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Venture Capital For Dummies by Peter K. Adams, Nicole Gravagna

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Chapter 9

Structuring Pre-VC Deals

In This Chapter

arrow Understanding term sheet terms

arrow Planning early fundraising

arrow Choosing between equity and convertible debt

arrow Making the transition between early rounds and VC rounds

When growing your business, expect to raise money in stages. It’s not common to start a company and raise venture capital immediately. Instead, founders use their own money (called bootstrapping), raise money through friends and family, or take angel capital to develop a company to the point where a venture capital firm will be interested in the deal.

Early fundraising is a minefield because the decisions you make can potentially muck up your deal such that VCs won’t touch it with a ten foot pole. You can unwittingly strike a deal with some angel investors for a couple hundred thousand dollars that totally ruins your fundraising accounting for future deals. The worst part is that such mistakes aren’t the result of someone setting out to ruin the company; they’re the result of the founder and investor not realizing the potential ramifications of the contract.

This chapter ...

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