Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist PDF
Preview Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
Contents Cover Title Page Copyright Dedication Foreword Preface Audience Overview of the Contents Additional Materials Acknowledgments Introduction: The Art of the Term Sheet Chapter 1: The Players The Entrepreneur The Venture Capitalist The Angel Investor The Syndicate The Lawyer The Mentor Chapter 2: How to Raise Money Do or Do Not; There Is No Try Determine How Much You Are Raising Fund-Raising Materials Due Diligence Materials Finding the Right VC Finding a Lead VC How VCs Decide to Invest Closing the Deal Chapter 3: Overview of the Term Sheet The Key Concepts: Economics and Control Chapter 4: Economic Terms of the Term Sheet Price Liquidation Preference Pay-to-Play Vesting Employee Pool Antidilution Chapter 5: Control Terms of the Term Sheet Board of Directors Protective Provisions Drag-Along Agreement Conversion Chapter 6: Other Terms of the Term Sheet Dividends Redemption Rights Conditions Precedent to Financing Information Rights Registration Rights Right of First Refusal Voting Rights Restriction on Sales Proprietary Information and Inventions Agreement Co-Sale Agreement Founders’ Activities Initial Public Offering Shares Purchase No-Shop Agreement Indemnification Assignment Chapter 7: The Capitalization Table Chapter 8: How Venture Capital Funds Work Overview of a Typical Structure How Firms Raise Money How Venture Capitalists Make Money How Time Impacts Fund Activity Reserves Cash Flow Cross-Fund Investing Departing Partners Fiduciary Duties Implications for the Entrepreneur Chapter 9: Negotiation Tactics What Really Matters? Preparing for the Negotiation A Brief Introduction to Game Theory Negotiating in the Game of Financings Negotiating Styles and Approaches Collaborative Negotiation versus Walk-Away Threats Building Leverage and Getting to Yes Things Not to Do Great Lawyers versus Bad Lawyers versus No Lawyers Can You Make a Bad Deal Better? Chapter 10: Raising Money the Right Way Don't Ask for a Nondisclosure Agreement Don't Email Carpet Bomb VCs No Often Means No Don't Ask for a Referral If You Get a No Don't Be a Solo Founder Don't Overemphasize Patents Chapter 11: Issues at Different Financing Stages Seed Deals Early Stage Mid and Late Stages Other Approaches to Early Stage Deals Chapter 12: Letters of Intent—The Other Term Sheet Structure of a Deal Asset Deal versus Stock Deal Form of Consideration Assumption of Stock Options Representations, Warranties, and Indemnification Escrow Confidentiality/Nondisclosure Agreement Employee Matters Conditions to Close The No-Shop Clause Fees, Fees, and More Fees Registration Rights Shareholder Representatives Chapter 13: Legal Things Every Entrepreneur Should Know Intellectual Property Employment Issues State of Incorporation Accredited Investors Filing an 83(b) Election Section 409A Valuations Authors’ Note Appendix A: Sample Term Sheet Appendix B: Sample Letter of Intent Glossary About the Authors Index Copyright 2011 by Brad Feld and Jason Mendelson. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572- 4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Feld, Brad. Venture deals : be smarter than your lawyer and venture capitalist / Brad Feld and Jason Mendelson. p. cm. Includes index. ISBN 978-0-470-92982-7 (hardback); 978-1-118-11862-7 (ebk); 978-1-118-11863-4 (ebk); 978-1-118-11864-1 (ebk) 1. Venture capital. 2. New business enterprises–Finance. I. Mendelson, Jason, 1971– II. Title. HG4751.F45 2011 332′.04154—dc22 2011014380
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