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Venture Deals, 3rd Edition

Book Description

Get the inside scoop on what venture capitalists want to see in your startup as you hit the fundraising trail.

This is the highly anticipated third edition of the best-selling book which has become the definitive resource for understanding venture capital fundraising. Whether you are an entrepreneur, lawyer, student or just have an interest in the venture capital ecosystem, Venture Deals is for you. The book dives deeply into how deals are constructed, why certain terms matter (and others don’t), and more importantly, what motivates venture capitalists to propose certain outcomes. You’ll see the process of negotiating from the eyes of two seasoned venture capitalists who have over 40 years of investing experience as VCs, LPs, angels, and founders. They will teach you how to develop a fundraising strategy that will be a win for all parties involved.

 This book is designed to bring transparency to the venture capital funding process and includes such topics as:

  • How to raise money;
  • What terms matter and which ones don’t;
  • How to negotiate a fair deal for everyone;
  • What makes venture capitalists tick, including how they are compensated and motivated;
  • How companies are valued by venture capitalists;
  • How all current structures of funding work, including convertible debt, crowdfunding, pre-sales and other non-traditional methods;
  • How these particular issues change through different stages of financing (seed, early, mid and late); and
  • How to avoid business and legal pitfalls that many entrepreneurs make.

And as in the previous editions, this book isn’t just a one-sided opinion from venture capitalists, but also has helpful commentary throughout from a veteran CEO who has raised many rounds of financing from many different investors.

If you are ready to learn all the secrets and ins and outs of fundraising, Venture Deals is an essential read. 

Table of Contents

  1. Foreword
  2. Foreword
  3. Preface
  4. Acknowledgments
  5. Introduction: The Art of the Term Sheet
  6. 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 Mentor
  7. Chapter 2 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
  8. Chapter 3 Overview of the Term Sheet
    1. The Key Concepts: Economics and Control
  9. Chapter 4 Economic Terms of the Term Sheet
    1. Price
    2. Liquidation Preference
    3. Pay-to-Play
    4. Vesting
    5. Exercise Period
    6. Employee Pool
    7. Antidilution
  10. Chapter 5 Control Terms of the Term Sheet
    1. Board of Directors
    2. Protective Provisions
    3. Drag-Along Agreement
    4. Conversion
  11. Chapter 6 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
  12. Chapter 7 The Capitalization Table
  13. 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
  14. Chapter 9 Crowdfunding
    1. Product Crowdfunding
    2. Equity Crowdfunding
    3. How Equity Crowdfunding Differs
  15. Chapter 10 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
  16. Chapter 11 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 Styles and Approaches
    6. Collaborative Negotiation versus Walk-Away Threats
    7. Building Leverage and Getting to Yes
    8. Things Not to Do
    9. Great Lawyers versus Bad Lawyers versus No Lawyers
    10. Can You Make a Bad Deal Better?
  17. Chapter 12 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
  18. Chapter 13 Issues at Different Financing Stages
    1. Seed Deals
    2. Early Stage
    3. Mid and Late Stages
  19. Chapter 14 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
  20. Chapter 15 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
  21. Chapter 16 Legal Things Every Entrepreneur Should Know
    1. Intellectual Property
    2. Employment Issues
    3. State of Incorporation
    4. Type of Corporate Structure
    5. Accredited Investors
    6. Filing an 83(b) Election
    7. Section 409A Valuations
  22. Authors’ Note
  23. Appendix A: Sample Term Sheet
  24. Appendix B: Sample Letter of Intent
    1. Part One
    2. Part Two
  25. Appendix C: Additional Resources
  26. Foreword to the First and Second Editions
  27. Glossary
  28. About the Authors
  29. Index
  30. STARTUP COMMUNITIES
    1. HISTORICAL FRAMEWORKS
    2. THE BOULDER THESIS
    3. LED BY ENTREPRENEURS
    4. LONG-TERM COMMITMENT
    5. FOSTER A PHILOSOPHY OF INCLUSIVENESS
    6. ENGAGE THE ENTIRE ENTREPRENEURIAL STACK
  31. EULA