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Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, 2nd Edition

Book Description

A full revised edition of the Wall Street Journal bestselling book on startups and entrepreneurship

As each new generation of entrepreneurs emerges, there is a renewed interest in how venture capital deals come together. Yet there is little reliable information focused on venture capital deals. Nobody understands this better than authors Brad Feld and Jason Mendelson. For more than twenty years, they've been involved in hundreds of venture capital financings, and now, with the Second Edition of Venture Deals, they continue to share their experiences in this field with you.

Engaging and informative, this reliable resource skillfully outlines the essential elements of the venture capital term sheet—from terms related to economics to terms related to control. It strives to give a balanced view of the particular terms along with the strategies to getting to a fair deal. In addition to examining the nuts and bolts of the term sheet, Venture Deals, Second Edition also introduces you to the various participants in the process and discusses how fundraising works.

  • Fully updated to reflect the intricacies of startups and entrepreneurship in today's dynamic economic environment

  • Offers valuable insights into venture capital deal structure and strategies

  • Brings a level of transparency to a process that is rarely well understood

  • Whether you're an experienced or aspiring entrepreneur, venture capitalist, or lawyer who partakes in these particular types of deals, you will benefit from the insights found throughout this new book.

    Table of Contents

    1. Cover Page
    2. Title Page
    3. Copyright
    4. Dedication
    5. Contents
    6. Foreword
    7. Preface
      1. Audience
      2. Overview of the Contents
      3. Additional Materials
    8. Acknowledgments
    9. INTRODUCTION: The Art of the Term Sheet
    10. CHAPTER 1: The Players
      1. The Entrepreneur
      2. The Venture Capitalist
      3. The Angel Investor
      4. The Syndicate
      5. The Lawyer
      6. The Mentor
    11. CHAPTER 2: How to Raise Money
      1. Do or Do Not; There Is No Try
      2. Determine How Much You Are Raising
      3. Fund-Raising Materials
      4. Due Diligence Materials
      5. Finding the Right VC
      6. Finding a Lead VC
      7. How VCs Decide to Invest
      8. Closing the Deal
    12. CHAPTER 3: Overview of the Term Sheet
      1. The Key Concepts: Economics and Control
    13. CHAPTER 4: Economic Terms of the Term Sheet
      1. Price
      2. Liquidation Preference
      3. Pay-to-Play
      4. Vesting
      5. Employee Pool
      6. Antidilution
    14. CHAPTER 5: Control Terms of the Term Sheet
      1. Board of Directors
      2. Protective Provisions
      3. Drag-Along Agreement
      4. Conversion
    15. 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
    16. CHAPTER 7: The Capitalization Table
    17. 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?
    18. CHAPTER 9: 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. Fiduciary Duties
      10. Implications for the Entrepreneur
    19. CHAPTER 10: 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?
    20. CHAPTER 11: Raising Money the Right Way
      1. Don't Ask for a Nondisclosure Agreement
      2. Don't Email Carpet Bomb VCs
      3. No Often Means No
      4. Don't Ask for a Referral If You Get a No
      5. Don't Be a Solo Founder
      6. Don't Overemphasize Patents
    21. CHAPTER 12: Issues at Different Financing Stages
      1. Seed Deals
      2. Early Stage
      3. Mid and Late Stages
      4. Other Approaches to Early Stage Deals
    22. CHAPTER 13: 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
    23. CHAPTER 14: Legal Things Every Entrepreneur Should Know
      1. Intellectual Property
      2. Employment Issues
      3. State of Incorporation
      4. Accredited Investors
      5. Filing an 83(b) Election
      6. Section 409A Valuations
    24. Authors' Note
    25. Appendix A: Sample Term Sheet
    26. Appendix B: Sample Letter of Intent
    27. Appendix C: Additional Resources
    28. Glossary
    29. About the Authors
    30. Index
    31. CHAPTER THREE: PRINCIPLES OF A VIBRANT STARTUP COMMUNITY
      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