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Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist Hardcover – Dec 26 2012


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Amazon.com: 97 reviews
119 of 119 people found the following review helpful
for what it promises it is good... but do you want what it promises? July 1 2013
By Harout Katerjian - Published on Amazon.com
Format: Hardcover Verified Purchase
I am a 2x entrepreneur who has raised over $20M in VC funding, so when i say this is a must-read IF you want to raise money I am speaking out of experience.
I wish I had this book in 2007, when I was trying to raise money. Terms like "double ratchet anti-dilution", "preferred", "participation", "vesting pool' or "liquidation events" were all terms that I was completely ignorant about. worst yet, our attorneys had to explain these to me, and at $750/hr it was a costly lesson. $30 for this book would have saved me $1,000's in legal fees, and hundreds of thousands in earnings.
Well, but now that i have read this book my long-held view about VCs is further perpetuated.
VCs are in the business to accomplish two things: (1) preserve their LP capital (i.e. don't lose money). and (2) earn outsized earning to makeup for all the duds (i.e. take everything you can).

Note, "make the entrepreneur lots of money" is not on the list. This is something that the authors and most VCs, including Mark Suster on his talks/blogs will confirm this. As an entrepreneur you end up working for the VCs and will get wealthy if your company ends up being one of the 0.01% of VC companies that have very successful exits. If your company does just "great", or "OK" then expect to earn nothing from the exit - while the VC will walkaway with 2x to 5x of the investment.
This is not a bad thing if you expect to be in the 0.01%, but as that number indicates - it's not likely.

so lets look at the main two things covered in this book that describe how VCs make money:

VCs get their money from pension funds, alternative asset funds, government organizations, and basically any large sources of capital that is looking for risk-adjusted better-than-average returns. these are the clients of VCs and these are the folks they are accountable to. So if they don't produce the expected returns, or worse yet lose their capital they won't be in business for too long.
To increase the odds of staying in business they do two things:
(a) push the risk to the entrepreneur and all the "common" investors - do you own "common stock" or "preferred stock"? 'nough said.
(b) make the ownership disproportionate to the proceeds of liquidation - meaning, if the ownership is split 50/50 between the founder and the VC then during the sale most of the proceeds (60% to 80%) will go to the VC.

this is done by instruments like "preferred class", "full participation", "anti-dilution" and other similar means that create asymmetry in risk/reword. Just read chapters 4 and 5 of the book if you need to see examples.
BTW: Does this sound familiar? we had a similar situation in the financial crisis of 2008. Banks created asymmetry in the housing market where they held disproportionate amount of the reword while the risk was pushed out to the homeowner and rest of the economy.

So, if as an entrepreneur and you have created a business that is cashflow-positive, and has a great product and market opportunity then think twice about the VC option. There are many other ways to raise money - loans, venture debt, private equity, and good ol' sales...
Granted, this might not be the fastest way to grow your company and presents the risk of being overtaken by a well-funded company. But if you know that the market is big enough for more then one player (even if you're #2), and you want to keep a larger amount of your hard-earned money and reduce the influence of VCs then think twice about the VC option.

But if you think your company is the next Facebook or Google then go for it. However, most founders endup working in "indentured servanthood" to VCs because they end up relinquishing control and ownership of the company while working long hard hours for little pay.

Buy this book. Read it. Explore all your capitalization options. Weigh the costs and benefits. But whatever you decide make sure to focus on creating a kick-a$$ products for a kick-a$$ markets more so then about raising money. If you have a great company money will find you.
Hope this helps your decision process.
101 of 106 people found the following review helpful
Beware the Crocodiles May 20 2013
By Whippet - Published on Amazon.com
Format: Hardcover
Feld's book covers most of the issues in a vanilla VC term sheet. It's decently written, and Feld is good at explaining the concepts involved.

