Venture Capital: The Definitive Guide for Entrepreneurs, Investors, and Practitioners

by Joel Cardis; Sam Kirschner; Stan Richelson; Jason Kirschner; Hildy Richelson

• ISBN13: 9780471201496
• ISBN10: 0471201499
• Format: eBook
• Copyright: 2001-10-01
• Publisher: Wiley

Summary

How to attract the venture capital needed to grow any business Venture Capital teaches entrepreneurs and small business owners everything they need to know about finding the venture capital they need to grow their businesses. Based, in large part, upon in-depth interviews with major players in the venture capital arena--including money managers as well as entrepreneurs who have dealt with them successfully--it provides powerful pointers on how to make a business attractive to venture capitalists, how to protect yourself in negotiating an agreement, how to manage a relationship with venture capitalists once a deal is signed, and much more. Perhaps most importantly, the reader learns what makes venture capitalists tick and sees things through a venture capitalist's eyes. Joel Cardis, Esq. (Blue Bell, PA), consults both Fortune 500 companies and small businesses on an array of venture and start-up issues. Hildy Richelson, PhD (Scarsdale, NY), is President of the Scarsdale Investment Group, Ltd.

Table of Contents

Introduction	p. xi
Doing Your Homework: Preparing for the Venture Capitalists
The Venture Capital Revolution	p. 3
Venture Capital FAQ: Is the Game Right for You?	p. 7
What Funding Will I Be Expected to Have in Hand before Approaching Venture Capitalists?	p. 7
Will Venture Capitalists Take Advantage of Me?	p. 11
How Do Venture Capitalists Determine Valuation?	p. 12
What Is Dilution?	p. 12
Will Venture Capitalists Help Me Grow My Business?	p. 13
Do Venture Capitalists Have Unrealistic Performance Expectations?	p. 14
Why Do Venture Capitalists Stress an Exit Strategy?	p. 14
Why Will Venture Capitalists Give Me a Lower Valuation than Do Passive Investors?	p. 15
Will I Lose My Job?	p. 15
Next Steps	p. 16
The Market Risk	p. 18
Your Market Opportunity	p. 19
Your Market Analysis	p. 21
Your Competition	p. 23
Your Customers	p. 27
Your Sales and Marketing Strategy	p. 29
The People Risk--Part I: Management Teams and Boards	p. 31
The Founder and the Management Team	p. 32
David Henry: A Case Study of an Entrepreneur's Passion	p. 35
Coachability: A Crucial Ingredient for CEO Success	p. 38
How Do You Evaluate, Hire, and Retain Good People?	p. 39
Building a Board of Directors	p. 41
Professional Services Providers: Accountants and Lawyers	p. 44
The People Risk--Part II: Strategic Alliances	p. 48
Key to Success: Alliance Formation	p. 49
Forming Alliances through Public Service or Charity	p. 50
The Keiretsu	p. 51
How to Manage Difficulties in Your Alliances	p. 53
XL Vision: An Incubator Built on Alliances	p. 54
Minority and Women's Alliances	p. 56
The Master of the Keiretsu: An Interview with Pete Musser	p. 60
Novell and Other Stories	p. 60
Key Investment Factors	p. 63
Joe Siegel and QVC	p. 65
Strategic Alliances--Part I	p. 66
Milestones and Exit Strategies	p. 69
Strategic Alliances--Part II: Metcalfe's Law	p. 71
An IPO Goldmine: Internet Capital Group	p. 74
Organizing a Good Board	p. 75
Intellectual Property and Confidentiality Agreements	p. 76
The "Black Art" of Valuation	p. 77
The Business Plan	p. 80
The Technology Risk	p. 83
Product Development	p. 84
Market Acceptance Issues	p. 86
How Proprietary Is Your Technology?	p. 92
The Money Risk	p. 96
The Burn Rate	p. 98
The Path to Profitability (P to P)	p. 102
Scalability and Its Costs	p. 105
The Exit Strategy and Market Conditions	p. 106
Characteristics of the Venture Capitalists' Fund	p. 107
The Capital Structure and Legal Form of Your Entity	p. 108
Getting Funded
How to Value Your Company	p. 115
The Language of Valuation	p. 116
Methods of Valuation	p. 119
How Does Valuation Look to the Venture Capitalist and the Entrepreneur?	p. 123
Valuation and the Quality of the Venture Capitalist	p. 124
When Should You Discuss Valuation?	p. 125
An Entrepreneur's Lawyer Looks at Valuation	p. 127
Writing Effective Business Plans	p. 132
The Executive Summary	p. 132
The Market Opportunity	p. 134
Products and Services	p. 134
The Business Model	p. 134
The People	p. 134
Financials	p. 135
Prior Sources of Funding and Uses of Proceeds	p. 136
Exit Strategy	p. 136
Dilution Schedule	p. 136
The Detailed Business Plan	p. 137
First Step: Gather Your Data	p. 137
General Business Plan Guidelines	p. 138
Framework of the Business Plan	p. 140
Cover Page	p. 140
The Market Opportunity	p. 141
Products and Services	p. 142
The People	p. 143
Financials	p. 143
Sources of Funding and Uses of Proceeds	p. 145
Calendar of Milestones	p. 145
Exit Strategy	p. 146
Dilution Schedule	p. 146
Appendixes	p. 146
Final Comments	p. 147
Which Venture Capitalist Is Right for You?	p. 148
The Venture Capital Industry	p. 148
The Best Firms and the Brightest Stars	p. 149
The Specialization of the Venture Capital Industry	p. 151
Resources	p. 155
Getting in the Door	p. 156
Sponsorship	p. 156
Nondisclosure Agreements (NDAs)	p. 160
The Application Process	p. 161
Show Time: Presenting to the Venture Capitalists	p. 163
Preparing for the Meeting	p. 163
Case Study: Half.com	p. 169
Dress Rehearsals	p. 183
Show Time: The Presentation	p. 185
Negotiating the Term Sheet: The Art of the Deal	p. 188
Choosing a Good Lawyer	p. 189
Strengthening Your Bargaining Position	p. 190
Understanding and Negotiating the Key Elements of the Term Sheet	p. 196
Surviving the Due Diligence Process	p. 207
Introduction	p. 207
The Major Steps of the Due Diligence Process	p. 208
Examining the Historical Data	p. 208
Evaluating the Market Risk	p. 210
Evaluating the People Risk	p. 211
Evaluating the Technology Risk	p. 215
Evaluating the Money Risk	p. 216
Making the Investment Decision	p. 218
Reading from the Book of BK--Chapters 11, 7, and 13	p. 219
Epilogue: Life After the Deal	p. 222
The Golden Rule: Candor	p. 223
The Role of the Venture Capitalists	p. 224
How Venture Capitalists Deal with Nonperforming Founders	p. 227
Emerge Interactive, Inc.: A Case Study	p. 232
Final Comments	p. 233
Directory of Interviewees	p. 234
Sample Confidentiality Agreement	p. 236
Sample Term Sheet	p. 238
TL Ventures Due Diligence Checklist	p. 247
Preferred Stock Purchase Agreement	p. 262
Select Online Entrepreneurial Resources	p. 299
VC Resources for Women and Minorities	p. 300
Notes	p. 302
Index	p. 311
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