Fundamentals of Venture Capital

by Bartlett, Joseph W.

• ISBN13: 9781568331263
• ISBN10: 1568331266
• Format: Hardcover
• Copyright: 1999-12-01
• Publisher: Natl Book Network

Summary

Written in highly readable layman's language, Fundamentals of Venture Capital is a concise introduction to the key issues facing both investors and entrepreneurs as they embark on the journey of turning a good idea into a profitable reality.

Table of Contents

What Is All the Talk About?	1	(10)
What Is Venture Capital?	3	(3)
How Venture Capitalists Talk	6	(1)
Should You Start Your Own Company?	7	(2)
``You Can Make It.... Will Someone Buy It?	9	(2)
Where Should I Look for Seed Capital?	11	(15)
Introduction	11	(1)
Angels	12	(1)
Seed Capital from VCs	12	(2)
State Aid	14	(1)
Federal Grants and Loans	15	(1)
Commercial Banks	16	(1)
Should I have a Placement Agent?	17	(2)
Venture-Capital Clubs	19	(1)
Concept IPOs	19	(1)
The Shell Game	20	(1)
Multiple-Round Strategy	21	(2)
Case Study in Finding Money: A Reality Check	23	(3)
How on Earth Do I Put a Value on My Company?	26	(5)
Portfolio Management	29	(1)
Nonnumerical Factors	30	(1)
What Legal Form Works Best for You?	31	(9)
S Corporations	31	(2)
Limited Liability Companies	33	(3)
Corporation versus Limited Liability Company	36	(4)
What Will My Corporation Look Like?	40	(13)
Corporate Charter	40	(2)
Payment for Stock	42	(1)
Purposes	42	(1)
Miscellaneous Charter Provisions	43	(1)
Restrictions on Transfer	43	(3)
Preferred Stock Provisions	46	(1)
Preemptive Rights	46	(1)
Indemnification	47	(3)
Bylaws	50	(1)
Other Organizational Documents	50	(1)
State of Corporate Domicile: Delaware or Somewhere Else?	51	(2)
Tax Discussion for the Nonlawyer: Minimizing Taxes in the Early Stages	53	(9)
Cheap Stock to Employees and Promoters: The ``Eat-'em-All-Up'' Preferred Stock Approach	56	(2)
Stock for Services: The ``Passage-of-Time'' Approach	58	(1)
Section 83 and Stock Subject to Vesting	59	(3)
Drafting the Business Plan and the Placement Memo	62	(17)
Risk Factors	65	(3)
Certain Transactions	68	(1)
Business Plan	69	(1)
The Marketing Section: The Single-Most Important Section for Early-Stage Investments	70	(2)
Business Strategy and the Single-Product Problem	72	(1)
Management	72	(1)
Beefing up the Board of Directors	72	(1)
Other Issues	73	(1)
Projections---The ``Bull's-Eye'' Theory of Forecasting: ``Shoot High,''	74	(2)
The Promissory Nature of the Forecast: ``Shoot Low,''	76	(3)
You've Set up the Company and Negotiated the Price: What Are the Investors' Terms?	79	(19)
Herein the Term Sheet	79	(1)
What Will the VCs Want for a Security: Common Stock? Preferred Stock? Debt? Warrants?	80	(2)
Common Stock	82	(1)
Warrants	82	(1)
Preferred Stock	83	(3)
Conversion and Redemption	86	(1)
Preferred Stock Redeemable at the Option of the Holder	87	(2)
Participating Preferred	89	(1)
Antidilution Protection for Investors	90	(4)
Who Controls: Me or Them?	94	(2)
Registration Rights	96	(2)
I Have a Letter of Intent: What's in the Contract?	98	(10)
Stockholders Agreement	106	(1)
Rights of First Refusal	107	(1)
Selling Stock, Privately...and Legally	108	(9)
If Reg. D Is Not Available?	114	(3)
Compensating Your Key Executives	117	(16)
The ``Carrot'' Approach: Equity Incentives	117	(2)
Stock Options	119	(1)
Incentive Stock Options	119	(2)
Nonqualified Stock Options	121	(1)
ISOs versus NSOs	122	(2)
``Grossing Up,''	124	(1)
Miscellaneous Items	124	(1)
The Carrot-and-Stick Approach: The Employment Agreement	124	(4)
Restrictions on Post-Employment Behavior: Noncompetition, Nondisclosure, and ``Work-for-Hire'' Clauses	128	(5)
How to Go to the Promised Land (i. e., Go Public)	133	(15)
Whether or Not to ``Go Public,''	134	(2)
Preparation for the Public Offering	136	(4)
Liability	140	(2)
``Directed Shares'' and ``Hot Issues''	142	(1)
Lock Ups and Other Obstacles to Liquidity	143	(5)
Financing with Strategic Investors: Joint Ventures	148	(8)
Typical Business Contexts	149	(2)
Negotiation Points	151	(4)
The Duty of Candor	155	(1)
Corporate Opportunity and Self-Dealing	155	(1)
Conclusion	156	(3)
Index	159	(8)
about the author	167