When Bugs Get In The Field
Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re talking about cutting corners in quality assurance. We’re all extremely busy… that’s certainly true for me. My average day consists of five to six hours of scheduled appointments. Against that backdrop, it’s difficult to get anything done that requires focused time.
So when you’re too busy, there’s the temptation of coupons and shortcuts. These include delegating tasks to other people in the organization and sometimes taking advantage of tools like artificial intelligence to save time in the review process. A significant part of my responsibility is to review legal documents. Now, I’m not a lawyer, and I don’t play one on a podcast either, but I am adept at reading these documents in detail, ensuring that the documents say the right things and hopefully, don’t say the wrong things either.
Each project can have hundreds of pages of legal documents associated with them. Just on the security side alone, there’s the offering memorandum, the business plan, the company operating agreement, any management agreements, share subscription agreements, and the list goes on and on. Naturally, we enlist the help of expert legal counsel who are truly great at what they do. But even if the documents are legally correct, it doesn’t mean the documents actually capture the intent of the business plan.
The lawyer drafting the documents can’t know if the document accurately describes the intent. We need to make sure that the business plan, the financial model, the project underwriting, and all of the corresponding documents are consistent with one another, and that they actually reflect the intent of the project.
You can get an artificial intelligence tool to find inconsistencies between the documents. So for example, if there’s contradictory terms in two different documents, an AI tool can make short work of uncovering those inconsistencies. We recently had a circumstance where we published a private placement memorandum that quite frankly had items in it that were incorrect. They did not represent the project effectively.
Not surprisingly, 40% of the investment in the product development cycle was actually spent on quality assurance. That sounds like a high percentage, and it is. Preparing legal documents is just like software in that respect. Yes, there’s a cost in time to reviewing those hundreds of pages, but just like a software product that isn’t tested and put through a full quality assurance cycle, the software is gonna have bugs and so too will the legal documents.
A bug in a legal document left undetected can be very costly. It can change the meaning of an agreement. It can cause an investor to decline the investment because the document says the wrong thing. It can delay the capital raise process while that bug is being fixed. And then the documents need to be run through the review process again multiple times so the cost of the quality assurance goes up. Quality assurance is required in all aspects of any customer-facing deliverable in any business.
If Boeing cuts corners on quality assurance, then planes fall out of the sky. This is a mission-critical function that slows down the delivery of airplanes. It slows down the delivery of software, of legal documents. And we all know that the fastest way to climb a cliff is without ropes. But the most reliable way to climb a cliff is with ropes and anchors and all of the quality assurance elements that deliver quality results. As you think about that, have an awesome rest of your day. Go make some great things happen and we’ll talk to you again tomorrow.
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