Venture Deals, 4th Edition

Venture Deals, 4th Edition

by Brad Feld, Jason Mendelson
Released August 2019
Publisher(s): Wiley
ISBN: 9781119594826

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Book description

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.

Table of contents

  1. Cover
  2. Foreword by Fred Wilson (3rd Edition)
  3. Foreword by James Park (3rd Edition)
  4. Foreword by Dick Costolo (1st and 2nd Editions)
  5. Preface
  6. Acknowledgments
  7. Introduction: The Art of the Term Sheet
  8. Chapter 1 The Players
    1. The Entrepreneur
    2. The Venture Capitalist
    3. Financing Round Nomenclature
    4. Types of Venture Capital Firms
    5. The Angel Investor
    6. The Syndicate
    7. The Lawyer
    8. The Accountant
    9. The Banker
    10. The Mentor
  9. Chapter 2 Preparing for Fundraising
    1. Choosing the Right Lawyer
    2. Proactive versus Reactive
    3. Intellectual Property
  10. Chapter 3 How to Raise Money
    1. “Do. Or Do Not. There Is No Try.”
    2. Determine How Much You Are Raising
    3. Fundraising Materials
    4. Due Diligence Materials
    5. Finding the Right VC
    6. Finding a Lead VC
    7. How VCs Decide to Invest
    8. Using Multiple VCs to Create Competition
    9. Closing the Deal
  11. Chapter 4 Overview of the Term Sheet
    1. The Key Concepts: Economics and Control
  12. Chapter 5 Economic Terms of the Term Sheet
    1. Valuation and Price
    2. Employee Option Pool
    3. Warrants
    4. How Valuation Is Determined
    5. Liquidation Preference
    6. Pay-to-Play
    7. Vesting
    8. Exercise Period
    9. Antidilution
  13. Chapter 6 Control Terms of the Term Sheet
    1. Board of Directors
    2. Protective Provisions
    3. Drag-Along Agreement
    4. Conversion
  14. Chapter 7 Other Terms of the Term Sheet
    1. Dividends
    2. Redemption Rights
    3. Conditions Precedent to Financing
    4. Information Rights
    5. Registration Rights
    6. Right of First Refusal
    7. Voting Rights
    8. Restriction on Sales
    9. Proprietary Information and Inventions Agreement
    10. Co-Sale Agreement
    11. Founders’ Activities
    12. Initial Public Offering Shares Purchase
    13. No-Shop Agreement
    14. Indemnification
    15. Assignment
  15. Chapter 8 Convertible Debt
    1. Arguments for and Against Convertible Debt
    2. The Discount
    3. Valuation Caps
    4. Interest Rate
    5. Conversion Mechanics
    6. Conversion in a Sale of the Company
    7. Warrants
    8. Other Terms
    9. Early Stage versus Late Stage Dynamics
    10. Can Convertible Debt Be Dangerous?
    11. An Alternative to Convertible Debt
  16. Chapter 9 The Capitalization Table
    1. Price per Share with Convertible Notes
    2. Pre-Money Method
    3. Percentage-Ownership Method
    4. Dollars-Invested Method
    5. Note
  17. Chapter 10 Crowdfunding
    1. Product Crowdfunding
    2. Equity Crowdfunding
    3. How Equity Crowdfunding Differs
    4. Token Crowdfunding
  18. Chapter 11 Venture Debt
    1. The Role of Debt versus Equity
    2. The Players
    3. How Lenders Think about Loan Types
    4. Economic Terms
    5. Amortization Terms
    6. Control Terms
    7. Negotiation Tactics
    8. Restructuring the Deal
  19. Chapter 12 How Venture Capital Funds Work
    1. Overview of a Typical Structure
    2. How Firms Raise Money
    3. How Venture Capitalists Make Money
    4. How Time Impacts Fund Activity
    5. Reserves
    6. Cash Flow
    7. Cross-Fund Investing
    8. Departing Partners
    9. Corporate Venture Capital
    10. Strategic Investors
    11. Fiduciary Duties
    12. Implications for the Entrepreneur
  20. Chapter 13 Negotiation Tactics
    1. What Really Matters?
    2. Preparing for the Negotiation
    3. A Brief Introduction to Game Theory
    4. Negotiating in the Game of Financings
    5. Negotiating Other Games
    6. Negotiating Styles and Approaches
    7. Collaborative Negotiation versus Walk-Away Threats
    8. Building Leverage and Getting to Yes
    9. Things Not to Do
    10. Great Lawyers versus Bad Lawyers versus No Lawyers
    11. Can You Make a Bad Deal Better?
    12. Note
  21. Chapter 14 Raising Money the Right Way
    1. Don’t Be a Machine
    2. Don’t Ask for a Nondisclosure Agreement
    3. Don’t Email Carpet-Bomb VCs
    4. No Often Means No
    5. Don’t Ask for a Referral If You Get a No
    6. Don’t Be a Solo Founder
    7. Don’t Overemphasize Patents
    8. Don’t Be Silent If You Witness Bad Behavior
  22. Chapter 15 Issues at Different Financing Stages
    1. Seed Deals
    2. Early Stage
    3. Mid and Late Stages
  23. Chapter 16 Letters of Intent: The Other Term Sheet
    1. Structure of a Deal
    2. Asset Deal versus Stock Deal
    3. Form of Consideration
    4. Assumption of Stock Options
    5. Representations, Warranties, and Indemnification
    6. Escrow
    7. Confidentiality/Nondisclosure Agreement
    8. Employee Matters
    9. Conditions to Close
    10. The No-Shop Clause
    11. Fees, Fees, and More Fees
    12. Registration Rights
    13. Shareholder Representatives
  24. Chapter 17 How to Engage an Investment Banker
    1. Why Hire an Investment Banker?
    2. How to Choose an M&A Adviser
    3. Negotiating the Engagement Letter
    4. Helping Your Banker Maximize the Outcome
  25. Chapter 18 Why Do Term Sheets Even Exist?
    1. Constraining Behavior and the Alignment of Incentives
    2. Transaction Costs
    3. Agency Costs and Information Asymmetry
    4. Reputation Constraints
  26. Chapter 19 Legal Things Every Entrepreneur Should Know
    1. Intellectual Property
    2. Patents
    3. Trademarks
    4. Employment Issues
    5. Type of Corporate Structure
    6. Accredited Investors
    7. Section 409A Valuations
    8. (83)b Elections
    9. Founders’ Stock
    10. Consultants versus Employees
    11. Compensating Service Providers
  27. Authors’ Note
  28. Appendix A: Sample Term Sheet
  29. Appendix B: Foundry Group Term Sheet1
    1. Note
  30. Appendix C: Sample Letter of Intent
  31. Appendix D: Additional Resources
  32. Glossary
  33. About the Authors
  34. Index
  35. Excerpt from Startup Communities
    1. Chapter Three Principles of a Vibrant Startup Community
    2. Historical Frameworks
    3. The Boulder Thesis
    4. Led by Entrepreneurs
    5. Long-Term Commitment
    6. Foster a Philosophy of Inclusiveness
    7. Engage the Entire Entrepreneurial Stack
  36. End User License Agreement

Product information

  • Title: Venture Deals, 4th Edition
  • Author(s): Brad Feld, Jason Mendelson
  • Release date: August 2019
  • Publisher(s): Wiley
  • ISBN: 9781119594826