequently Asked Ques- -C [100:997 [100:997 IFE supra :L itive, investigation shows ographies are more likely to UESTION The importance of system qual- exchange will exchange Toward succeed. Q e value of flexibility in expert /e value of flexibility 259 refers to the challenges and trans- refers to the challenges NE O , Early stage startups face similar chal- 261 OLEMAN ) 6/12/17) 2:03 PM C ELETE EN MARQUETTE LAW REVIEW MARQUETTE One cer- reason is that the costs and frictions for A of its startup has difficulty defining the scope D K 67 (2013). 262 OT OT 260 note 1, at 147–49, 185. N O (D OICES supra V DOCX . , http://www.dreamit.com/faq-1/#faq [https://perma.cc/UJ7T-LEXG] (last note 207, at 71 (citing instances in which lawyers refused to work for AARP at INAL EADING -F L supra S REAMIT , ’ D 259. Accelerators are sometimes nested within or affiliated with a larger venture capital 261. Bernthal, 262. People are sometimes willing to work for free but not for compensation. 260. Telephone Interview with Anonymous Mentor #8, Meanwhile, while perhaps counterintu Cost of mentor / mentee agreements ERNTHAL RIELY ODAY needs and, even once defined, rapid changes to a startup’s business needs and, even once defined, model render needs obsolete. A that certain desirable mentors—such as VCs and some CEOs—are more attracted to MDIAs if they serve as volunteers rather than as compen- sated professionals. lenges in formalizing director roles and consulting relationships. The lenges in formalizing director roles and consulting relationships. informality of the MDIA mentor relationship prevents lock in at a time of rapid changes to the company. Summit’s dad admonished her that she should go get someSummit’s dad admonished her that she should to suc- racehorses if she wanted ceed as a collegiate coach. T 1048 recruitmentand of mentors companies portfolio and are powerful de- terminants as to whether generalized 7B accelerator promotersthis end, individ- high profile often try to engage as well-knownuals, such capable and entrepreneurs, venture capitalists the network. others into of recruiting tain experts to enter into formal agreement exceed the expected benefits. For example, typically professional investors such as venture capitalists firm or have a national venture capital arm that has the option to invest in subsequent rounds firm or have a national venture capital arm exercised by Dreamit. of funding. One example of this model is tions, a discounted rate, however, attorneys were willing to do free work for AARP). ity also suggests caution for efforts to sustain the MDIA caution for efforts to sustain the ity also suggests model in loca- masstions lacking a critical caliber mentors of high entrepreneurs. and Accelerators ge outside of entrepreneurial in crafting formalaction costs involved contracts struggle to generate economicallystruggle to generate indirect benefits that re- valuable dound to mentors. companies.perts and portfolio Th afforded by the MDIAstartup relationship may of a exceed the benefits stable and well defined expert relationship. One mentor, for example, highlighted that early stage company advisory board relationships are largely ineffective. visited Jun. 5, 2017). 39285-mqt_100-3 Sheet No. 193 Side B 06/19/2017 09:53:44 06/19/2017 B No. 193 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 194 Side A 06/19/2017 09:53:44 note 144, at 78– supra , ERNER 1049 1049 &L OMPERS economically irrelevant to a dentist t the cost, timet the cost, and hassle associated describes the rewards realized among par- The nature of MDIA mentorship is infor- note 23. 265 ) 6/12/17) 2:03 PM at 169. A common covenant limits the startup activity a gen- Waivers be ob- covenant could of a restrictive , supra ELETE 263 WHO NEEDS CONTRACTS? NEEDS WHO D OT OT note 1 In short, for certain mentors, In short, for certain the MDIA to strategy N O 264 (D supra DOCX . INAL -F 263. Bernthal, 264. “It is not a written business agreement. But I would view it as a conflict.” Interview 265. goods contributed by a mentor, unlike physical inputs, are non-ex- Information MDIAs recruit mentors who not need direct compensation do and, Circulation of IIBs and EIBs M K ERNTHAL C Y 2017] their in covenants restrictive have agreementsfund with limited part- ners. A common prohibits VCsrestrictive covenant from entering into agreementsseparate for direct compensation “day job” outside of their capitalist. as a venture 7B ticipants within the MDIA generalized exchange. The description of IIBs and EIBs in Section IV shows how economic benefits are significant even in the absence of direct compensation. It should be emphasized, moreover, the contribu- participation involve that the “costs” of mentor tion of information goods. informallyorganize experts lowers the with frictions associated mentor- ship. more For exam-specifically, can internalize the and EIBs. value of IIBs MDIA angel investor who through ple, consider an mentorship(i) learns difficult to obtain information about an emerging industry sector that a MDIA portfolio company is involved in, and (ii) becomes well known entrepreneur friendly expert. These in a geographic area as an The angel indirect benefits are economically for the angel. significant internalizes value when information