- Provides valuable, real-world insights into venture capital structure and strategy
- Explains and clarifies the VC term sheet and other misunderstood aspects of capital funding
- Helps to build collaborative and supportive relationships between entrepreneurs and investors
- Draws from the author’s years of practical experience in the VC arena
- Includes extensively revised and updated content throughout to increase readability and currency
|Edition description:||4th ed.|
|Product dimensions:||6.30(w) x 9.10(h) x 1.20(d)|
About the Author
Table of ContentsForeword by Fred Wilson (3rd Edition) xi Foreword by James Park (3rd Edition) xiii Foreword by Dick Costolo (1st and 2nd Editions) xv Preface xvii Acknowledgments xxiii Introduction: The Art of the Term Sheet 1 Chapter 1 The Players 3 The Entrepreneur 3 The Venture Capitalist 4 Financing Round Nomenclature 7 Types of Venture Capital Firms 9 The Angel Investor 10 The Syndicate 12 The Lawyer 13 The Accountant 14 The Banker 15 The Mentor 15 Chapter 2 Preparing for Fundraising 17 Choosing the Right Lawyer 17 Proactive versus Reactive 18 Intellectual Property 20 Chapter 3 How to Raise Money 23 “Do. Or Do Not. There is No Try.” 23 Determine How Much You are Raising 24 Fundraising Materials 26 Due Diligence Materials 32 Finding the Right VC 33 Finding a Lead VC 34 How VCs Decide to Invest 35 Using Multiple VCs to Create Competition 38 Closing the Deal 39 Chapter 4 Overview of the Term Sheet 41 The Key Concepts: Economics and Control 42 Chapter 5 Economic Terms of the Term Sheet 45 Valuation and Price 45 Employee Option Pool 47 Warrants 50 How Valuation is Determined 52 Liquidation Preference 54 Pay-to-Play 63 Vesting 66 Exercise Period 70 Antidilution 71 Chapter 6 Control Terms of the Term Sheet 77 Board of Directors 77 Protective Provisions 81 Drag-Along Agreement 85 Conversion 88 Chapter 7 Other Terms of the Term Sheet 91 Dividends 91 Redemption Rights 93 Conditions Precedent to Financing 95 Information Rights 97 Registration Rights 98 Right of First Refusal 100 Voting Rights 102 Restriction on Sales 102 Proprietary Information and Inventions Agreement 103 Co-Sale Agreement 104 Founders’ Activities 105 Initial Public Offering Shares Purchase 106 No-Shop Agreement 107 Indemnification 110 Assignment 110 Chapter 8 Convertible Debt 113 Arguments for and Against Convertible Debt 114 The Discount 116 Valuation Caps 117 Interest Rate 119 Conversion Mechanics 119 Conversion in a Sale of the Company 121 Warrants 122 Other Terms 125 Early Stage versus Late Stage Dynamics 125 Can Convertible Debt Be Dangerous? 126 An Alternative to Convertible Debt 127 Chapter 9 The Capitalization Table 129 Price per Share with Convertible Notes 131 Pre-Money Method 132 Percentage-Ownership Method 133 Dollars-Invested Method 133 Chapter 10 Crowdfunding 137 Product Crowdfunding 137 Equity Crowdfunding 139 How Equity Crowdfunding Differs 141 Token Crowdfunding 143 Chapter 11 Venture Debt 145 The Role of Debt versus Equity 145 The Players 147 How Lenders Think about Loan Types 148 Economic Terms 151 Amortization Terms 154 Control Terms 157 Negotiation Tactics 161 Restructuring the Deal 163 Chapter 12 How Venture Capital Funds Work 167 Overview of a Typical Structure 168 How Firms Raise Money 169 How Venture Capitalists Make Money 171 How Time Impacts Fund Activity 175 Reserves 177 Cash Flow 179 Cross-Fund Investing 179 Departing Partners 181 Corporate Venture Capital 181 Strategic Investors 183 Fiduciary Duties 184 Implications for the Entrepreneur 185 Chapter 13 Negotiation Tactics 187 What Really Matters? 187 Preparing for the Negotiation 188 A Brief Introduction to Game Theory 191 Negotiating in the Game of Financings 193 Negotiating Other Games 194 Negotiating Styles and Approaches 195 Collaborative Negotiation versus Walk-Away Threats 199 Building Leverage and Getting to Yes 200 Things Not to Do 203 Great Lawyers versus Bad Lawyers versus No Lawyers 205 Can You Make a Bad Deal Better? 206 Chapter 14 Raising Money the Right Way 209 Don’t Be a Machine 209 Don’t Ask for a Nondisclosure Agreement 210 Don’t Email Carpet-Bomb VCs 210 No Often Means No 211 Don’t Ask for a Referral If You Get a No 211 Don’t Be a Solo Founder 212 Don’t Overemphasize Patents 213 Don’t Be Silent If You Witness Bad Behavior 213 Chapter 15 Issues at Different Financing Stages 215 Seed Deals 215 Early Stage 216 Mid and Late Stages 217 Chapter 16 Letters of Intent: The Other Term Sheet 221 Structure of a Deal 222 Asset Deal versus Stock Deal 225 Form of Consideration 227 Assumption of Stock Options 228 Representations, Warranties, and Indemnification 232 Escrow 233 Confidentiality/Nondisclosure Agreement 235 Employee Matters 236 Conditions to Close 237 The No-Shop Clause 238 Fees, Fees, and More Fees 239 Registration Rights 240 Shareholder Representatives 241 Chapter 17 How to Engage an Investment Banker 243 Why Hire an Investment Banker? 