Venture Deals is a book that explains the journey of modern deal flow from fundraising through acquisition. Practical matters like the different players in a deal and their motivations are discussed. Term sheets and capitalization tables are explained. There’s also sections about financing issues and legal matters. This book consistently ranks as Amazon.com’s #1 Bestseller about venture capital. Venture Deals, by TechStars co-founder Brad Feld and Foundry Group co-founder Jason Mendelson, is the book I recommend for anybody interested in venture capital. Every founder needs to read this book before seeking investors or applying for funding.
How To Raise Money The Right Way
Seeking a round of financing should result in several term sheets, according to Venture Deals. Getting those term sheets involves determining how much to raise and preparing materials for fund-raising and due diligence. Dealing with venture capitalists requires finding the right investor, finding a lead investor, and understanding how investors decide. Convertible debt and the structure of venture capital funds have implications for the entrepreneur. Finally, there’s the matter of actually closing the deal. All of this is explained in the book. Also discussed are common fundraising issues, negotiating tactics, legal things every entrepreneur should know, and professional ethics.
The participants in a venture capital deal exceed just the entrepreneur and investor. Venture Deals describes the “experience, motivation, and relative power of each participant in a financing.” There’s founders, venture capitalists, angel investors, syndicates, lawyers, and mentors. Venture capital firms themselves often have general partners, junior partners, operating partners, associates, analysts, and entrepreneurs-in-residence. Syndicates are groups of investors. All of these people can affect a deal.
Term Sheets & Capitalization Tables
Term sheets are explained across four chapters, along with a sample term sheet as an appendix. A brief overview describes this most elusive document that describes the relationship between startup and investor. Economics and control, the two primary components of a financing, each get their own chapter. Miscellaneous details are described. Terms, provisions, and their overall impact are all explained. The capitalization table (“cap table”) gets its own chapter summarizing this spreadsheet of “who owns what part of the company before and after the financing.”
Letters of Intent
Letters of intent are described separately in Venture Deals. This special type of term sheet results as part of an acquisition. Letters of intent have special structure, can involve both assets and stock, have unique legal details, often involve long-term escrow, and are particularly important to employees of a company being acquired. Employees of startups should read this chapter to understand how their stock options are handled in the event of an acquisition. The value of an acquisition for employees is affected by matters like whether the deal is an asset deal versus stock deal, assumption of stock options, and shareholder representatives.
Modern Venture Capital
I’ve described this book as about “modern venture capital” because the dynamics of deal flow continues to evolve. Details like stock vesting, pooling of interests, convertible debt, and founder-favorable participation kick-out rights have changed significantly since the dot-com era. Even more changes have occurred in just the last few years. The second edition of Venture Deals was published within the last two years, contains accurate information about what’s normal in modern deals, and remains relevant on the subject of modern venture capital.
About The Authors
Brad Feld and Jason Mendelson are both co-founders and managing directors of Foundry Group, a Boulder, Colorado-based early stage venture capital fund. Brad Feld is also a co-founder of TechStars. Throughout Venture Deals, sidebar comments are also provided by Return Path CEO Matt Blumberg. His comments are practical matters relevant to startup founders and entrepreneurs as they work their way through a deal.
I Recommend Venture Deals
Every founder needs to read Venture Deals before seeking investors or applying for funding. This book is also important for employees of startups to understand stock options and ability to get rich from an acquisition. Venture Deals is the book I recommend for anybody interested in understanding modern venture capital.