Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist / Edition 2

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Overview

Although it hasn't been very long since the first editionof Venture Deals was published, the need for information inthis evolving field continues to grow. That's why Brad Feld andJason Mendelson have returned with the Second Edition ofVenture Deals. While staying true to the original edition ofthis Wall Street Journal bestseller, the SecondEdition contains timely updates—as well as new material ontopics such as convertible debt financing—that will help youexcel at this difficult endeavor.

Some of today's fastest-growing entrepreneurial companies havefinanced themselves by raising venture capital. Yet few people havea firm grasp of how venture capital deals really come together.Nobody understands this situation better than Brad Feld and JasonMendelson. For over twenty years, they've been involved in hundredsof venture capital financings, and now, with this practical guide,they continue to share their experiences in this field withyou.

Venture Deals, Second Edition opens with aninformative overview of the venture capital term sheet and takesthe time to discuss the different parties who participate inventure capital transactions as well as how entrepreneurs should goabout raising money from a venture capitalist. From here, the bookskillfully outlines the essential elements of the venture capitalterm sheet—from terms related to economics to those related tocontrol. Feld and Mendelson strive to give a balanced view of theparticular terms along with the strategies to getting to a fairdeal.

In addition to examining the nuts and bolts of the term sheet,this reliable resource also reveals how VC firms operate, describeshow to apply different negotiating tactics to your deals, andintroduces you to issues you may face at different stages offinancing. You'll also gain valuable insights into several commonlegal issues most startups face and, as a bonus, discover what atypical letter of intent to acquire your company looks like.

Whether you're an experienced or aspiring entrepreneur, venturecapitalist, or lawyer who partakes in these particular types ofdeals, you will benefit from the insights found throughout theSecond Edition of Venture Deals.

For additional information that includes term sheets as wellas all of the documents that are generated from the term sheet aspart of venturing financing, visit the authors' websitewww.askthevc.com.

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Editorial Reviews

From the Publisher

"...offers hard-headed advice on dealing with lawyers and venture capitalists, so you can make the right decisions for you and your business..." (FT.com, 30th January 2012)

"Long term horizons, coupled with clear analysis in the book, provide a clear understanding and historical perspective into financial crises" (Ad-Hoc-News, November 2011)

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Product Details

  • ISBN-13: 9781118443613
  • Publisher: Wiley
  • Publication date: 12/26/2012
  • Edition number: 2
  • Pages: 272
  • Sales rank: 85,345
  • Product dimensions: 6.40 (w) x 9.10 (h) x 1.00 (d)

Meet the Author

Brad Feld has been an early-stage investor andentrepreneur for over twenty years. Prior to cofounding FoundryGroup—a Boulder, Colorado-based early-stage venture capitalfund that invests in information technology companies all over theUnited States—he cofounded Mobius Venture Capital. Prior tothat, he founded Intensity Ventures, a company that helped launchand operate software companies. Feld is also a cofounder ofTechStars and has been active with several nonprofit organizations.He is a nationally recognized speaker on the topics of venturecapital investing and entrepreneurship.

Jason Mendelson has over a decade of experience in theventure capital and technology industries in a multitude ofinvesting, operational, and engineering roles. Prior to cofoundingFoundry Group, he was a managing director and general counsel forMobius Venture Capital, where he also acted as its chiefadministrative partner overseeing all operations of the firm.Mendelson was also an attorney with Cooley LLP, where he practicedcorporate and securities law with an emphasis on representation ofemerging companies in private and public financings as well asmergers and acquisitions.

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Table of Contents

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

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Sort by: Showing all of 2 Customer Reviews
  • Anonymous

    Posted October 31, 2011

    Awesome Read!

    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  No   Report this review
  • Anonymous

    Posted August 9, 2012

    No text was provided for this review.

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