she uses industry-specific eval- to uate an investment opportunity in the sector. And rep- she internalizes startup accepts her moneyutational benefits when a desirable into a competitive deal because she is regarded as “smart money.” In contrast, the same indirect benefits would be with no interest in private investing or startups. eral partner can engage in outside of a VC fund. G 79. with Anonymous Mentor #2, haustible: a mentor keeps a copy of ideas generated through help to a startup. with securing waivers would MDIA chill participation. Duty of loyalty that, similarly,is another factor makes for a MDIA it easier pay not to an expert. One mentor—a CEO—said that he would refuse cash com- mentorpensation for his with my due to “a conflict of interest work ex- isting business.” tained from limited partners. Bu mation oriented—i.e., a mentor her tacit knowledge, shares creative ideas, and other forms of know-how. Where mentors co-create and 39285-mqt_100-3 Sheet No. 194 Side A 06/19/2017 09:53:44 06/19/2017 A No. 194 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 194 Side B 06/19/2017 09:53:44 . . M K OC C Y supra , 70 S HINKING ,T RANT AHNEMAN Figure 8 shows Simplified mod- K 269 267 [100:997 [100:997 ANIEL D see note 207, at 67–68, 76, 79. nduct, (ii) conditions of generos- nduct, (ii) conditions norms do not dominate interac- supra , at 148. Ariely provides a clear illustration of , RIELY A note 39. For survey of research about how cognitive note 39. For survey of research about how 266 note 11 See supra , ) 6/12/17) 2:03 PM supra TOUT ELETE B. Volunteerism Motivation B. Volunteerism MARQUETTE LAW REVIEW MARQUETTE S D note 32, at 128 (noting that transaction cost economics assumes a note 32, at 128 (noting that transaction cost Selective Incentives and Generalized Information Exchange Selective Incentives and Generalized Information OT OT N O supra Willer et al., (D See MDIAs best when function preserve feelings of they (2011). DOCX See generally . 268 Cimino, LOW INAL S -F . This also suggests that MDIAs Q. 82, 82–83 (2007). a built in safe guard may have . See ND A 268 267. Whether is intrinsic to an individual or externally imposed motivation separates 266. Coye Cheshire, 269. Successful generalized exchange systems create a “veil of altruism” around partic- The Class of Volunteerism refers to non-economic motives that arise ERNTHAL SYCHOL AST the Volunteerism Class of motivations from the Norms Class, discussed in Section V.C the Volunteerism Class of motivations from of behavior. Volunteerism speaks to behaviors Norms are externally imposed expectations driven an individual’s internal motivations. normative goal of efficiency, “yet behaviorists and other economists are exploring the possi- normative goal of efficiency, “yet behaviorists in part by other values”); G bility that economic exchange could be motivated els of human models behavior, particularly that assume economic max- imizing that animate other factors and rationality, overlook goals col- laboration. ipant behavior.” dinner how mixing social and transactional realms can be problematic. As a Thanksgiving a fine bottle of wine worth guest at the in-laws, it would be appropriate to bring a gift—say, wine gift $50. It would be inappropriate to start dinner by offering your host $50 in cash. The keeps the exchange in the realm The cash gift moves of social norms. the exchange into the realm market of transactional norms. against free riding. Meaningful mentor participation with portfolio companies is necessary gainsto gather learning benefits and reputation among those involved in the accelerator. from a mentor’s feelings about MDIA involvement. ity, and (iii) fun. three Viability Factors that most powerfully affect mentor feelings of volunteerism: (i) visibility of mentor co F P 1050 mentorship ideas, share is comparatively costly—and less even benefi- cial—in an information environment where giving away ideas involves too. a copy of the idea, keeping 7B note 39, at 169. biases systematically frustrates rational decision-making, mentor volunteerism such that market tions, even amid economically valuable exchanges. 39285-mqt_100-3 Sheet No. 194 Side B 06/19/2017 09:53:44 06/19/2017 B No. 194 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 195 Side A 06/19/2017 09:53:44 note supra y note 30, at 1116. ficac Cheshire, supra able tasks See For example, en- note 31, at 233. For exam- ized Exchange ized Exchange Group identity; Group identity; 274 Promote General- Promote 1051 1051 Selective incentives Selective incentives greater purpose; ef- greater purpose; the initial conditions of MDIA Strategies to MDIA Self-selection; enjoy- supra Transparency about the 273 encourage desirable contri- 271 Fun note 265, at 82; Takahashi, ity Factors ity Factors Generosity Visibility of Visibility underscores that, even in the absence of underscores that, supra change Viabil- change Mentor Actions Mentor Actions Generalized Ex- Generalized ) 6/12/17) 2:03 PM ELETE note 265, at 85. WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N supra feel- Mechanisms that make visible participants’ behavior O (D 270 at 85 (“In generalized information exchange, removing some degree of ano- at 85 (“In generalized information exchange, DOCX . Cheshire, and