So, you’ve got your business plans, pitch deck, and awesome team ready to launch your startup. Think you’re ready to go? Your journey is just starting out, young grasshopper. Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist is an in-depth guide through the legal and financial maze that most startup owners aren’t prepared to face. Written by two experts with more than 40 combined years in the venture capital industry, the book points out the key terms and conditions to look for while signing contracts and moving closer to their dream.
What is Venture Deals About?
Venture Deals is the third edition of a book that started out as a blog intended to bring more transparency to the venture capital (VC) industry. The VC industry has its own terminology, best practices, and strategies that many people, including promising startups who are approached by venture capitalists, do not realize. The book starts with the basics, explaining how a VC firm is structured and how it invests.
Venture Deals then delves into the core topic of the book, the term sheet. For those not familiar with the word, a “term sheet” is like a golden ticket to Willy Wonka’s Chocolate Factory — from a startup’s point of view. It lays out the initial conditions for a venture capitalist or VC firm to invest in your startup dream. Getting this term sheet is a hard-fought battle, but it is the start of a longer war. That is the purpose of the latter part of the book, which focuses on the funding and negotiation concerns you may have down the road.
Beyond term sheets, Venture Deals exposes readers to the mind of a venture capitalist — or VC. The authors show what a venture capitalist looks for in a promising startup at each stage of funding. (Hint: it’s more than an awesome-looking pitch deck or Prezi presentation). Unlike the perception, startup financing is not like a fairytale where a “venture capitalist” waltzes in to save a promising startup. The promise is more nuanced, startup owners have more options, and conditions have more leeway than you might imagine. Venture Deals is a guide to understanding these nuances and options so you can achieve the most favorable arrangement to launch the start-up of your dreams.
Author Brad Feld is an experienced early-stage investor and entrepreneur with 25 years of experience in the industry. He co-founded Foundry Group with Jason Mendelson. Feld has also founded (or co-founded) several other businesses including Intensity Ventures, Feld Technologies and Mobius Venture Capital. Besides running businesses, he is also an avid marathon runner.
Co-author Jason Mendelson is a former startup lawyer, an adjunct law professor, and a co-founder of the Foundry Group. Mendelson previously served as managing director and Chief Administrator Office for Mobius Venture Capital. In addition, he is a hiker, musician and home remodeler.
What Was Best About Venture Deals?
Venture Deals deserves a lot of credit for attempting to break down the venture capital industry for the wide-eyed startup owner who still believes his or her startup is a billion-dollar unicorn in the making. While authors Feld and Mendelson don’t dash anyone’s dreams, they bring a much-needed practicality to the world of startups entrepreneurs will need to understand. The authors pull out key terms and concepts from the confusing legal and financial startup funding maze and take readers on a tour to show how the industry really works. In some cases, Venture Deals walks readers through every important paragraph of a document (like the term sheet).
What Could Have Been Done Differently?
Venture Deals, while extremely helpful and organized when focusing on the fundamentals, is not a book for everyone. Despite the authors’ attempts, it can be an intellectually daunting book if you don’t have some exposure to corporate finance. This isn’t a bad thing, but it is something readers may want to consider. If you know what terms like “convertible debt” and “vesting” mean, you should be fine.
Another issue is the balance of legal and financial information. The book is skewed more toward the financial side of things. More information on the legal issues in startup financing might be helpful.
Why Read Venture Deals?
As mentioned above, the venture capital industry is something most people know little about. Because of that lack of knowledge, people to believe in the hype. The authors take the time to gently bring entrepreneurs back to earth by explaining key issues a prospective startup company needs to understand. There aren’t too many books that do this kind of thing. Most startup books focus on the business strategy or marketing aspects of getting a new business off the ground. Venture Deals focuses on the less shiny, but all-important, legal and financing issues of building a startup.
This article, "Venture Deals Breaks Down the VC Industry for Entrepreneurs" was first published on Small Business Trends