Raising Venture Capital for the Serious Entrepreneur / Edition 1 available in Hardcover, eBook
Raising Venture Capital for the Serious Entrepreneur / Edition 1
- ISBN-10:
- 0071496025
- ISBN-13:
- 9780071496025
- Pub. Date:
- 09/10/2007
- Publisher:
- McGraw Hill LLC
- ISBN-10:
- 0071496025
- ISBN-13:
- 9780071496025
- Pub. Date:
- 09/10/2007
- Publisher:
- McGraw Hill LLC
Raising Venture Capital for the Serious Entrepreneur / Edition 1
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Overview
Written by Dermot Berkery, an internationally known venture capitalist with Delta Partners, this complete toolbook thoroughly details how venture capitalists arrange the financing for a company; what they look for in a business plan; how they value a business; and how they structure the terms of an agreement. Within its pages, you'll find everything you need to successfully raise new business capital with the most attractive terms possible.
Using informative case studies, detailed charts, and term sheet exercises, Raising Venture Capital for the Serious Entrepreneur discusses the basic principles of the venture capital method, strategies for raising capital, methods of valuing the early-stage venture, and proven techniques for negotiating the deal. The author leads you step-by-step through:
- Developing a Financing Map
- Getting to the First Stepping Stone
- Understanding the Unique Cash Flow and Risk Dynamics of Early Stage Ventures
- Determining the Amount of Capital to Raise and What to Spend It on
- Learning How Venture Capital Firms Think
- Creating a Winning Business Plan
- Funding Early-Stage Companies
- Agreeing on a Term Sheet with a Venture Capitalist
- Setting Terms for Splitting the Rewards
- Allocating Control between Founders/Management and Investors
- Aligning the Interests of Founders/Management and Investors
This invaluable guide also includes term sheet exercises that test your understanding of various financing situations facing companies. In addition, the book features three extensive case studies: the first covering a fictional start-up company used throughout the book, the second offering a stepping stone map, and the third presenting a term sheet used in practice by venture capitalists.
Product Details
ISBN-13: | 9780071496025 |
---|---|
Publisher: | McGraw Hill LLC |
Publication date: | 09/10/2007 |
Edition description: | New Edition |
Pages: | 312 |
Product dimensions: | 6.30(w) x 9.20(h) x 1.10(d) |
About the Author
Table of Contents
Foreword xiii
Preface xv
Acknowledgments xvii
Introduction 1
Creditica Software Inc. Case Study 7
Understanding the Basics of the Venture Capital Method
Developing a Financing Map 19
Creating a Set of Stepping-Stones for a New Business 20
Matching the Financing Strategy to the Stepping-Stones 21
Developing a Map of Possible Stepping-Stones 23
Capturing as Much of the Prize as You Can 31
Getting to the First Stepping-Stone 33
Why New Ventures Are Not Fully Funded from the Start 34
Fleshing Out the First Stepping-Stone 35
Options at the End of Each Stage of Investment 38
The Chief Financial Officer as Strategist 39
Why Corporations Fail in Creating New Businesses 43
The Unique Cash Flow and Risk Dynamics of Early-Stage Ventures 47
Costs Known-Revenues Unknown 48
J Curves and Peak Cash Needs 53
Milestone Funding: Option or Investment? 59
A 12- to 24-Month Ticking Clock 63
Timing Is Everything-Buy Low, Sell High 65
A Five- to Seven-Year Marathon in Three to Four Stages 66
Gross Margins of 80 to 100% 68
No Correlation between the Amount of Money Raised and the Company's Success 70
A Tension between the "Lemons Ripening Early" and the "Valley of Death" 70
A Binary Payoff Profile 72
Raising the Finance
Determining the Amount of Capital to Raise and What to Spend It On 77
An Established Company-Estimating the Amount of Capital to Raise 78
A New Company-Estimating the Amount of Capital to Raise 78
Activities in a New Business That Absorb Capital 79
Investors' Views of the Five Capital-Absorbing Activities 90
Businesses with Different Capital-Absorbing Profiles 93
Getting Behind How Venture Capital Firms Think 97
Structure of Venture Capital Funds 97
Types of Investors in Venture Capital Funds 100
Size and Internal Structure of VC Firms 102
How VC Firms Are Compensated 103
Valuation of Investments within a VC Portfolio 106
Cash Flows and J Curve at a Fund Level 108
Expected Returns on a VC Fund 111
Expected Returns on Individual Investments in a VC Fund 114
It's All about Big Winners 117
Portfolio Construction 118
Sorting Out Conflicts of Interest 120
Creating a Winning Business Plan 123
Market Power-the Key Ingredient Missing in Most Business Plans 124
Evidence to Include in the Business Plan 125
Potential for Accelerated Growth in a Big, Accessible Market 125
Achievable Position of Market Power 130
Capable, Ambitious, Trustworthy Management 135
Plausible, Value-Enhancing Stepping-Stones 136
Realistic Valuation 137
Promising Exit Possibilities 137
Valuing the Early-Stage Venture
Valuing Early-Stage Companies 141
Traditional Valuation Methods-Why They Don't Work for Early-Stage Ventures 142
Are Valuations of Technology Companies Crazy? 145
Corporate Finance Theory-Technology Company Valuation 147
Triangulation Process of Venture Capitalists 150
How the Company Can Maximize Its Valuation 160
Why Big Companies Buy Small Companies 161
Value of Small Companies Compared to Large Companies 162
Negotiating the Deal: Term Sheets
Agreeing on a Term Sheet with a Venture Capitalist 169
Percentage Ownership of the Company Granted to the Investor 169
What Each Side Tries to Achieve in a Term Sheet 173
Why It Isn't Like Investing in a Public Company 175
Terms for Splitting the Rewards 177
Exit Preferences, Linked to the Type of Preferred Stock 178
Staging of Investment against Milestones 191
Options to Invest More Money at a Defined Price per Share 192
Preferred Dividends 193
Antidilution 194
Problems with Ratchets 204
Pay-to-Play Clauses 207
Washout Financing Rounds-Down (and Out!) Rounds 210
Allocating Control Between Founders/Management and Investors 213
Restricted Transactions/Protective Covenants 213
Structure of the Board of Directors 219
Redemption 226
Forced Sale 227
Registration Rights 229
Tagalong Rights, Dragalong Rights 230
Information Rights 233
Right of Access to the Premises and Records and Right to Appoint a Consultant 233
Preemption Rights 233
Transfer Provisions 234
Exclusivity Clause 235
Aligning the Interests of Founders/Management and Investors 237
Founders' Stock 238
Option Pool 238
Vesting Arrangements 240
Noncompete Agreements 245
Intellectual Property Assignment 246
Warranties and Representations 246
Exercises
Term Sheet Exercises 251
Security Portal Inc. 267
Standard Term Sheet Clauses 273
Index 281