Help take your startup to the next step with the new and revised edition of the popular book on the VC deal process--from the co-founders of the Foundry Group
How do venture capital deals come together? This is one of the most frequent questions asked by each generation of new entrepreneurs. Surprisingly, there is little reliable information on the subject. No one understands this better than Brad Feld and Jason Mendelson. The founders and driving force behind the Foundry Group--a venture capital firm focused on investing in early-stage information technology companies--Brad and Jason have been involved in hundreds of venture capital financings. Their investments range from small startups to large Series A venture financing rounds. The new edition of Venture Deals continues to show fledgling entrepreneurs the inner-workings of the VC process, from the venture capital term sheet and effective negotiating strategies to the initial seed and the later stages of development.
Fully updated to reflect the intricacies of startups and entrepreneurship in today's dynamic economic environment, this new edition includes revisions and updates to coverage on negotiating, gender issues, ICO's, and economic terms. New chapters examine legal and procedural considerations relevant to fundraising, bank debt, equity and convertible debt, how to hire an investment banker to sell a company, and more.
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
Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist is a must-have resource for Any aspiring entrepreneur, venture capitalist, or lawyer involved in VC deals as well as students and instructors in related areas of study.
Foreword
Fred Wilson
Foreword
Dick Costolo
Foreword
James Park
Preface
Acknowledgments
Introduction: The Art of the Term Sheet
Chapter 1: The Players
The Entrepreneur
The Venture Capitalist
Financing Round Nomenclature
Types of Venture Capital Firms
The Angel Investor
The Syndicate
The Lawyer
The Accountant
The Banker
The Mentor
Chapter 2: Preparing for Fundraising
Choosing the Right Lawyer
Proactive Versus Reactive
Intellectual Property
Chapter 3: How to Raise Money
Do or Do Not-There Is No Try
Determine How Much You Are Raising
Fundraising Materials
Due Diligence Materials
Finding the Right VC
Finding a Lead VC
How VCs Decide to Invest
Using Multiple VCs to Create Competition
Closing the Deal
Chapter 4: Overview of the Term Sheet
The Key Concepts: Economics and Control
Chapter 5: Economic Terms of the Term Sheet
Valuation and Price
Employee Option Pool
Warrants
How Valuation Is Determined
Liquidation Preference
Pay-to-Play
Vesting
Exercise Period
Antidilution
Chapter 6: Control Terms of the Term Sheet
Board of Directors
Protective Provisions
Drag-Along Agreement
Conversion
Chapter 7: Other Terms of the Term Sheet
Dividends
Redemption Rights
Conditions Precedent to Financing
Information Rights
Registration Rights
Right of First Refusal
Voting Rights
Restriction on Sales
Proprietary Information and Inventions Agreement
Co-Sale Agreement
Founders' Activities
Initial Public Offering Shares Purchase
No-Shop Agreement
Indemnification
Assignment
Chapter 8: Convertible Debt
Arguments for and Against Convertible Debt
The Discount
Valuation Caps
Interest Rate
Conversion Mechanics
Conversion in a Sale of the Company
Warrants
Other Terms
Early-Stage versus Late-Stage Dynamics
Can Convertible Debt Be Dangerous?
An Alternative to Convertible Debt
Chapter 9: The Capitalization Table
Price Per Share with Convertible Notes
Pre-Money Method
Percentage-Ownership Method
Dollars-Invested Method
Chapter 10: Crowdfunding
Product Crowdfunding
Equity Crowdfunding
How Equity Crowdfunding Differs
Token Crowdfunding
Chapter 11: Venture Debt
The Role of Debt versus. Equity
The Players
How Lenders Think about Loan Types
Economic Terms
Amortization Terms
Control Terms
Negotiation Tactics
Restructuring the Deal
Chapter 12: How Venture Capital Funds Work
Overview of a Typical Structure
How Firms Raise Money
How Venture Capitalists Make Money
How Time Impacts Fund Activity
Reserves
Cash Flow
Cross-Fund Investing
Departing Partners
Corporate Venture Capital
Strategic Investors
Fiduciary Duties
Implications for the Entrepreneur
Chapter 13: Negotiation Tactics
What Really Matters?
Preparing for the Negotiation
A Brief Introduction to Game Theory
Negotiating in the Game of Financings
Negotiations Other Games
Negotiating Styles and Approaches
Collaborative Negotiation versus Walk-Away Threats
Building Leverage and Getting to Yes
Things Not to Do
Great Lawyers versus Bad Lawyers versus No Lawyers
Can You Make a Bad Deal Better?
Chapter 14: Raising Money the Right Way
Don't Be a Machine
Don't Ask for a Nondisclosure Agreement
Don't Email Carpet Bomb VCs
No Often Means No
Don't Ask for a Referral if You Get a No
Don't Be a Solo Founder
Don't Overemphasize Patents
Don't Be Silent if You Witness Bad Behavior
Chapter 15: Issues at Different Financing Stages
Seed Deals
Early Stage
Mid and Late Stages
Chapter 16: Letters of Intent-The Other Term Sheet
Structure of a Deal
Asset Deal versus Stock Deal
Form of Consideration
Assumption of Stock Options
Representations, Warranties, and Indemnification
Escrow
Confidentiality/Nondisclosure Agreement
Employee Matters
Conditions to Close
The No-Shop Clause
Fees, Fees, and More Fees
Registration Rights
Shareholder Representatives
Chapter 17: How to Engage an Investment Banker
Why Hire an Investment Banker?
How to Choose an M&A Advisor
Negotiating the Engagement Letter
Helping Your Banker Maximize the Outcome
Chapter 18: Why Do Term Sheets Even Exist?
Constraining Behavior and the Alignment of Incentives
Transaction Costs
Agency Costs and Information Asymmetry
Reputation Constraints
Chapter 19: Legal Things Every Entrepreneur Should Know
Intellectual Property
Employment Issues
State of Incorporation
Type of Corporate Structure
Accredited Investors
Section 409A Valuations
(83)b Elections
Founders' Stock
Consultants versus Employees
Compensating Service Providers
Trademarks
Patents
Author's Note
Appendix A: Sample Term Sheet
Appendix B: Foundry Group Term Sheet
Appendix C: Sample Letter of Intent
Appendix D: Additional Resources
Glossary
About the Authors
Index
Excerpt from Startup Communities
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