discipline unwanted conduct. and discipline INAL Figure 8: SummaryFigure of Volunteerism Class of Motivation 272 -F . See id. . See 270. Accountability as “selective incentives” in the parlance of mechanisms are known 272 273. “Research on social dilemmas and public goods has demonstrated that people are 274 271. Generalized giving systems were generally believed to suffer where many partici- Visibility of mentor conduct Motivation Class Motivation M K Volunteerism: ings associated with ings associated ERNTHAL mentor involvement mentor involvement C Y butions, behavior of generalized exchange participants “offer additional motiva-behavior of generalized exchange tions that make cooperation rational even when the social dilemma make irrational.” cooperation hanced visibility of behavior provides others the ability to “shun those hanced visibility of behavior provides who never give or conversely make an effort to help those who have contract, accountability tools are available withincontract, accountability a generalized ex- change system. to others may be used to deter free riding, 2017] 7B psychology and sociology. Cheshire, 265, at 83. social psychological processes act as selective nymity between individuals can help to make incentives.”). more to cooperate if their actions are public.” Kollock, likely ple, as part of “NetDay 1996” – a state-wide effort to wire California schools on March 9, 1996 by listings rankings of corporations’ volunteer – organizers drove high levels of involvement contributions based on how many people from a company participated. pants free ride while only a small minority Scholars have increasingly observed contribute. prediction. Cheshire notes peer to peer settings digital contexts, however, that defy this large discrepancies between participants who where generalized exchange persists despite ride. The nature of information goods makes free contribute and participants who only free riding less problematic in information-based generalized exchange. 39285-mqt_100-3 Sheet No. 195 Side A 06/19/2017 09:53:44 06/19/2017 A No. 195 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 195 Side B 06/19/2017 09:53:44 , , M K 280 C Y Mentors , http://brand- , including a “Shoutouts Mentor contribu- RANDERY B 279 note 30, at 1116, citing Olson HE [100:997 [100:997 , T supra //perma.cc/JS3P-XD3P] (last vis- visible to others within and visible to others Mentors mentors are specially recognized Takahashi, An Identity-Based Approach to Social Enterprise see also Finally, a possibility for future research future research a possibility for Finally, 276 Moreover, about participant to a feedback ) 6/12/17) 2:03 PM LinkedIn profiles of Howard Diamond 275 A MDIA’s email missives recognize a men- can ELETE note 265, at 82. MARQUETTE LAW REVIEW MARQUETTE D 278 Mentee portfolio companies prominently list “lead OT OT note 31, at 227; N supra 281 O 277 (D supra , http://straightshot.co/mentors/; DOCX . Cheshire, INAL , http://www.techstars.com/mentors/ [https: -F . See, e.g., . See . See, e.g. . See, e.g., Techstars Boulder Mentor Update – Week 6 and 7, 2017 281 275. Kollock, 276 279. Telephone with Anonymous Accelerator Representative #1 (Feb. 24, Interview 280 277. “Identity theory, based in symbolic interactionism, follows the dictum that ‘society 278 MDIA strategies make mentor behavior ERNTHAL (“[O]ne of the main solutions to the free rider problem is to impose a penalty on defectors or (“[O]ne of the main solutions to the free rider to give a reward to cooperators. These are called selective incentives (Olson 1965).”). tions are visible to those outside the accelerator. MDIA to those outside the accelerator. tions are visible mentor names on a MDIA’sand photos are typically featured public-facing website. ited Jun. 5, 2017). (https://www.linkedin.com/in/hdiamond/), Sue Heilbronner, Wheeler (https://www.linkedin.com/in/sueheilbronner/) and Morris (https://www.linkedin.com/in/mowheeler/) (last visited May 1, 2017). TECHSTARS Mentors accelerator involvement include in their social media listings such as LinkedIn. 1052 in the past.” contributed whetheris to analyze mentor’s develops a visibility of conduct self-iden- tity as an expert. 7B her own conduct, whether the feedback reflects high or low levels of reflects high or the feedback conduct, whether her own associated behavior affects cooperative also positively social approval, with exchange. generalized outside of the accelerator. Internally, outside of the accelerator. for contributions in weeklyfor contributions email updates from the managing director to a mentor network. ery.org/mentors [https://perma.cc/ZNN2-VABX] (last visited Jun. 5, 2017); tor who made a portfolio company a special contribution to or engaged company desirable behavior. Portfolio in other types of feedback to mentors, where a mentorcritique from receives direct approval and mentee companies, is used by certain accelerators. and Gratitudes” section that highlighted special mentor and other expert contributions to and Gratitudes” section that highlighted portfolio companies during the time period (email from managing director Natty Zola, Mar. 14, 2017) (on file with author). 2015) (notes on file with author). shapes self shapes social behavior.’ From this perspective, identities are broadly recognized shapes self shapes social behavior.’ From to themselves and others as role players (e.g., and meaningful categories that people apply doctor, lawyer, parent), group members (e.g., Asian, Catholic) and individuals (e.g., moral, powerful). Tyler Wry and Jeffrey G. York, Academy of Management Review, at 6. In press, doi: 10.5465/amr.2013.0506 (citation omit- ted). 39285-mqt_100-3 Sheet No. 195 Side B 06/19/2017 09:53:44 06/19/2017 B No. 195 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 196 Side A 06/19/2017 09:53:44 re- A feel- 286 quid pro quo at 86–87. At the public Demo Id. 1053 1053 283 ent/category/mentorspotlight/ Generosity is enhanced Generosity is enhanced 284 MDIAs promote generosity 285 nally, it is a special honor for a is a special honor nally, it Unilateral contributions do not The Techstars franchise has a series of franchise The Techstars 282 ) 6/12/17) 2:03 PM ht individual mentors.ht individual believe others are likely to be generous, and believe others are refers to a MDIA’s create conditions ability to ELETE note 265, at 86. One aspect of this is reactive behavior “wherein note 265, at 86. One aspect of this is reactive WHO NEEDS CONTRACTS? NEEDS WHO D note 279. OT OT note 1, at 188. note 31, at 220, 228. N supra O supra , http://www.techstars.com/cont , (D supra supra LOG B DOCX . Mentor Spotlight videos, available at Posts in Category “Mentor Spotlight”, Cheshire, INAL —further fosters volunteerism motivation. Early stage startup Relatedly, research on willingness to contribute to public goods shows that indi- Relatedly, research on willingness to contribute TECHSTARS -F 287 . See . See Id. 282. 283 284 287. Kollock, 285. Bernthal, 286. respect, an accelerator’s appeals to mentors bear similarity In this to the appeals of Exchange structure affects feelings of generosity. DirectExchange structure affects feelings exchange Feeling of generosity M K ERNTHAL ECHSTARS C Y ciprocal benefits and, whereciprocal benefits mentors seek direct gain, take aggressively punish such behavior. steps to deter and ing of efficacy—”ashe has some sense that effect on this environ- ment” by emphasizing advanced by mentor objectives non-pecuniary volun- teerism,such as helping the next generation of entrepreneurs, commu- nity economic development, or a mission to assist groups and causes that are underrepresented in entrepreneurial community.the T companies, where mentor impact affect the trajectory can significantly of strategy and outcomes, feelings of efficacy better than likely foster larger companies that are less able to change course. 2017] mentors” pre- that are decks in pitch assistance significant provide who investors and others. sented to 7B short videos that highlig short videos Day, which marks mentorsaccelerator session, the end of an usually Additio receive recognition. stand and mentor company to introduce a portfolio at the public Demo Day. that makes participants feel generous. perceived as tit for tat. flourish in settings (ii) have a sense of a greater purpose associated with(ii) have a sense of involvement.Man- out wouldaging directors screen be mentors seek that where individuals: (i) [https://perma.cc/M9GD-9DD2] visited Jun. 5, 2017). (last individuals tend to orient themselves towards the average behavior of other group mem- individuals tend to orient themselves towards bers.” others will behave. viduals cooperate based on how they believe benefit a National Public Radio fundraising drive, insofar as (i) an appeal highlights the social of contribution, combined with (ii) a contributor’s trust that the system helps deliver that social benefit. This highlights the role of shared values in promoting feelings of generosity. Thanks to Eva Yao for this observation. 39285-mqt_100-3 Sheet No. 196 Side A 06/19/2017 09:53:44 06/19/2017 A No. 196 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 196 Side B 06/19/2017 09:53:44 M K 290 292 C Y supra supra Infor- 291 Deci et. al, See In contrast, this 294 note 108. note 108. This is consistent [100:997 [100:997 supra supra In contrast, a generalized ex- a generalized In contrast, 289 of transactional calculation and, in- of transactional of generalized exchange. Interviewsof generalized exchange. note 11, at 125. In direct exchange, a participant be- a participant direct exchange, In benefits flowbenefits fromthe system itself. 288 supra ) 6/12/17) 2:03 PM note 11, at 125–28. ELETE MARQUETTE LAW REVIEW MARQUETTE D sina qua non A mentor, who has worked MDIAs in as well as in OT OT supra N 293 O explain that individual members within a generalized exchange system (D et. al. DOCX . INAL -F at 653 (analyzing data over 128 studies). , note 11, at 148. 