Venture Deals audiobook cover - Be Smarter than Your Lawyer and Venture Capitalist

Venture Deals

Be Smarter than Your Lawyer and Venture Capitalist

Brad Feld and Jason Mendelson

★ 4.1 / 5(112 ratings)
Start ListeningDownload App
Categories:
Entrepreneurship

If You're Curious About These Questions...

You should listen to this audiobook

Listen to Venture Deals — Free Audiobook

Loading player...

Key Takeaways from Venture Deals

Learning Tools

Reinforce what you learned from Venture Deals

Mind Map

Venture Deals
Venture Capital Basics+
The Players+
The Term Sheet+
Preparation & Approach+
Negotiation Strategy+

Quiz — Test Your Understanding

Question 1 of 9
Why is venture capital often a more suitable funding strategy for start-ups than traditional bank loans?
  • A. Start-ups lack the long operational history necessary to secure funds on credit.
  • B. Bank loans require founders to give up board seats to bank executives.
  • C. Venture capitalists do not require equity or shares in the company.
  • D. Traditional banks typically charge higher interest rates than venture capitalists.
Question 2 of 9
When approaching a venture capital firm, who should entrepreneurs focus on reaching to secure a deal?
  • A. Analysts, because they do the initial vetting and draft the term sheets.
  • B. General partners, because they are at the top of the hierarchy and have the power to make decisions.
  • C. Associates, because they have the most time to review detailed business plans.
  • D. Limited partners, because they provide the actual funds to the venture capital firm.
Question 3 of 9
Why is it risky for an entrepreneur to partner with a venture capitalist who is near the end of their financing period?
  • A. The VC will demand a higher percentage of the company's equity to compensate for the time limit.
  • B. The VC might run out of money and be unable to make further investments in the company.
  • C. The VC will be forced to sell the start-up to a competitor to return funds to limited partners.
  • D. The VC's limited partners will take direct control of the start-up's board of directors.
Question 4 of 9
How do venture capitalists and entrepreneurs typically differ in their view of a company's valuation during negotiations?
  • A. VCs focus on premoney valuation, while entrepreneurs focus on postmoney valuation.
  • B. VCs focus on postmoney valuation, while entrepreneurs focus on premoney valuation.
  • C. VCs evaluate based on future projected revenue, while entrepreneurs evaluate based on past profits.
  • D. VCs exclude limited partner funds from the valuation, while entrepreneurs include them.
Question 5 of 9
According to the text, what constitutes a well-balanced board of directors for a start-up?
  • A. Three founders, one VC, and two limited partners.
  • B. One founder, three VCs, and one corporate lawyer.
  • C. Two founders/CEOs, two VCs without absolute veto power, and one outside board member.
  • D. Two founders/CEOs, one VC with absolute veto power, and two outside industry experts.
Question 6 of 9
What is a sign of an inexperienced or poor lawyer during venture deal negotiations?
  • A. They recommend walking away if the founders have to give up more than 50% equity.
  • B. They focus heavily on trivial details like patent rights rather than on money and ownership.
  • C. They work for a small, specialized law firm rather than a large, well-known company.
  • D. They insist on letting the venture capitalist draft the first version of the term sheet.
Question 7 of 9
When discussing your start-up with multiple potential investors to create competition, what should you absolutely avoid doing?
  • A. Mentioning that you are actively speaking with other venture capital firms.
  • B. Divulging the names of competing investors or sharing their drafted term sheets.
  • C. Letting the investors know that you have a strict limit on equity distribution.
  • D. Asking the investors about their timeline for receiving new funding.
Question 8 of 9
According to the book's advice on negotiation dynamics, who should draft the initial term sheet?
  • A. The entrepreneur, to anchor the valuation early and maintain control.
  • B. The start-up's lawyer, to ensure all patent rights and legal protections are secured.
  • C. The venture capitalist, because they might offer better terms than the entrepreneur would have realistically asked for.
  • D. An outside board member, to ensure complete neutrality in the financial agreement.
Question 9 of 9
How should an entrepreneur react if a venture capitalist says 'no' to investing?
  • A. Send a polite follow-up email asking for a referral to other investors in their network.
  • B. Accept the decision without taking it personally and move on to find the right investor.
  • C. Offer to lower the company's valuation by 20% to secure the deal.
  • D. Request a direct meeting with the venture firm's limited partners instead.

Venture Deals — Full Chapter Overview

Venture Deals Summary & Overview

Venture Deals offers insider insights into the mechanisms that govern venture capital deals as well as tricks that will help you get the most out of negotiations with investors. It lays out the nuts and bolts of venture capital deals in a way that is both easily understood and will give you an edge at the negotiations table.

Who Should Listen to Venture Deals?

  • First-time entrepreneurs who want to take their company to the next level
  • Experienced entrepreneurs who want to hone their negotiating skills
  • Anyone who needs financial resources to turn his or her great idea into a business

About the Author: Brad Feld and Jason Mendelson

Brad Feld and Jason Mendelson are early-stage investors and founders of the venture capital fund Foundry Group. Both have extensive experience with venture capital, and have made this experience accessible through stories and advice to other investors and entrepreneurs on their blog, askthevc.com.

 

© Brad Feld and Jason Mendelson: Venture Deals copyright 2013, John Wiley & Sons Inc. Used by permission of John Wiley & Sons Inc. and shall not be made available to any unauthorized third parties.

🎧
Listen in the AppOffline playback & background play
Get App