But don't be misled: this is a book written by a VC. You should be cautious. Feld's in business to find and sign entrepreneurs, and it's in his interest to set your expectations low and make himself and his peers look harmless. VCs love entrepreneurs who "go along to get along". After all, the VC wants control of your company (for his minority stake) plus as much of your company as he can grab. He'll want the option pool to come out of your end. And those "independent" directors? They'll usually be pals of the VC, or hoping for a job from the VC. In other words, when the crunch comes, they'l side with the VC. Which is why the VC is always happy to have independents on the board. VCs take control of companies through many subtle techniques. Don't be a schmuck and wake up having made them rich while you toil to vest stock in your own company.

There are many blogs written by VCs, each offering "helpful" advice for entrepreneurs. Beware! VCs are not in business to serve you. They serve their LPs. Entrepreneurs are disposable. You are not their customer. They don't work for you--but you may end up working for them.

Remember that.

Be careful when the crocodile tells you how to cross the river.

_________________________________________

My credentials: former VC and have run VC-backed software companies.
14 of 14 people found the following review helpful
MUST READ for Startups Jan. 6 2013
By Justin M. - Published on Amazon.com
Format: Hardcover
The first edition of this book was suggested to me by a member of our advisory board and I don't know where I would be without it. In the first thirty pages I was able to dodge a few bullets, validate some things I had already been doing, and most importantly, begin to understand the ins and outs of venture capital financing.

Take it from someone in the middle of a funding round, Brad and Jason are at the TOP of the VC world and are widely respected. Reading this book is how I imagine a mentorship with Brad and Jason would be. What's best about it is the information is conveyed in a conversational way such that it is very easy to remember and act upon, even in the most intense meetings with prospective VCs. It's like they are sitting there with you (on your side of the table) whispering things in your ear like "Don't forget to ask about recent deals" and "You've done a lot of work, push for a 25% vesting," or maybe even "This guy's a zombie, bail out!"

This is a MUST READ for anyone seeking financing for a startup, and a pretty good idea for anyone that wishes to speak intelligently about the world of tech in general. Fundraising is among the most critical responsibilities of a CEO. You basically never stop fundraising, and even if you manage to bootstrap to glory, you will still need to discuss the matters of finance explained in this book with every strategic partner, industry heavyweight, and potential acquirer you meet (not to mention sizing up the strength of the competition and their partners).

Get it. Get it now. You'll be glad you did.
3 of 3 people found the following review helpful
A necessity for any startup founder Nov. 7 2013
By Amazon Junky - Published on Amazon.com
Format: Kindle Edition Verified Purchase
I read this book several months ago as I was planning my startup's trajectory; and I now recommend it to anyone who is even considering a startup and asks me, "so what do you do about financing?" There are parts of this book you may not need, but everyone who plans to seek outside investment needs to read this and have it ready for reference.

The book is short, to the point, packed with practical wisdom; and delivered with humility and and a sense of humor.

You'd be doing yourself a disservice as a founder to ignore this book.
5 of 6 people found the following review helpful
I love sharing this book Dec 31 2012
By Norris Krueger - Published on Amazon.com
Format: Hardcover
Sorry to hear that the reviews from the first edition didn't transfer here but the original was terrific. I've given away several copies to people interested in understanding how the funding game works.. really.

I have also recommended it as a text for entrepreneurship classes and I'd definitely use it myself. (Gee, do I adopt a formal text at $100+ or this book that students will use long after the class?)

I did like the "Do It Faster" book even more ;) but "Venture Deals" is one that if I had a public office, I'd probably have to chain to my desk as I could count on people perusing it then, um, "borrowing" it. :)

It's written in such common-sense plain-English that you might underestimate the value but isn't that exactly what we need? (I remember Brad arguing for [and proposing] a standard term sheet that covered all the key points.) Sometime legalese is arcane for good reason but.. not always.

Anyway, definitely one of my top 2 books relating to venture finance. Thanks, Brad (and Jason and Jim)


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