243 How to Choose an M&A Adviser 245 Negotiating the Engagement Letter 247 Helping Your Banker Maximize the Outcome 251 Chapter 18 Why Do Term Sheets Even Exist? 253 Constraining Behavior and the Alignment of Incentives 254 Transaction Costs 255 Agency Costs and Information Asymmetry 256 Reputation Constraints 257 Chapter 19 Legal Things Every Entrepreneur Should Know 259 Intellectual Property 259 Patents 261 Trademarks 262 Employment Issues 263 Type of Corporate Structure 264 Accredited Investors 265 Section 409A Valuations 266 (83)b Elections 267 Founders’ Stock 268 Consultants versus Employees 269 Compensating Service Providers 270 Authors’ Note 273 Appendix A: Sample Term Sheet 275 Appendix B: Foundry Group Term Sheet 285 Appendix C: Sample Letter of Intent 295 Appendix D: Additional Resources 303 Glossary 307 About the Authors 321 Index 323 Excerpt from Startup Communities 333
What People are Saying About This
“When I was a founder, VCs hoarded information about how venture capital terms worked to stack the deck in their favor. Along came Brad Feld and Jason Mendelson who started giving away the game by publishing how things worked on their blog. Now you can have all this information provided in an easy and concise format that evens the playing field.”
- Mark Suster, General Partner, Upfront Ventures
“Ventures Deals has historically been our go to book for entrepreneurs on fund raising. It is a must read for anyone who is embarking on the fundraising process and now we are delighted that it has been updated for the current fundraising environment with all the changes that have happened the past few years.”
- Bill Aulet, Managing Director, Martin Trust Center for MIT Entrepreneurship
“Having worked with Brad and Jason during the Internet bubble, I witnessed first-hand the experience they gained by doing deals that covered the entire range of issues an entrepreneur faces today. This is a must-read for both entrepreneurs and investors as it lets each side understand the terminology, structures and potential issues inherent in venture deals so they can focus on what really matters, regardless of which side they are on. Every entrepreneur who is raising or considering raising venture capital should read this book!”
- Heidi Roizen, Operating Partner, DFJ
"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
“Brad and Jason are undoubtedly among the most authentic VCs in the industry today. This book goes far beyond the nuts and bolts of term sheets and venture capital to give invaluable insights into the importance of building relationships based on trust. I’ll definitely be recommending this book to all Kauffman Fellows and to every entrepreneur I meet across the world.”
- Jeff Harbach, President and CEO, Kauffman Fellows
“I have been lucky to have Brad Feld as a mentor as a VC, and watch him advise companies as a board member. Venture Deals is your chance to get some of that advice and wisdom applied to your own startup. Don’t miss the opportunity.”
- Jeff Clavier, Managing Partner, SoftTech VC
“One of the most practical books on venture capital. Every entrepreneur (and their lawyer) should own a copy”
- Mike Platt, Colorado Partner-in-Charge — Cooley LLP
"We've worked with Brad & Jason through the highs and lows and highs of a number technology investments. When risk takers share insight, read it. In the case of Brad and Jason, read it twice. We love their refreshing comfort with maximizing risk in the spirit of creating meaningful impact."
- Tony Conrad, founder / CEO, About.me and Partner, True Ventures
“Even if your lawyer or VC has done a lot of deals, you should read this book. Nothing hurts a company more than a bad deal structure usually not discovered until a year or two later. This will allow you to look for the pot holes and avoid a lot of pain.”
- Lesa Mitchell, Managing Director, Techstars Kansas City
"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
"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