288. Direct self- “exchanges, and especially negotiated transactions, seem to emphasize 289. Benefits a sin- are “attributed more to one’s skill in negotiation or the properties of 290. group members should “[T]he repeated sending of unilateral gifts among various 292. Mentorhe described as, #7 said an accelerator creates a cooperative feeling that 293. Telephone Interview with Anonymous Mentor #9, 291. Willer 294. Telephone Interview with Anonymous Mentor #9, ERNTHAL change participant believes that believes change participant accelerators where mentors are compensated, the volunteer noted that aspects of MDIAs make participants feel generous. stead, facilitate cooperation and a normcooperation and a stead, facilitate of giving into a system. mal structures dampen feelings lieves that benefits primarilylieves that flow from own her the nature abilities or relationship. exchange of the bilateral showed the informal that governance promotes feelings of volunteerism because, as Mentor payment #9 observed, for mentor work “would It wouldhave felt different. a job. There is something have been about timevolunteering your . . . the idea that that made I was giving back it more important.” MDIAs mentor facilitate unilateral contri- generosity and encourage the the butions that are 1054 makes prominent. self-interest identifi- experience “group where participants is enhanced Generosity the generalized system—rathercation” and credit oneself—as than the withsource of gains associated exchange related to the system. 7B mentor said that offers of direct compensation “chased away” desirable interest rather than altruism. It is hard to create or maintain the impression that one party Willerthe termscares about the other when haggling over et al., obligation.” of a contractual supra gle dyadic relationship.” Willer et al., experience feelings of group identification. Where identification is enhanced, this pro- group perception of the group and its members as struc- motes group solidarity – i.e., “a positive turally interdependent, united, and cohesive.” Where solidarity is enhanced, this elicits more valuable contributions from a member and, moreover, lowers the likelihood of freeriding on the system. Willer et al., lead participants to attribute the source of benefit to the entire collective.” Willerlead participants to attribute the source of al., et “We try to win together. You don’t need to lose for me to win.” Interview with are going to Anonymous Mentor #7 (Apr. 15, 2015) (on file with author.) note 11, at 125. with empirical work in psychology which, suggests that tangible direct rewards significantly with empirical work in psychology which, suggests that tangible direct rewards significantly adversely affects intrinsic motivation for otherwise interesting tasks. note 174 39285-mqt_100-3 Sheet No. 196 Side B 06/19/2017 09:53:44 06/19/2017 B No. 196 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 197 Side A 06/19/2017 09:53:44 Self-se- 297 at 2 (charting growth of , MDIA mentors re- mentors MDIA note 25, at 1690–93 (arguing 299 1055 1055 note 44 supra , supra instrumental motivations typically note 62. Hochberg, supra at 653. Deci and others observe that “material rewards at 653. Deci and others observe that “material See , note 33, usefully at 666 (“The crowding-out framework It remains to be seen whether instrumental ) 6/12/17) 2:03 PM Self-Enforcing Agreements supra 298 Mentor #1 said that he feels “fueled” and ELETE note 174 WHO NEEDS CONTRACTS? NEEDS WHO D 300 Scott, OT OT supra N note 31, at 231 (“the intrinsic interest and challenge of the project can note 31, at 231 (“the intrinsic interest and O (D see also supra From interesting and fun a participant, the perspective of DOCX . 296 Healy & Krawiec, Deci et. al, 295 INAL refers to inherent pleasure that a mentor inherent pleasure refers to MDIA takes in a task. -F . See . See 300. Telephone Interview with Anonymous Accelerator Representative #13 (Mar. 6, 298. Most MDIAs relatively new entities. The oldest MDIAs are are a decade old and 299 295. with Jim Franklin, Interview 297. Kollock, 296 Many MDIAs to inspire mentor appear volunteerism, even amid Fun M K ERNTHAL C Y that explicit incentives and judicial intervention may ‘crowd out’ behavior based on recipro- cal fairness). be important”). the majority started in recent years. accelerators). projects are less costly and taxing than mundaneare less costly and projects Vol- tedious tasks. or piqued whereunteer interest is to interact with there are opportunities that a collaborator wantsother individuals to associate with. elaborates the intuition that the introduction of incentives can cause people to switch their of elaborates the intuition that the introduction results. There are two relevant parts to the interpretation of an exchange, with unwanted change motives, as already discussed. may insight. First, a price or other monetary incentive might be Second, a fine or an award of money damages may act as a price. Hence, one could tempted to argue that a contract in which money damages are potentially available kind of participation, with the result being a inadvertently encourage a deliberately strategic rise in reneging.”); benefits and other market will factors undercut volunteerism over time. But interviews that, so far, suggest do not crowd out mentors’ intrinsic motivation. lection within generalized exchange, where where volunteers choose to plays an importantoffer assistance, intrinsic motiva-role in fostering tion. A mentor’s self-selection of where she will help portfolio compa- nies allow desirable her to identify ways to participate. in a market-oriented,valuable exchanges for-profit, and entrepreneurial environment. would Further research be helpful to closely examine how MDIAs blend social and market norms and, over time, whether these strategies succeed. port that they are invigorated by the “energy,” “urgency,” “elec- port that they are invigorated chaos” surrounding portfolio com-tric[ity],” “pace,” and “controlled pany entrepreneurs. 