This is a summary review of Venture Deals containing key details about the book.

What is Venture Deals About?

“Venture Deals” by Brad Feld and Jason Mendelson provides an in-depth guide to the venture capital industry and helps entrepreneurs navigate the venture capital fundraising process. (Full Summary…)

Venture Deals Summary Review

“Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” serves as an indispensable guide to navigating the intricate landscape of venture capital deals, co-authored by Brad Feld and Jason Mendelson. This fourth edition, available in Kindle format, caters to the needs of entrepreneurs seeking a comprehensive understanding of the venture capital (VC) deal process.

Feld and Mendelson, co-founders of the Foundry Group, bring a wealth of practical experience to the table, having been involved in numerous venture capital financings, ranging from small startups to substantial Series A financing rounds. The book addresses a perennial question among budding entrepreneurs: how do venture capital deals come together? In response, the authors unravel the complexities of the VC process, demystifying the venture capital term sheet and offering effective negotiating strategies, from initial seed funding to later stages of development.

This updated edition is a timely response to the dynamic economic environment of today’s startup ecosystem. The revisions and updates encompass an array of topics, including negotiating tactics, gender issues, Initial Coin Offerings (ICOs), and economic terms. New chapters delve into legal and procedural considerations related to fundraising, covering aspects like bank debt, equity, convertible debt, and the engagement of investment bankers in selling a company.

The book serves as a valuable resource for fledgling entrepreneurs, venture capitalists, and legal professionals engaged in VC deals. Its real-world insights into venture capital structure and strategy distinguish it from other literature in the field. Throughout the book, the authors clarify misconceptions surrounding the VC term sheet, presenting complex concepts in an accessible manner.

Feld and Mendelson emphasize the importance of fostering collaborative and supportive relationships between entrepreneurs and investors. Drawing from their practical experience in the VC arena, they provide a nuanced perspective that reflects the evolving nature of startup culture.

The inclusion of endorsements from entrepreneurs, such as Matt Blumberg (CEO of Bolster), adds credibility to the authors’ insights. Blumberg’s comments highlight the book’s accessibility, making it an invaluable resource for young entrepreneurs striving to comprehend the intricacies of the venture landscape.

The book’s global relevance is evident in reviews from readers outside the United States, such as a trainee solicitor in Hong Kong who found the content applicable and useful in understanding pre-IPO investment sections in Hong Kong prospectuses.

“Venture Deals” stands out for its concise chapters that make complex investment and legal terminology digestible. The book’s practicality is further underscored by its ability to serve as a reference guide, offering readers the flexibility to revisit specific sections as needed.

Essentially, “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” is a must-read for anyone entering the realm of startups and venture capital. Its blend of theory, practical insights, and global perspectives positions it as a timeless resource in an ever-evolving entrepreneurial landscape.

Who is the author of Venture Deals?

Brad Feld is an American entrepreneur, author, blogger, and venture capitalist at Foundry Group in Boulder, Colorado, a firm he started with partners Seth Levine, Ryan McIntyre, and Jason Mendelson. Feld began financing technology startups in the early 1990s, first as an angel and later an institutional investor.

Jason Mendelson is a venture capitalist, startup co-founder, general counsel, and software engineer. Today he is an author, musician (under the name Jace Allen), philanthropist, and is very active in the criminal justice reform ecosystem.

How long is Venture Deals?

• Print length: 219 pages

What genre is Venture Deals?

Business, Entrepreneurship, Finance

What are good quotes from Venture Deals?

“Failure is a key part of entrepreneurship, but, as with many things in life, attitude impacts outcome”

“as you’ll learn, there really are only two key things that matter in the actual term sheet negotiation—economics and control.”

“What’s wrong with getting great terms? If you can’t back them up with performance when you raise your next round, you may find yourself in a difficult position with your original investor. For example, assume you are successful getting a valuation that is significantly ahead of where your business currently is. If your next round isn’t at a higher valuation, you are going to be diluting your original shareholders—the investors who took a big risk to fund you during the seed stage. Either you’ll have to make them whole or, worse, they’ll vote to block the new financing. This is especially true in cases with unsophisticated seed investors who were expecting that, no matter what, the next round price would be higher.”

