Help take your startup to the next step with the new and revised edition of the popular book on the VC deal process--from the co-founders of the Foundry Group

How do venture capital deals come together? This is one of the most frequent questions asked by each generation of new entrepreneurs. Surprisingly, there is little reliable information on the subject. No one understands this better than Brad Feld and Jason Mendelson. The founders and driving force behind the Foundry Group--a venture capital firm focused on investing in early-stage information technology companies--Brad and Jason have been involved in hundreds of venture capital financings. Their investments range from small startups to large Series A venture financing rounds. The new edition of Venture Deals continues to show fledgling entrepreneurs the inner-workings of the VC process, from the venture capital term sheet and effective negotiating strategies to the initial seed and the later stages of development.

Fully updated to reflect the intricacies of startups and entrepreneurship in today's dynamic economic environment, this new edition includes revisions and updates to coverage on negotiating, gender issues, ICO's, and economic terms. New chapters examine legal and procedural considerations relevant to fundraising, bank debt, equity and convertible debt, how to hire an investment banker to sell a company, and more.

* Provides valuable, real-world insights into venture capital structure and strategy

* Explains and clarifies the VC term sheet and other misunderstood aspects of capital funding

* Helps to build collaborative and supportive relationships between entrepreneurs and investors

* Draws from the author's years of practical experience in the VC arena

* Includes extensively revised and updated content throughout to increase readability and currency

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist is a must-have resource for Any aspiring entrepreneur, venture capitalist, or lawyer involved in VC deals as well as students and instructors in related areas of study.

BRAD FELD has been an early stage investor and entrepreneur for over thirty years. Prior to cofounding Foundry Group, he cofounded Mobius Venture Capital and Intensity Ventures. He is also a cofounder of Techstars.

JASON MENDELSON has over twenty years experience in the venture capital and technology industries in a multitude of investing, legal, and operational roles. Prior to cofounding Foundry Group, Jason was a Managing Director and General Counsel for Mobius Venture Capital. He is also a cofounder of SRS/Acquiom.

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Praise For venture deals

"Every venture capitalist believes they know how to do venture deals. Jason and Brad, however, actually have deep knowledge and insight and are willing to share the details of how to get deals done right. While this book may not actually make you smarter than your lawyer (assuming you have a good one), it is an essential read for entrepreneurs, lawyers, and venture capitalists who want to be successful in a critical part of building a great company: raising money."
Eric Jensen, Partner, Cooley LLP

"One of the greatest lessons for entrepreneurs is to learn from others and take advice from trusted partners and experts. In Venture Deals, Jason and Brad offer entrepreneurs the gift of their experience and expertise over many years and hundreds of deals. Take it and run with it. What you will learn in this book will serve you well in every investment, legal, and banking conversation throughout your life as an entrepreneur. Your ideas and your passion will get you far, and having an insider's understanding of how to fund your ambitious goals will get you there that much faster."
Greg Becker, CEO, Silicon Valley Bank

"Having worked with Brad and Jason during the Internet bubble, I witnessed first-hand the experience they gained by doing deals that covered the entire range of issues an entrepreneur faces today. This is a must-read for both entrepreneurs and investors as it lets each side understand the terminology, structures, and potential issues inherent in venture deals so they can focus on what really matters, regardless of which side they are on. Every entrepreneur who is raising or considering raising venture capital should read this book!"
Heidi Roizen, Partner, DFJ

"Feld and Mendelson pack a graduate-level course into this energetic and accessible book. The authors' frank style and incisive insight make this a required read for high-growth company entrepreneurs, early stage investors, and graduate students. Start here if you want to understand venture capital deal structure and strategies."
Brad Bernthal, CU Boulder, Associate Professor of Law, Technology Policy, Entrepreneurial Law

"I've been lucky to have Brad and Jason as mentors on my journey from entrepreneur, to running Techstars Boston, to serving as the first investor to over 100 startups, and now as CEO of The Engine Fund. I give this book to all founders I back. Venture Deals is a fundamental resource for both entrepreneurs and venture capitalists."
Katie Rae, CEO and Managing Partner, The Engine

Inhalt

Foreword by Fred Wilson (3rd Edition) xi

Foreword by James Park (3rd Edition) xiii

Foreword by Dick Costolo (1st and 2nd Editions) xv

Preface xvii

Acknowledgments xxiii

Introduction: The Art of the Term Sheet 1

Chapter 1 The Players 3

The Entrepreneur 3

The Venture Capitalist 4

Financing Round Nomenclature 7

Types of Venture Capital Firms 9

The Angel Investor 10

The Syndicate 12

The Lawyer 13

The Accountant 14

The Banker 15

The Mentor 15

Chapter 2 Preparing for Fundraising 17

Choosing the Right Lawyer 17

Proactive versus Reactive 18

Intellectual Property 20

Chapter 3 How to Raise Money 23

Do. Or Do Not. There is No Try. 23

Determine How Much You are Raising 24

Fundraising Materials 26

Due Diligence Materials 32

Finding the Right VC 33

Finding a Lead VC 34

How VCs Decide to Invest 35

Using Multiple VCs to Create Competition 38

Closing the Deal 39

Chapter 4 Overview of the Term Sheet 41

The Key Concepts: Economics and Control 42

Chapter 5 Economic Terms of the Term Sheet 45

Valuation and Price 45

Employee Option Pool 47

Warrants 50

How Valuation is Determined 52

Liquidation Preference 54

Pay-to-Play 63

Vesting 66

Exercise Period 70

Antidilution 71

Chapter 6 Control Terms of the Term Sheet 77

Board of Directors 77

Protective Provisions 81

Drag-Along Agreement 85

Conversion 88

Chapter 7 Other Terms of the Term Sheet 91

Dividends 91

Redemption Rights 93

Conditions Precedent to Financing 95

Information Rights 97

Registration Rights 98

Right of First Refusal 100

Voting Rights 102

Restriction on Sales 102

Proprietary Information and Inventions Agreement 103

Co-Sale Agreement 104

Founders' Activities 105

Initial Public Offering Shares Purchase 106

No-Shop Agreement 107

Indemnification 110

Assignment 110

Chapter 8 Convertible Debt 113

Arguments for and Against Convertible Debt 114

The Discount 116

Valuation Caps 117

Interest Rate 119

Conversion Mechanics 119

Conversion in a Sale of the Company 121

Warrants 122

Other Terms 125

Early Stage versus Late Stage Dynamics …