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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.
Foreword | p. xi |
Preface | p. xiii |
Acknowledgments | p. xix |
Introduction: The Art of the Term Sheet | p. 1 |
The Players | p. 5 |
The Entrepreneur | p. 5 |
The Venture Capitalist | p. 5 |
The Angel Investor | p. 8 |
The Syndicate | p. 10 |
The Lawyer | p. 11 |
The Mentor | p. 13 |
How to Raise Money | p. 15 |
Do or Do Not; There Is No Try | p. 15 |
Determine How Much You Are Raising | p. 16 |
Fund-Raising Materials | p. 17 |
Due Diligence Materials | p. 23 |
Finding the Right VC | p. 23 |
Finding a Lead VC | p. 25 |
How VCs Decide to Invest | p. 26 |
Closing the Deal | p. 28 |
Overview of the Term Sheet | p. 31 |
The Key Concepts: Economics and Control | p. 32 |
Economic Terms of the Term Sheet | p. 35 |
Price | p. 35 |
Liquidation Preference | p. 41 |
Pay-to-Play | p. 47 |
Vesting | p. 50 |
Employee Pool | p. 54 |
Antidilution | p. 55 |
Control Terms of the Term Sheet | p. 61 |
Board of Directors | p. 61 |
Protective Provisions | p. 63 |
Drag-Along Agreement | p. 68 |
Conversion | p. 70 |
Other Terms of the Term Sheet | p. 73 |
Dividends | p. 73 |
Redemption Rights | p. 75 |
Conditions Precedent to Financing | p. 77 |
Information Rights | p. 79 |
Registration Rights | p. 80 |
Right of First Refusal | p. 83 |
Voting Rights | p. 84 |
Restriction on Sales | p. 85 |
Proprietary Information and Inventions Agreement | p. 86 |
Co-Sale Agreement | p. 87 |
Founders' Activities | p. 88 |
Initial Public Offering Shares Purchase | p. 89 |
No-Shop Agreement | p. 90 |
Indemnification | p. 93 |
Assignment | p. 93 |
The Capitalization Table | p. 95 |
How Venture Capital Funds Work | p. 99 |
Overview of a Typical Structure | p. 99 |
How Firms Raise Money | p. 101 |
How Venture Capitalists Make Money | p. 102 |
How Time Impacts Fund Activity | p. 106 |
Reserves | p. 108 |
Cash Flow | p. 110 |
Cross-Fund Investing | p. 111 |
Departing Partners | p. 111 |
Fiduciary Duties | p. 112 |
Implications for the Entrepreneur | p. 112 |
Negotiation Tactics | p. 113 |
What Really Matters? | p. 113 |
Preparing for the Negotiation | p. 114 |
A Brief Introduction to Game Theory | p. 116 |
Negotiating in the Game of Financings | p. 118 |
Negotiating Styles and Approaches | p. 120 |
Collaborative Negotiation versus Walk-Away Threats | p. 123 |
Building Leverage and Getting to Yes | p. 124 |
Things Not to Do | p. 126 |
Great Lawyers versus Bad Lawyers versus No Lawyers | p. 129 |
Can You Make a Bad Deal Better? | p. 129 |
Raising Money the Right Way | p. 133 |
Don't Ask for a Nondisclosure Agreement | p. 133 |
Don't Email Carpet Bomb VCs | p. 134 |
No Often Means No | p. 134 |
Don't Ask for a Referral If You Get a No | p. 134 |
Don't Be a Solo Founder | p. 135 |
Don't Overemphasize Patents | p. 136 |
Issues at Different Financing Stages | p. 137 |
Seed Deals | p. 137 |
Early Stage | p. 138 |
Mid and Late Stages | p. 138 |
Other Approaches to Early Stage Deals | p. 139 |
Letters of Intent-The Other Term Sheet | p. 145 |
Structure of a Deal | p. 146 |
Asset Deal versus Stock Deal | p. 149 |
Form of Consideration | p. 151 |
Assumption of Stock Options | p. 152 |
Representations, Warranties, and Indemnification | p. 155 |
Escrow | p. 157 |
Confidentiality/Nondisclosure Agreement | p. 158 |
Employee Matters | p. 159 |
Conditions to Close | p. 160 |
The No-Shop Clause | p. 161 |
Fees, Fees, and More Fees | p. 162 |
Registration Rights | p. 163 |
Shareholder Representatives | p. 164 |
Legal Things Every Entrepreneur Should Know | p. 167 |
Intellectual Property | p. 167 |
Employment Issues | p. 169 |
State of Incorporation | p. 170 |
Accredited Investors | p. 170 |
Filing an 83(b) Election | p. 171 |
Section 409A Valuations | p. 172 |
Authors' Note | p. 175 |
Sample Term Sheet | p. 177 |
Sample Letter of Intent | p. 197 |
Glossary | p. 205 |
About the Authors | p. 213 |
Index | p. 215 |
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