Venture Deals : Be Smarter Than Your Lawyer and Venture Capitalist

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2011-08-02
  • Publisher: Wiley
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An engaging guide to excelling in todays venture capital arena Beginning in 2005, Brad Feld and Jason Mendelson, managing directors at Foundry Group, wrote a long series of blog posts describing all the parts of a typical venture capital Term Sheet: a document which outlines key financial and other terms of a proposed investment. Since this time, theyve seen the series used as the basis for a number of college courses, and have been thanked by thousands of people who have used the information to gain a better understanding of the venture capital field. Drawn from the past work Feld and Mendelson have written about in their blog and augmented with newer material, Venture Capital Financings puts this discipline in perspective and lays out the strategies that allow entrepreneurs to excel in their start-up companies. Page by page, this book discusses all facets of the venture capital fundraising process. Along the way, Feld and Mendelson touch on everything from how valuations are set to what externalities venture capitalists face that factor into entrepreneurs businesses. Includes a breakdown analysis of the mechanics of a Term Sheet and the tactics needed to negotiate Details the different stages of the venture capital process, from starting a venture and seeing it through to the later stages Explores the entire venture capital ecosystem including those who invest in venture capitalist Contain standard documents that are used in these transactions Written by two highly regarded experts in the world of venture capital The venture capital arena is a complex and competitive place, but with this book as your guide, youll discover what it takes to make your way through it.

Author Biography

Brad Feld has been an early-stage investorand entrepreneur for over twenty years. Prior tocofounding Foundry Group—a Boulder, Colorado—based early-stage venture capital fund that invests in information technology companies all over the United States—he cofounded Mobius Venture Capital and, prior to that, founded Intensity Ventures, a company that helped launch and operate software companies and later became a venture affiliate ofthe predecessor to Mobius Venture Capital.

Jason Mendelson has over a decade ofexperience in the venture capital and technologyindustries in a multitude of investing, operational, and engineering roles. Prior to cofounding FoundryGroup, he was a managing director and general counsel for Mobius Venture Capital, where he also acted as its chief administrative partner overseeingall operations of the firm. Mendelson was also an attorney with Cooley LLP, where he practiced corporate and securities law with an emphasis on representation of emerging companies in private and public financings as well as mergers and acquisitions.

Table of Contents

Forewordp. xi
Prefacep. xiii
Acknowledgmentsp. xix
Introduction: The Art of the Term Sheetp. 1
The Playersp. 5
The Entrepreneurp. 5
The Venture Capitalistp. 5
The Angel Investorp. 8
The Syndicatep. 10
The Lawyerp. 11
The Mentorp. 13
How to Raise Moneyp. 15
Do or Do Not; There Is No Tryp. 15
Determine How Much You Are Raisingp. 16
Fund-Raising Materialsp. 17
Due Diligence Materialsp. 23
Finding the Right VCp. 23
Finding a Lead VCp. 25
How VCs Decide to Investp. 26
Closing the Dealp. 28
Overview of the Term Sheetp. 31
The Key Concepts: Economics and Controlp. 32
Economic Terms of the Term Sheetp. 35
Pricep. 35
Liquidation Preferencep. 41
Pay-to-Playp. 47
Vestingp. 50
Employee Poolp. 54
Antidilutionp. 55
Control Terms of the Term Sheetp. 61
Board of Directorsp. 61
Protective Provisionsp. 63
Drag-Along Agreementp. 68
Conversionp. 70
Other Terms of the Term Sheetp. 73
Dividendsp. 73
Redemption Rightsp. 75
Conditions Precedent to Financingp. 77
Information Rightsp. 79
Registration Rightsp. 80
Right of First Refusalp. 83
Voting Rightsp. 84
Restriction on Salesp. 85
Proprietary Information and Inventions Agreementp. 86
Co-Sale Agreementp. 87
Founders' Activitiesp. 88
Initial Public Offering Shares Purchasep. 89
No-Shop Agreementp. 90
Indemnificationp. 93
Assignmentp. 93
The Capitalization Tablep. 95
How Venture Capital Funds Workp. 99
Overview of a Typical Structurep. 99
How Firms Raise Moneyp. 101
How Venture Capitalists Make Moneyp. 102
How Time Impacts Fund Activityp. 106
Reservesp. 108
Cash Flowp. 110
Cross-Fund Investingp. 111
Departing Partnersp. 111
Fiduciary Dutiesp. 112
Implications for the Entrepreneurp. 112
Negotiation Tacticsp. 113
What Really Matters?p. 113
Preparing for the Negotiationp. 114
A Brief Introduction to Game Theoryp. 116
Negotiating in the Game of Financingsp. 118
Negotiating Styles and Approachesp. 120
Collaborative Negotiation versus Walk-Away Threatsp. 123
Building Leverage and Getting to Yesp. 124
Things Not to Dop. 126
Great Lawyers versus Bad Lawyers versus No Lawyersp. 129
Can You Make a Bad Deal Better?p. 129
Raising Money the Right Wayp. 133
Don't Ask for a Nondisclosure Agreementp. 133
Don't Email Carpet Bomb VCsp. 134
No Often Means Nop. 134
Don't Ask for a Referral If You Get a Nop. 134
Don't Be a Solo Founderp. 135
Don't Overemphasize Patentsp. 136
Issues at Different Financing Stagesp. 137
Seed Dealsp. 137
Early Stagep. 138
Mid and Late Stagesp. 138
Other Approaches to Early Stage Dealsp. 139
Letters of Intent-The Other Term Sheetp. 145
Structure of a Dealp. 146
Asset Deal versus Stock Dealp. 149
Form of Considerationp. 151
Assumption of Stock Optionsp. 152
Representations, Warranties, and Indemnificationp. 155
Escrowp. 157
Confidentiality/Nondisclosure Agreementp. 158
Employee Mattersp. 159
Conditions to Closep. 160
The No-Shop Clausep. 161
Fees, Fees, and More Feesp. 162
Registration Rightsp. 163
Shareholder Representativesp. 164
Legal Things Every Entrepreneur Should Knowp. 167
Intellectual Propertyp. 167
Employment Issuesp. 169
State of Incorporationp. 170
Accredited Investorsp. 170
Filing an 83(b) Electionp. 171
Section 409A Valuationsp. 172
Authors' Notep. 175
Sample Term Sheetp. 177
Sample Letter of Intentp. 197
Glossaryp. 205
About the Authorsp. 213
Indexp. 215
Table of Contents provided by Ingram. All Rights Reserved.

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