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Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, 4th Edition




Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, 4th Edition

Brad Feld, Jason Mendelson

ISBN: 978-1-119-59484-0 August 2019 368 Pages

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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.

Fred Wilson

Dick Costolo

James Park



Introduction: The Art of the Term Sheet

Chapter 1: The Players

The Entrepreneur

The Venture Capitalist

Financing Round Nomenclature

Types of Venture Capital Firms

The Angel Investor

The Syndicate

The Lawyer

The Accountant

The Banker

The Mentor

Chapter 2: Preparing for Fundraising

Choosing the Right Lawyer

Proactive Versus Reactive

Intellectual Property

Chapter 3: How to Raise Money

Do or Do Not—There Is No Try

Determine How Much You Are Raising

Fundraising Materials

Due Diligence Materials

Finding the Right VC

Finding a Lead VC

How VCs Decide to Invest

Using Multiple VCs to Create Competition

Closing the Deal

Chapter 4: Overview of the Term Sheet

The Key Concepts: Economics and Control

Chapter 5: Economic Terms of the Term Sheet

Valuation and Price

Employee Option Pool


How Valuation Is Determined

Liquidation Preference



Exercise Period


Chapter 6: Control Terms of the Term Sheet

Board of Directors

Protective Provisions

Drag-Along Agreement


Chapter 7: Other Terms of the Term Sheet


Redemption Rights

Conditions Precedent to Financing

Information Rights

Registration Rights

Right of First Refusal

Voting Rights

Restriction on Sales

Proprietary Information and Inventions Agreement

Co-Sale Agreement

Founders’ Activities

Initial Public Offering Shares Purchase

No-Shop Agreement



Chapter 8: Convertible Debt

Arguments for and Against Convertible Debt

The Discount

Valuation Caps

Interest Rate

Conversion Mechanics

Conversion in a Sale of the Company


Other Terms

Early-Stage versus Late-Stage Dynamics

Can Convertible Debt Be Dangerous?

An Alternative to Convertible Debt

Chapter 9: The Capitalization Table

Price Per Share with Convertible Notes

Pre-Money Method

Percentage-Ownership Method

Dollars-Invested Method

Chapter 10: Crowdfunding

Product Crowdfunding

Equity Crowdfunding

How Equity Crowdfunding Differs

Token Crowdfunding

Chapter 11: Venture Debt

The Role of Debt versus. Equity

The Players

How Lenders Think about Loan Types

Economic Terms

Amortization Terms

Control Terms

Negotiation Tactics

Restructuring the Deal

Chapter 12: How Venture Capital Funds Work

Overview of a Typical Structure

How Firms Raise Money

How Venture Capitalists Make Money

How Time Impacts Fund Activity


Cash Flow

Cross-Fund Investing

Departing Partners

Corporate Venture Capital

Strategic Investors

Fiduciary Duties

Implications for the Entrepreneur

Chapter 13: Negotiation Tactics 

What Really Matters?

Preparing for the Negotiation

A Brief Introduction to Game Theory

Negotiating in the Game of Financings

Negotiations Other Games

Negotiating Styles and Approaches

Collaborative Negotiation versus Walk-Away Threats

Building Leverage and Getting to Yes

Things Not to Do

Great Lawyers versus Bad Lawyers versus No Lawyers

Can You Make a Bad Deal Better?

Chapter 14: Raising Money the Right Way

Don’t Be a Machine

Don’t Ask for a Nondisclosure Agreement

Don’t Email Carpet Bomb VCs

No Often Means No

Don’t Ask for a Referral if You Get a No

Don’t Be a Solo Founder

Don’t Overemphasize Patents

Don’t Be Silent if You Witness Bad Behavior

Chapter 15: Issues at Different Financing Stages

Seed Deals

Early Stage

Mid and Late Stages

Chapter 16: Letters of Intent—The Other Term Sheet

Structure of a Deal

Asset Deal versus Stock Deal

Form of Consideration

Assumption of Stock Options

Representations, Warranties, and Indemnification


Confidentiality/Nondisclosure Agreement

Employee Matters

Conditions to Close

The No-Shop Clause

Fees, Fees, and More Fees

Registration Rights

Shareholder Representatives

Chapter 17: How to Engage an Investment Banker

Why Hire an Investment Banker?

How to Choose an M&A Advisor

Negotiating the Engagement Letter

Helping Your Banker Maximize the Outcome

Chapter 18: Why Do Term Sheets Even Exist?

Constraining Behavior and the Alignment of Incentives

Transaction Costs

Agency Costs and Information Asymmetry

Reputation Constraints

Chapter 19: Legal Things Every Entrepreneur Should Know

Intellectual Property

Employment Issues

State of Incorporation

Type of Corporate Structure

Accredited Investors

Section 409A Valuations

(83)b Elections

Founders’ Stock

Consultants versus Employees

Compensating Service Providers



Author’s Note

Appendix A: Sample Term Sheet

Appendix B: Foundry Group Term Sheet

Appendix C: Sample Letter of Intent

Appendix D: Additional Resources


About the Authors


Excerpt from Startup Communities