2017] mentors. 7B for a pleasant activity may decrease the intrinsic motivation to performfor a pleasant activity may decrease the intrinsic . . .” an activity or task. Fun is tied to intrinsic motivationFun is tied where to participation is “interesting” volunteers. 39285-mqt_100-3 Sheet No. 197 Side A 06/19/2017 09:53:44 06/19/2017 A No. 197 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 197 Side B 06/19/2017 09:53:44 M K 303 C Y Several in- 305 note 108 (“You’ve got this [100:997 [100:997 supra note 108; Telephone Interview with Creating and Enforcing Norms, with Special supra Mentors live like the opportunity to People are expected to behave in a People are expected to behave p offers the fun of entrepreneurship p offers the fun 304 307 Mentor #4 commentedhe got in- that C. Norms C. 301 ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE D OT OT N O (D DOCX . 306 INAL -F Mentor who entrepreneur #9, an experienced been out of had 302 304. The camp” where there is “no time to think, you gotta move.” accelerator is a “boot 305. Telephone Interview with Anonymous Mentor #3 (Apr. 6, 2015) (on file with au- 306. “Get the rush, get the excitement. But don’t have to do the hard work. But get to 307. Richard A. Posner & Eric B. Rasmusen, 301. Telephone with Anonymous Mentor Interview (Apr. 6, 2015) (on file with au- #1 302. Telephone with Anonymous Mentor Interview (Apr. 6, 2015) (on file with au- #4 303. Telephone #9, Interview with Anonymous Mentor Norms are a third Class of motivation exchange. “A in generalized ERNTHAL big room, young brains, firing on all cylinders, staying up all night, on a mission.”) Id. through the startup process. I get to think. I get to thor) (“In some vicarious way I get to live contribute . . . it is all great fun. There is starting a business.” Energizing. “I’m nothing like accelerator’s managing director observed that 68 years old. It keeps me involved.”) One keeps you young.” Telephone Interview working “around all these dynamic 20 somethings with Anonymous Accelerator Representative #11 (Mar. 10, 2015) (notes on file with author). 2015) (notes on file with author). (“I kept hearing the word ‘energy’ from mentors”); Tele- 2015) (notes on file with author). (“I kept #9, phone Interview with Anonymous Mentor bask in the glory when it works out.” ; Interview with Anonymous Mentor #12 (Apr. 29, 2015) “refuel.” (on file with author) (“There is a little bit of a wash the hands thing.”). Great place to (notes Telephone Interview with Anonymous Accelerator Representative #13 (Feb. 23, 2015) on file with author). 1056 by interactions. “enlivened” programThe compressed the ratchets up time period of the accelerator energy from which mentors feed. 7B Anonymous Mentor #3 (Apr. 6, 2015) (notes on file with author) (“Entrepreneurial instincts Telephone Interview with Anonymous Mentor carry a sense of urgency . . . I love the pace.”); (founders are “super excited” and being around #12 (Apr. 29, 2015) (notes on file with author) Mentor Anonymous notes #3 (Apr. 6, 2015) with them “is electrifying”); Telephone Interview on file with author). to others who are doing interesting and exciting thor); similarly, “I just think it is neat to talk #2 (Apr. 6, 2015) (on file with author). Mentor things.” Telephone Interview with Anonymous thor). volved because the accelerator is “where the accelerator volved because cool shit is happen- all the ing.” normnot depend on government is a social rule that does for either promulgation or enforcement.” terviewees noted that mentorshiterviewees noted with founding and running a without the unceasing burdens associated company. the startup environmentthe startup for two involve- said that accelerator years, ment“how is I got mymojo back” the world in of entrepreneurship. vicariously through youthful portfolio companyvicariously through founders. 39285-mqt_100-3 Sheet No. 197 Side B 06/19/2017 09:53:44 06/19/2017 B No. 197 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 198 Side A 06/19/2017 09:53:44 312 , (Jan. An An 308 HOUGHS T ELD The norm of The norm of , F 311 . If you try to hold 1057 1057 norms giv- of unilateral to the accelerator system. to the accelerator Ex- sic motivation. This would risk ee Give Before You Get . 369, 369–70 (1999). the lynchpin of how successful accel- CON One Managing Director observed that 310 , is about circulation . . . .L.&E ) 6/12/17) 2:03 PM EV R ELETE L WHO NEEDS CONTRACTS? NEEDS WHO ’ D OT OT NT N O , 19 I (D , comments of a managing director who runs a non-Techstars accelerator in , comments of a managing director who runs The #givefirst expectation is widely The #givefirst expectation disseminated by the DOCX . 309 at 369–70 (“examples range from table manners and the rules of grammar to at 369–70 (“examples range from table manners INAL -F . See, e.g. .Id. 311. Representative with Accelerator Interview #9 (Mar. 10, 2015) (on file with author). 