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

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

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by Brad Feld
     
 

Although it hasn't been very long since the first edition of Venture Deals was published, the need for information in this evolving field continues to grow. That's why Brad Feld and Jason Mendelson have returned with the Second Edition of Venture Deals. While staying true to the original edition of this Wall Street Journal

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Overview

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

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

Venture Deals, Second Edition opens with an informative overview of the venture capital term sheet and takes the time to discuss the different parties who participate in venture capital transactions as well as how entrepreneurs should go about raising money from a venture capitalist. From here, the book skillfully outlines the essential elements of the venture capital term sheet—from terms related to economics to those related to control. Feld and Mendelson strive to give a balanced view of the particular terms along with the strategies to getting to a fair deal.

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

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

For additional information that includes term sheets as well as all of the documents that are generated from the term sheet as part of venturing financing, visit the authors' website www.askthevc.com.

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Product Details

ISBN-13:
9781118443613
Publisher:
Wiley
Publication date:
12/26/2012
Pages:
272
Sales rank:
115,271
Product dimensions:
6.40(w) x 9.10(h) x 1.00(d)

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 How Venture Capital Funds Work 99

Overview of a Typical Structure 99

How Firms Raise Money 101

How Venture Capitalists Make Money 102

How Time Impacts Fund Activity 106

Reserves 108

Cash Flow 110

Cross-Fund Investing 111

Departing Partners 111

Fiduciary Duties 112

Implications for the Entrepreneur 112

9 Negotiation Tactics 113

What Really Matters? 113

Preparing for the Negotiation 114

A Brief Introduction to Game Theory 116

Negotiating in the Game of Financings 118

Negotiating Styles and Approaches 120

Collaborative Negotiation versus Walk-Away Threats 123

Building Leverage and Getting to Yes 124

Things Not to Do 126

Great Lawyers versus Bad Lawyers versus No Lawyers 129

Can You Make a Bad Deal Better? 129

10 Raising Money the Right Way 133

Don’t Ask for a Nondisclosure Agreement 133

Don’t Email Carpet Bomb VCs 134

No Often Means No 134

Don’t Ask for a Referral If You Get a No 134

Don’t Be a Solo Founder 135

Don’t Overemphasize Patents 136

11 Issues at Different Financing Stages 137

Seed Deals 137

Early Stage 138

Mid and Late Stages 138

Other Approaches to Early Stage Deals 139

12 Letters of Intent—The Other Term Sheet 145

Structure of a Deal 146

Asset Deal versus Stock Deal 149

Form of Consideration 151

Assumption of Stock Options 152

Representations, Warranties, and Indemnification 155

Escrow 157

Confidentiality/Nondisclosure Agreement 158

Employee Matters 159

Conditions to Close 160

The No-Shop Clause 161

Fees, Fees, and More Fees 162

Registration Rights 163

Shareholder Representatives 164

13 Legal Things Every Entrepreneur Should Know 167

Intellectual Property 167

Employment Issues 169

State of Incorporation 170

Accredited Investors 170

Filing an 83(b) Election 171

Section 409A Valuations 172

Authors’ Note 175

Appendix A: Sample Term Sheet 177

Appendix B: Sample Letter of Intent 197

Glossary 205

About the Authors 213

Index 215

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