Brad Feld and Jason Mendelson wrote Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist (Wiley, 2011) primarily for the entrepreneur who’s thinking about taking his start-up to the next level—accepting venture capital. It’s a hands-on book that goes a long way toward leveling the playing field between entrepreneurs and VCs. And no, the entrepreneur can’t fire his lawyer after reading this book, but at least he doesn’t have to be obsequious.
The authors focus on the term sheet, which is a summary document in contemplation of a financing. It has two key elements: economics and control. That is, what is “the return the investors will ultimately get in a liquidity event, usually either a sale of the company or an initial public offering”? And how much control can the VCs have over the company’s business decisions?
These questions would appear to be straightforward, but of course they’re not. The subheads in the chapter on the economic terms tell part of the tale: price, liquidation preference, pay-to-play, vesting, employee pool, and antidilution. And, trust me, even if you think you understand the concepts in the subheads, it gets a lot more complicated as you drill down.
Although the term sheet gets the lion’s share of the book’s attention, including a sample term sheet in an appendix, the authors also explore other areas vital to entrepreneurial success, such as negotiation tactics and raising money the right way.
All in all, if you are thinking about looking for outside capital for your business, you should definitely read this book. If you are a wannabe VC, it’s also important. I, who fall into neither category, found it a fascinating read.