Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist Hardcover – Aug 2 2011
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"...offers hard-headed advice on dealing with lawyers and venture capitalists, so you can make the right decisions for you and your business..." (FT.com, 30th January 2012)
"Long term horizons, coupled with clear analysis in the book, provide a clear understanding and historical perspective into financial crises" (Ad-Hoc-News, November 2011)
"Easily the best book I have ever read on start-ups and venture capital."
—Tim Ferriss, author of #1 NY Times Bestsellers, The 4-Hour Workweek and The 4-Hour Body
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Alan Smithson, CEO
Most Helpful Customer Reviews on Amazon.com (beta)
I'm CEO of a tech company based in Silicon Valley, and I've been reading Brad's blog for a long time.
I wasn't sure how much new information the book would provide -- after all, just following the blogs of top Valley-based entrepreneurs and VCs provides a wealth of information (Brad Feld, Fred Wilson, Steve Blank, Mark Suster, pmarca, Sean Ellis, Ben Horowitz -- the list goes on)
But the book delivers in a few key areas: First off, Brad & Jason break down the entire process from soup to nuts. That's great for first-time entrepreneurs. I wouldn't be surprised if this book became the bible of startup incubator programs. There's enough detail to make it feel fresh, but it's not so dense that it's hard to get through. I would suggest a re-read though, especially if you're completely new to fundraising (like Dick Costolo says in the forward, if you don't know preferred stock from chicken stock).
The real value for more experienced entrepreneurs lies in the nuances of the fundraising process. If you've been through it before, you know that one misstep can be very costly, and there's absolutely a "code" to follow. Its described eloquently as VCs looking to do deals with those who can speak their language. So consider this a way to get fluent in that language, so you can focus on what's important to you, instead of junior mistakes.
For those looking to raise an angel round only: I've written a series of blog posts about our experience raising $1MM for our statup. The raise took us 14 weeks, and my goal is to help other entrepreneurs do it more quickly and efficiently. You can read about my "Fundraising Cribsheet Manifesto" at [...] . Hope it's helpful, and good luck!
Part of that, clearly, is the track record. I think another part of it, however, is just the world of VC. The actual VCs are so busy that they just don't have time to give a whole education to the founders of the companies that are seeking funding. They want to deal with someone who speaks their language.
That's why this book is so useful. Any reader who really gets immersed in every page won't be able to help but emerge from the experience with an imprint of the language of VC. If you really read it, you'll have the advantage of at least sounding like an insider, someone who really has the language down. If you have the language down, well, that's the crucial first step.
If you were thinking of moving to, say, Portugal for more than five years, you'd probably buy a book and really try to learn some Portuguese before you go and keep it with you there. If you really want to get some VC, you are going to live in that world for at least five years. This is the book you need to read and study over and over for your journey.
I have been extraordinarily fortunate throughout my career to have been blessed with amazing mentors. Men like Will Harvey and Steve Blank have been there to help me, encourage me, and push me to do better. For any entrepreneur, these super-mentors are one of the secret weapons that can make a difference: answering difficult questions, making key introductions, or offering sage advice.
However, there is one thing that the best mentors do which is most important: they can help you figure out what the $@%@$ is going on. When things get really tricky, often we find ourselves asking the wrong questions, or not even knowing enough to ask.
When raising money, for example, you might think that most negotiations happen in a rational way, over just a few deal points that have a clear meaning. You might think that "company valuation" refers, naturally, to how much your company is - you know - valued. But this kind of thinking will get you in trouble fast. Because in reality, these negotiations hinge on hundreds of hidden factors, incentives, and sources of agency bias. Nothing is straightforward, especially if you haven't done it before. These are the moments when the truly great mentors stand out in their ability to cut through the BS and help you understand the motivations and systems that are driving seemingly incomprehensible behavior.
All of this is by way of saying that if you already have a mentor of the caliber of a Steve Blank or Brad Feld on speed-dial, you probably don't need to read Brad's new book Venture Deals.