312. Along noted that formal arrangements become these lines, one managing director 310 308 309. “[#givefirst]not altruistic – you do expect is to get things in but you don’t return – MDIAs promote aggressively aspirational M K ERNTHAL C Y ing. A mantranetwork, of the Techstars for example, before is “give in a version moreyou get” (or, tailored for Twitter, succinctly #givefirst). behavior withinbehavior the MDIA environment. the Midwest, nothing that they try to “mirror the Techstars ethos” and seek people “who give the Midwest, “who give nothing that they try to “mirror the Techstars ethos” and seek people Anonymousbefore they get.” Telephone Interview with #4 (Mar. Accelerator Representative 17, 2015) (notes on file with author). with “more about the money, more about what are you going to get.” Telephone Interview Anonymous Accelerator Representative #6 (Mar. 13, 2015) (notes on file with author). Mentor #11 said that payment would crowd out a feeling of mission. “Then it becomes com- merce. We have a vision that [a mentor] likes.” Telephone Interview with Anonymous Men- tor #11 (Apr. 20, 2015) (on file with author). #givefirst serves as a bulwark#givefirst serves exchange expectations against restricted that would chill unilateral contributions calculations would reciprocity and transactional pectations of direct re- duce feelings of volunteerism and intrin “crowding contributions that make out” the unilateral a MDIA work. MDIA can affect internal norms more than it can alter external norms. MDIA norms can affect internal more norms.can alter external than it Norms MDIA external to the elements and cultural have social that are to change. Normsdifficult to the accelerator internal set forth expected Reference to Sanctions The norm of giving into an accelerator system, on faith that the system will ultimately return the favor, is 2017] manner determined. are socially that rules by external set forth erator systems operate. As Mentor #8 observed, accelerator participa- tion is “not about retention 7B Global Accelerator Network. the “give first” mentality within a “much accelerators creates more cre- space” in his accelerator. ative and collaborative 1, 2013), http://www.feld.com/archives/2013/01/give-before-you-get.html 1, 2013), http://www.feld.com/archives/2013/01/give-before-you-get.html between an advisor and a mentor; an “advi- [https://perma.cc/T758-TLCP] (distinguishing if you give me 1% of the equity’ . . . A mentor says, sor says ‘I’ll help you with your company of #givefirst provides dozens of examples of simply, “how can I help?’”); a Twitter search how the term is used (last searched May 23, 2015). country club regulations and standard business practice . . . Often a norm will result from country club regulations and standard business a consensus.”). (and crystallize) the gradual emergence of set up the relationship to be a transactional one.” S set up the relationship to be a transactional 39285-mqt_100-3 Sheet No. 198 Side A 06/19/2017 09:53:44 06/19/2017 A No. 198 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 198 Side B 06/19/2017 09:53:44 M K C Y note 79. [100:997 [100:997 supra rself, it is not as powerful it is not rself, as when it 313 ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE D OT OT N O (D DOCX . INAL -F 313. Telephone Interview with Anonymous Mentor #8, In summary, Figure 9 shows the three of motivation, Classes which ERNTHAL 1058 the economiconto you for benefit 7B and comescirculates back.” promote as well generalized exchange, as MDIA affect strategies that motivation.participant 39285-mqt_100-3 Sheet No. 198 Side B 06/19/2017 09:53:44 06/19/2017 B No. 198 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 199 Side A 06/19/2017 09:53:44 mentors Exchange engagement reater purpose compensation Group identity; g pany admission pany admission public profiles of 1059 1059 Mentor manifesto do not need direct do not need direct and portfolio com- Selective incentives MDIA Strategies to MDIA Broader community Selectivity in mentor Selectivity in mentor Recruit mentors who Recruit mentors Boost mentor-mentor Boost mentor-mentor interactions; heighten Promote Generalized Generalized Promote Sustainability, Based on Classes Based Sustainability, Fun Self-selection; efficacy Fun Self-selection; tions tions ments Quality Mentor / Generosity Visibility of Generalized High Cost of High System bility Factors eral contribu- eral contribu- Exchange Via- Exchange Mentee Agree- Internal norms support unilat- support unilat- External norms Mentor Actions of IIBs and EIBs Free Circulation ) 6/12/17) 2:03 PM VI. CONCLUSION CONCLUSION VI. Generalized Exchange ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N eco- O feel- (D DOCX . tion expected be- INAL -F participation environment Figure 9: ConditionsFigure for MDIA Those who architect entrepreneurial relationships must make deci- M K change for mentor change for mentor Instrumental: havior with MDIA Classes of Motiva- Classes ERNTHAL of Motivation, Viability and MDIA Factors, to Promote Strategies Norms: nomic benefits in ex- nomic benefits Volunteerism: ings associated with mentor involvement C Y sions about how to best organize resources. Legal tools, informal mech- anisms, MDIAs or a mix thereof are available to organize collaboration. 