I called my attorney in Seattle the other night; there were a lot of terms in our proposed association agreement that needed clarification. We are creating a Limited Liability Corporation (LLC), a form of partnership with added legal protections for the members. Like a corporation, an LLC shields the members from personal responsibility if the business fails, but allows members to harvest profits directly rather than indirectly through taxable dividends.
Like so many early-stage arrangements, I have three key questions:
- Are all members treated equally,
- What will I get if the firm collects $1 million, and
- How are my shares valued?
I said that I didn’t want any “Eduardo Moments”, referring to the pivotal scene in The Social Network where one founder finds that his 34% of the company has been diluted to 0.03% (scene here).
The attorney laughed: she says that ever since the movie broke, the latter half has had a huge impact on entrepreneurial culture. Everyone can assign associates to roles in the parable, and everyone is scared of ending up like Eduardo.
My defense: don’t sign what you haven’t read or don’t understand, don’t sign anything without your lawyer’s review (that means one that you personally select and pay for), and don’t be palmed off by assurances that the terms are “standard”.
I also got to thinking about my other favorite Eduardo moment, where he outlines his “Ranking Algorithm” for facematch.com. It was an odd formula, scrawled onto a window: it looked probabilistic, but more specific (there was a number 400 in there). Fortunately, in our age of externalized memory, someone is online blogging the answers (and linking the scene)
First, the ranking algorithm, shown right, is real: it is the Elo Algorithm, named after physicist and chess player Arpad Elo. It’s used to rank chess players internationally, and has been generalized to ranking player’s skills in “winner-take-all” games from MahJongg to XBox.
Beyond the simple facts, the theory behind the formula is fascinating. I’ve spent the evening reading a wonderful essay about ranking algorithms here, and the ideas behind it are very approachable.
Like the terms “Social Signal Processing” or “”Cultural Complexity”, the phrase “Ranking Algorithm” went viral with me: I went from “What is it?” to “How would I implement it?” in short order, then end up collecting and reading a few papers until I get it. After that, it’s a generative metaphor, popping up in support of a project or a conversation. It pulls my interest, then helps me make connections and inferences.
;Certainly a better “Eduardo Moment:” that sorting language in an LLC agreement.