What's that you say? You don't - or you're not sure? Well then, you absolutely, positively, without-any-doubt have to read Brad's new book Venture Deals.
When I received my advance copy, I was a little worried. I generally try and stay away from topics like "how to raise VC" or "how to sell your company" because the startup landscape is already saturated with tips and tricks. And reading a term sheet has all the entertainment value of watching dried paint get even drier.
But Venture Deals is quite a surprise: it's readable, engaging, and addresses issues way below the surface.
It is not a how-to manual or a collection of tips. It's an in-depth explanation of what the @$%$ is going on when an entrepreneur considers raising money or doing an M&A transaction. And even if you don't think you're going to do that for your startup, this is very valuable information to have - because you never know who might approach you in the future. This is a book you'll want to have handy, just in case.
I've dealt with a bunch of different kinds of investors over the years, from so-called "dumb money" all the way up. The hardest thing to understand when working with them is that they are subject to forces and incentives that are rarely disclosed openly. When I came to Silicon Valley, I was inducted into a body of accumulated wisdom about how to handle them. This is the same advice I hand down again to entrepreneurs who are seeking my counsel. That advice is completely consistent with what's contained in Venture Deals.
For example, the right way to think about a term sheet is as a negotiation over just two things: economics and control. Everything in a term sheet is negotiable - if and only if you already have sufficient leverage. (Do you know the sources of leverage in a VC deal? Wouldn't you like to?) There are many founder-friendly terms you can push for, from automatic acceleration to reduced vesting - but each risks reducing the alignment of interests between founders and investors. And even if you're an old pro at raising money, you're likely to find a few surprises in here. Are you sure you know the formula for how your VC reserves capital for your future rounds (I didn't)?
And even the most battle-tested entrepreneur would be forgiven if they were a little confused by the following bit of poetry in a term sheet:
"Antidilution Provisions: The conversion price of the Series A Preferred will be subject to a narrow-based weighted average adjustment to reduce dilution in the event that the Company issues additional equity secuities..."
Now even though us old pros know that there are different kinds of antidilution provisions, are you absolutely sure you remember which one is the good kind and which is the horrible kind that caused all those problems in 2001? Are you sure your lawyer will catch it if the formula isn't quite right? Wouldn't you rather be sure? I've lived through a crisis where a company's antidilution provisions kicked in and nobody could agree on how the formula was to be interpreted. I wish I'd had this book on my shelf back then.
Which brings me back to my claim at the top about having a super-mentor in book form. Venture Deals explains not just what to do but why it works that way. Every VC term sheet I've ever seen has come with a claim that its terms are all "entirely standard" and "as simple as possible" - whether it was one page or a dozen pages long. That can be frustrating, but what do you do about it? Which terms really are standard for good reasons, which are standard for bad reasons, and which are just gotchas designed to skew the negotiation?
Venture Deals has negotiating tips, same as other books, but - much, much more importantly - its negotiating section is called What Really Matters? When you're in the thick of it, only a truly great mentor can tell you which provisions are negotiable, which are negotiable-but, and which are really non-negotiable. ("negotiable-but" means you can possibly win that fight, but it will damage your reputation in the process.)
Now, it's important to keep in mind that Brad and Jason are themselves VC's, albeit ones with an entrepreneur-friendly reputation. So you always have to take their advice - like anyone's - with a grain of salt. But they've thought of that, too. Throughout the book, they've given space for brief commentaries by an experienced entrepreneur, Matt Blumberg, CEO of Return Path. In several places he gives an important counterpoint to Brad and Jason's perspective. It's a combination that is unique to this book.
I hope all of you who are reading this - no matter where you live, no matter what kind of company you have - will one day get to make the pilgrimage to Sand Hill Road in Silicon Valley, or another famous startup hub. It's an exhilarating experience. But it's not without its risks. As the old saying goes, "watch your wallet." And bring your copy of Venture Deals.
A super read and resource.
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