The Startup Playbook, 2nd Edition

Chapter 17Funding Basics

As a first-time founder, when I (Rajat) began raising money for NetGenesis, it was basically a disaster. The company was in a new, hot space—the internet—and we had exciting ideas of things to build. Unfortunately, I didn't know how to raise money for the venture.

I spent a lot of time meeting with a wide variety of investors, including angel investors, corporate investors, and venture capitalists. I didn't understand the game they were playing, so I would often say the wrong things and share information that was detrimental to me because I didn't quite know how to get through the process.

Ultimately, I was fortunate enough to be in the position of choosing between multiple term sheets from different VC firms. Of course, not realizing what was important, I chose the higher offer rather than the better fit for me and the company. At the time, I believed a higher offer (valuation and amount of money invested) was the better one, but I quickly learned that terms and conditions of a deal are as important—if not more important—than the total value to a deal. The legalese that we all dread reading and don't really understand, yup, that too is super critical when considering an offer from a VC firm. We don't want you to have this same experience, so we will detail critical legal terms here for you as well.

Ultimately, the VCs came in and made several changes, some of which were excellent and some that weren't, including replacing part of the management team. ...