“In 1957, the venture capital industry was just being created. At the time, the investor community in the United States was uninterested in investing in computer companies, as the last wave of computer-related startups had performed poorly and even large companies were having difficulty making money in the computer business. We can envision the frustration of DEC’s cofounders, Ken Olson and Harlan Anderson, as the investors they talked to rejected them and their fledgling idea for a business. We can also imagine their joy when Georges Doriot, the founder of American Research and Development Corporation, offered to fund them. After a number of conversations and meetings, Doriot sent Olson and Anderson a letter expressing his interest in investing, along with his proposed terms. Today, this document is called the term sheet.”

“In either case, before you jump through hoops providing this information, make sure a partner-level person (usually a managing director or general partner) is involved and that you aren’t just the object of a fishing expedition by an associate.”

“There are only a few key things most VCs look at to understand and get excited about a deal: the problem you are solving, the size of the opportunity, the strength of the team, the level of competition or competitive advantage that you have, your plan of attack, and current status. Summary financials, use of proceeds, and milestones are also important. Most good investor presentations can be done in 10 slides or fewer.”

“The only thing that we know about financial predictions of startups is that 100 percent of them are wrong. If you can predict the future accurately, we have a few suggestions for other things you could be doing besides starting a risky early stage company. Furthermore, the earlier stage the startup, the less accurate any predications will be. While we know you can’t predict your revenue with any degree of accuracy (although we are always very pleased in that rare case where revenue starts earlier and grows faster than expected), the expense side of your financial plan is very instructive as to how you think about the business. You can’t predict your revenue with any level of precision, but you should be able to manage your expenses exactly to plan. Your financials will mean different things to different investors. In our case, we focus on two things: (1) the assumptions underlying the revenue forecast (which we don’t need a spreadsheet for—we’d rather just talk about them) and (2) the monthly burn rate or cash consumption of the business. Since your revenue forecast will be wrong, your cash flow forecast will be wrong. However, if you are an effective manager, you’ll know how to budget for this by focusing on lagging your increase in cash spend behind your expected growth in revenue.”

“Most contemporary option plans have provisions whereby all granted options fully vest immediately prior to an acquisition should the plan and/or options underneath the plan not be assumed by the buyer. While this clearly benefits the option holders and helps incentivize the employees of the seller who hold options, it does have an impact on the seller and the buyer. In the case of the seller, it will effectively allocate a portion of the purchase price to the option holders. In the case of the buyer, it will create a situation in which there is no forward incentive for the employees to stick around since their option value is fully vested and paid at the time of the acquisition, resulting in the buyer having to come up with additional incentive packages to retain employees on a going-forward basis. Many lawyers will advise in favor of a fully vesting option plan because it forces the buyer to assume the option plan, because if it did not, then the option holders would immediately become shareholders of the combined entities. Under the general notion that fewer shareholders are better, this acceleration provision motivates buyers to assume option plans. This theory holds true only if there is a large number of option holders. In the past few years we’ve seen cases where”

“Outside board members are usually compensated with stock options—just like key employees—and are often invited to invest money in the company alongside the VCs.”

“A lot of people rely on the same arguments over and over again when negotiating. People who negotiate regularly, including many VCs and lawyers, try to convince the other side to acquiesce by stating, “That’s the way it is because it’s market.” We love hearing the market argument because then we know that our negotiating partner is a weak negotiator. Saying that “it’s market” is like your parents telling you, “Because I said so,” and you responding, “But everyone’s doing it.” These are elementary negotiating tactics that should have ended around the time you left for college.”

“If you feel like your VC is a proctologist, run for the hills.”

“When we meet people who say they are “trying to raise money,” “testing the waters,” or “exploring different options,” this not only is a turnoff, but also often shows they’ve not had much success. Start with an attitude of presuming success. If you don’t, investors will smell this uncertainty on you; it’ll permeate your words and actions.”