2017] 7B 39285-mqt_100-3 Sheet No. 199 Side A 06/19/2017 09:53:44 06/19/2017 A No. 199 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 199 Side B 06/19/2017 09:53:44 . M K 314 in C Y et. al. Another Another 315 information-shar- benefit in material [100:997 [100:997 it, entrepreneurial environ- indirectly into a common network. Gen- for profit MDIA hers understanding of conditions hers understanding of conditions in MDIA accelerators is observable butes understanding of motivation to tivize mentorand shape partic- participation ) 6/12/17) 2:03 PM ELETE MARQUETTE LAW REVIEW MARQUETTE D note 11, at 131–33. OT OT N supra O (D Part III. DOCX . INAL -F . See supra 314 315. Willer et al., Generalized exchange explains why,Generalized exchange ex- under certain conditions, This Article connection between is the first to observe the general- ERNTHAL empirical opportunity would test the model developed in Section V The viability of mentor activity with across geographic locations. Accelerators operate similarly ge- across ographies, each with different pre-existing cultural and professional norms, a natural experiment which presents about how informal MDIA environments.organization interacts with external Finally, there is rea- son to suspect that mentors benefit differently with to their abil- respect ity to capture instrumentalgains associated with economic IIBs and Empirical analysis could test whether MDIA participants feel like they are part of a generalized—as opposed to a direct exchange—system. Measurement by Willer tools are available, such as those used in the absence of direct consideration. direct consideration. in the absence of perts are willing within to volunteer 1060 norms— social rely upon to zero decision step surprising a highlight contracts—withininstead of market-based entrepreneurial, an environ- ment. MDIAs to participate induce experts than as volunteers rather as Informal counterparties. contractual MDIA for substitute strategies insofar they incen contract This Article contri ipant behavior. ing environments. MDIAs access to experts. In expand entrepreneurs’ so doing, MDIAs make / entrepreneur interactions more expert rela- by pulling them tional and generalized comparing the feelings of FreeCycle and Craig’s List users. 7B to sustain also identifies strategies necessary eralized exchange volun- teerism.The secret to a MDIA’s efficacy—and its long term viability— is to architect a system where contributors ways from third parties outside of the (1) others in the group, and (2) The MDIAgroup. case study furt where volunteerism co-exists with for-prof ments. ments. ized exchange and MDIAs. future empirical This invites analysis. The claim MDIAs that system are a generalized giving is based on original qualitative research. Yet MDIAs are not systems of pure generalized exchange. MDIAs mix elements of direct exchange, including the mu- tual option that mentors and mentees may be exercise at a later time. 39285-mqt_100-3 Sheet No. 199 Side B 06/19/2017 09:53:44 06/19/2017 B No. 199 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 200 Side A 06/19/2017 09:53:44 MDIAs lead supra, 1061 1061 This presents intriguing This presents intriguing ns, and intellectual property law.ns, and intellectual nnovation processes, hownnovation processes, does this new note 306, at 369–70 n.1. As noted in Section II.A ) 6/12/17) 2:03 PM 316 supra ELETE WHO NEEDS CONTRACTS? NEEDS WHO D OT OT N O (D DOCX . INAL -F 316. Posner & Rasmusen, This Articlefirst to bridge is the with exchange generalized law and Two, generalized exchange literature promisesTwo, generalized exchange literature to deepen under- M K ERNTHAL C Y reality square with public laws in areas that assume a more competitive commercialand less cooperative environment? questions in employment, corporatio 2017] AnalysisEIBs. of which mentors most benefit within and least general- systemsized exchange would be valuable. scholars can Legal entrepreneurship. workextend this two in at least ways. One, pub- practices and exchange intersection of generalized the lic law the “the relation between invites future inquiries into private norms and public laws.” entrepreneurial support Other startup volunteerism. a broad trend in to MDIAs,institutions, in addition assemble These ex- expert rosters. perts work in open information sharing environments provide help to to new If volunteerism startups. and informalcollaboration are a per- manent i part of 21st Century 7B standing of pro-social behaviors in marketstanding of pro-social behaviors and corporate environments. conduct in examinationsLegal scholars observe pro-social negative of legal spaces, peer production, and other commercial General- contexts. ized exchange invites a more nuanced examination of human and cor- porate behavior. It suggests that the structure of exchange—e.g., how a transaction is organized—has beyond higher or lower consequences transaction costs. MDIAs underscore that those who architect collabo- of exchange affect partici- structure ration should consider how the pants’ socio-economic motivation as well as the character of collabora- tion’s outputs. 39285-mqt_100-3 Sheet No. 200 Side A 06/19/2017 09:53:44 06/19/2017 A No. 200 Side Sheet 39285-mqt_100-3 39285-mqt_100-3 Sheet No. 200 Side B 06/19/2017 09:53:44 M K C Y * * * * * *

39285-mqt_100-3 Sheet No. 200 Side B 06/19/2017 09:53:44 06/19/2017 B No. 200 Side Sheet 39285-mqt_100-3