Venture Deals, 4th Edition

CHAPTER 1The Players

While it might seem like there are only two players in the financing dance—the entrepreneur and the venture capitalist—there are often others, including angel investors, lawyers, accountants, and mentors. Any entrepreneur who has created a company that has gone through multiple financings knows that the number of people involved can quickly spiral out of control. This is especially true if you aren’t sure who is actually making the decisions at each step along the way.

The experience, motivation, and relative power of each participant in a financing can be complex, and the implications are often mysterious. Let’s begin our journey to understanding venture capital financings by making sure we understand each player and the dynamics surrounding the participants.

The Entrepreneur

Not all investors, bankers, and lawyers realize it, but the entrepreneur is the center of the entrepreneurial universe. Without entrepreneurs there would be no term sheets and no startup ecosystem.

Throughout this book we use the terms entrepreneur and founder interchangeably. While some companies have only one founder, many have two, three, or even more. Sometimes these cofounders are equals; other times they aren’t. Regardless of the number, they each have a key role in the formation of the company and any financing that occurs.

The founders can’t and shouldn’t outsource their involvement in a financing to their lawyers. There are many issues in a financing negotiation that only ...