Praise for the First Edition of Venture Deals
"My biggest nightmare is taking advantage of an entrepreneur without even realizing it. It happens because VCs are experts in financings and most entrepreneurs are not. Brad and Jason are out to fix that problem with Venture Deals. This book is long overdue and badly needed."
—Fred Wilson, Managing Partner, Union Square Ventures
"Feld and Mendelson pack a graduate-level course into this energetic and accessible book. The authors' frank style and incisive insight make this a must-read for high-growth company entrepreneurs, early-stage investors, and graduate students. Start here if you want to understand venture capital deal structure and strategies. I enthusiastically recommend."
—Brad Bernthal, CU Boulder, Associate Clinical Professor of Law, Technology Policy, Entrepreneurial Law
"A must-read book for entrepreneurs. Brad and Jason demystify the overly complex world of term sheets and M&A, cutting through the legalese and focusing on what really matters. That's a good thing not just for entrepreneurs, but also for venture capitalists, angels, and lawyers. Having an educated entrepreneur on the other side of the table means you spend your time negotiating the important issues and ultimately get to the right deal faster."
—Greg Gottesman, Managing Director, Madrona Venture Group
"Venture Deals is a must-read for any entrepreneur contemplating or currently leading a venture-backed company. Brad and Jason are highly respected investors who shoot straight from the hip and tell it like it is, bringing a level of transparency to a process that is rarely well understood. It's like having a venture capitalist as a best friend who is looking out for your best interests and happy to answer all of your questions."
—Emily Mendell, Vice President of Communications, National Venture Capital Association
"The adventure of starting and growing a company can be exhilarating or excruciating—or both. Feld and Mendelson have done a masterful job of shedding light on what can either become one of the most helpful or dreadful experiences for entrepreneurs—accepting venture capital into their firm. This book takes the lid off the black box and helps entrepreneurs understand the economics and control provisions of working with a venture partner."
—Lesa Mitchell, Vice President, Advancing Innovation, Kauffman Foundation
Foreword xi
Preface xiii
Acknowledgments xix
Introduction: The Art of the Term Sheet 1
1 The Players 5
The Entrepreneur 5
The Venture Capitalist 6
The Angel Investor 8
The Syndicate 10
The Lawyer 11
The Mentor 13
2 How to Raise Money 15
Do or Do Not; There Is No Try 15
Determine How Much You Are Raising 16
Fund-Raising Materials 17
Due Diligence Materials 23
Finding the Right VC 23
Finding a Lead VC 25
How VCs Decide to Invest 26
Closing the Deal 28
3 Overview of the Term Sheet 31
The Key Concepts: Economics and Control 32
4 Economic Terms of the Term Sheet 35
Price 35
Liquidation Preference 41
Pay-to-Play 47
Vesting 50
Employee Pool 54
Antidilution 55
5 Control Terms of the Term Sheet 61
Board of Directors 61
Protective Provisions 63
Drag-Along Agreement 68
Conversion 70
6 Other Terms of the Term Sheet 73
Dividends 73
Redemption Rights 75
Conditions Precedent to Financing 77
Information Rights 79
Registration Rights 80
Right of First Refusal 83
Voting Rights 84
Restriction on Sales 85
Proprietary Information and Inventions Agreement 86
Co-Sale Agreement 87
Founders’ Activities 88
Initial Public Offering Shares Purchase 89
No-Shop Agreement 90
Indemnification 93
Assignment 93
7 The Capitalization Table 95
8 Convertible Debt 99
Arguments For and Against Convertible Debt 100
The Discount 102
Valuation Caps 103
Interest Rate 104
Conversion Mechanics 105
Conversion in a Sale of the Company 107
Warrants 108
Other Terms 110
Early Stage versus Late Stage Dynamics 111
Can Convertible Debt Be Dangerous? 112
9 How Venture Capital Funds Work 115
Overview of a Typical Structure 115
How Firms Raise Money 117
How Venture Capitalists Make Money 118
How Time Impacts Fund Activity 122
Reserves 124
Cash Flow 126
Cross-Fund Investing 127
Departing Partners 127
Fiduciary Duties 128
Implications for the Entrepreneur 128
10 Negotiation Tactics 129
What Really Matters? 129
Preparing for the Negotiation 130
A Brief Introduction to Game Theory 132
Negotiating in the Game of Financings 134
Negotiating Styles and Approaches 136
Collaborative Negotiation versus Walk-Away Threats 139
Building Leverage and Getting to Yes 140
Things Not to Do 142
Great Lawyers versus Bad Lawyers versus No Lawyers 145
Can You Make a Bad Deal Better? 145
11 Raising Money the Right Way 149
Don’t Ask for a Nondisclosure Agreement 149
Don’t Email Carpet Bomb VCs 150
No Often Means No 150
Don’t Ask for a Referral If You Get a No 150
Don’t Be a Solo Founder 151
Don’t Overemphasize Patents 152
12 Issues at Different Financing Stages 153
Seed Deals 153
Early Stage 154
Mid and Late Stages 154
Other Approaches to Early Stage Deals 155
13 Letters of Intent—The Other Term Sheet 157
Structure of a Deal 158
Asset Deal versus Stock Deal 161
Form of Consideration 163
Assumption of Stock Options 164
Representations, Warranties, and Indemnification 167
Escrow 169
Confidentiality/Nondisclosure Agreement 170
Employee Matters 171
Conditions to Close 172
The No-Shop Clause 173
Fees, Fees, and More Fees 174
Registration Rights 175
Shareholder Representatives 176
14 Legal Things Every Entrepreneur Should Know 179
Intellectual Property 179
Employment Issues 181
State of Incorporation 182
Accredited Investors 182
Filing an 83(b) Election 183
Section 409A Valuations 184
Authors’ Note 187
Appendix A: Sample Term Sheet 189
Appendix B: Sample Letter of Intent 209
Appendix C: Additional Resources 217
Glossary 221
About the Authors 229
Index 231
Excerpt from Startup Communities 237
Anonymous
Posted October 31, 2011
I actually learned a lot from this book and would recommend it to anyone setting out on the path to VC Funding as it was too recommended to me.
Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.Anonymous
Posted August 9, 2012
No text was provided for this review.
Overview
Praise for the First Edition of Venture Deals
"My biggest nightmare is taking advantage of an entrepreneur without even realizing it. It happens because VCs are experts in financings and most entrepreneurs are not. Brad and Jason are out to fix that problem with Venture Deals. This book is long overdue and badly needed."
—Fred Wilson, Managing Partner, Union Square Ventures
"Feld and Mendelson pack a graduate-level course into this energetic ...