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

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

• ISBN13: 9780471398134
• ISBN10: 0471398136
• Edition: 1st
• Format: Hardcover
• 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.

Author Biography

JOEL CARDIS, Esq., is an attorney and consultant with more than two decades of experience working with Fortune 500 executives and small businesses. He is the founder and President of an investment club comprising entrepreneurs and businesspeople.He can be reached at [e-mail]

Table of Contents

Introduction	xi
Part I Doing Your Homework: Preparing for the Venture Capitalists
The Venture Capital Revolution	3	(4)
Venture Capital FAQ: Is the Game Right for You?	7	(11)
What Funding Will I Be Expected to Have in Hand before Approaching Venture Capitalists?	7	(4)
Will Venture Capitalists Take Advantage of Me?	11	(1)
How Do Venture Capitalists Determine Valuation?	12	(1)
What Is Dilution?	12	(1)
Will Venture Capitalists Help Me Grow My Business?	13	(1)
Do Venture Capitalists Have Unrealistic Performance Expectations?	14	(1)
Why Do Venture Capitalists Stress an Exit Strategy?	14	(1)
Why Will Venture Capitalists Give Me a Lower Valuation than Do Passive Investors?	15	(1)
Will I Lose My Job?	15	(1)
Next Steps	16	(2)
The Market Risk	18	(13)
Your Market Opportunity	19	(2)
Your Market Analysis	21	(2)
Your Competition	23	(4)
Your Customers	27	(2)
Your Sales and Marketing Strategy	29	(2)
The People Risk---Part I: Management Teams and Boards	31	(17)
The Founder and the Management Team	32	(3)
A Case Study of an Entrepreneur's Passion	35	(3)
David Henry
Coachability: A Crucial Ingredient for CEO Success	38	(1)
How Do You Evaluate, Hire, and Retain Good People?	39	(2)
Building a Board of Directors	41	(3)
Professional Services Providers: Accountants and Lawyers	44	(4)
The People Risk---Part II: Strategic Alliances	48	(12)
Key to Success: Alliance Formation	49	(1)
Forming Alliances through Public Service or Charity	50	(1)
The Keiretsu	51	(2)
How to Manage Difficulties in Your Alliances	53	(1)
XL Vision: An Incubator Built on Alliances	54	(2)
Minority and Women's Alliances	56	(4)
The Master of the Keiretsu: An Interview with Pete Musser	60	(23)
Novell and Other Stories	60	(3)
Key Investment Factors	63	(2)
Joe Siegel and QVC	65	(1)
Strategic Alliances---Part I	66	(3)
Milestones and Exit Strategies	69	(2)
Strategic Alliances---Part II: Metcalfe's Law	71	(3)
An IPO Goldmine: Internet Capital Group	74	(1)
Organizing a Good Board	75	(1)
Intellectual Property and Confidentiality Agreements	76	(1)
The ``Black Art'' of Valuation	77	(3)
The Business Plan	80	(3)
The Technology Risk	83	(13)
Product Development	84	(2)
Market Acceptance Issues	86	(6)
How Proprietary Is Your Technology?	92	(4)
The Money Risk	96	(19)
The Burn Rate	98	(4)
The Path to Profitability (P to P)	102	(3)
Scalability and Its Costs	105	(1)
The Exit Strategy and Market Conditions	106	(1)
Characteristics of the Venture Capitalists' Fund	107	(1)
The Capital Structure and Legal Form of Your Entity	108	(7)
Part II Getting Funded
How to Value Your Company	115	(17)
The Language of Valuation	116	(3)
Methods of Valuation	119	(4)
How Does Valuation Look to the Venture Capitalist and the Entrepreneur?	123	(1)
Valuation and the Quality of the Venture Capitalist	124	(1)
When Should You Discuss Valuation?	125	(2)
An Entrepreneur's Lawyer Looks at Valuation	127	(5)
Writing Effective Business Plans	132	(16)
The Executive Summary	132	(2)
The Market Opportunity	134	(1)
Products and Services	134	(1)
The Business Model	134	(1)
The People	134	(1)
Financials	135	(1)
Prior Sources of Funding and Uses of Proceeds	136	(1)
Exit Strategy	136	(1)
Dilution Schedule	136	(1)
The Detailed Business Plan	137	(1)
First Step: Gather Your Data	137	(1)
General Business Plan Guidelines	138	(2)
Framework of the Business Plan	140	(1)
Cover Page	140	(1)
The Market Opportunity	141	(1)
Products and Services	142	(1)
The People	143	(1)
Financials	143	(2)
Sources of Funding and Uses of Proceeds	145	(1)
Calendar of Milestones	145	(1)
Exit Strategy	146	(1)
Dilution Schedule	146	(1)
Appendixes	146	(1)
Final Comments	147	(1)
Which Venture Capitalist Is Right for You?	148	(15)
The Venture Capital Industry	148	(1)
The Best Firms and the Brightest Stars	149	(2)
The Specialization of the Venture Capital Industry	151	(4)
Resources	155	(1)
Getting in the Door	156	(1)
Sponsorship	156	(4)
Nondisclosure Agreements (NDAs)	160	(1)
The Application Process	161	(2)
Show Time: Presenting to the Venture Capitalists	163	(25)
Preparing for the Meeting	163	(6)
Case Study: Half.com	169	(14)
Dress Rehearsals	183	(2)
Show Time: The Presentation	185	(3)
Negotiating the Term Sheet: The Art of the Deal	188	(19)
Choosing a Good Lawyer	189	(1)
Strengthening Your Bargaining Position	190	(6)
Understanding and Negotiating the Key Elements of the Term Sheet	196	(11)
Surviving the Due Diligence Process	207	(15)
Introduction	207	(1)
The Major Steps of the Due Diligence Process	208	(1)
Examining the Historical Data	208	(2)
Evaluating the Market Risk	210	(1)
Evaluating the People Risk	211	(4)
Evaluating the Technology Risk	215	(1)
Evaluating the Money Risk	216	(2)
Making the Investment Decision	218	(1)
Reading from the Book of BK---Chapters 11, 7, and 13	219	(3)
Epilogue Life after the Deal	222	(12)
The Golden Rule: Candor	223	(1)
The Role of the Venture Capitalists	224	(3)
How Venture Capitalists Deal with Nonperforming Founders	227	(5)
Emerge Interactive, Inc.: A Case Study	232	(1)
Final Comments	233	(1)
Appendix A Directory of Interviewees	234	(2)
Appendix B Sample Confidentiality Agreement	236	(2)
Appendix C Sample Term Sheet	238	(9)
Appendix D TL Ventures Due Diligence Checklist	247	(15)
Appendix E Preferred Stock Purchase Agreement	262	(37)
Appendix F Select Online Entrepreneurial Resources	299	(1)
Appendix G VC Resources for Women and Minorities	300	(2)
Notes	302	(9)
Index	311