What is the main message of Venture Deals?

The main message of Venture Deals is understanding the intricacies of venture capital and the negotiation process.

Who is the author of Venture Deals?

Brad Feld and Jason Mendelson are the authors of Venture Deals.

Entrepreneurship

Venture Deals Book Summary - Venture Deals Book explained in key points

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Venture Deals summary

Name: Venture Deals
Rating: 4.1 (117 reviews)
Author: Brad Feld and Jason Mendelson

Brad Feld Jason Mendelson

Be Smarter than Your Lawyer and Venture Capitalist

4.1 (117 ratings)

21 mins

Brief summary

Venture Deals by Brad Feld and Jason Mendelson is a guide to the world of venture capital and startup financing. It offers valuable insights into negotiating term sheets and understanding the complex landscape of raising capital.

Topics

Venture Capital Investments Entrepreneurship

Table of Contents

Venture Deals
Summary of 9 key ideas

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Key idea 1 of 9

What’s in it for me? Use your newfound negotiating skills to take your company to the next level.

Each year countless start-ups spring into life all across the globe, and in today’s Information Age, many are innovative, internet driven enterprises. The opportunities for success in the tech world are enormous, and the potential for profits is almost limitless.

Yet, the risks are just as huge: most start-ups fail, meaning the time spent on an unsuccessful launch is time and resources squandered.

One of the biggest reasons for this failure is their inability to secure sufficient funding. For most start-ups, the traditional means of securing cash – such as bank loans – are simply out of reach. These blinks will show you how to bypass this hurdle altogether by raising venture funding.

In these blinks, you’ll learn all the tricks you need to find the right investor for your business, convince him that investing in your company is the right decision and get the best deal in the process.

After reading these blinks, you’ll know

that a good lawyer isn’t necessarily the most thorough;
why it’s always better to listen first and talk second; and
how knowing an investor’s vacation schedule can land you a better deal.

Venture deals are the perfect form of finance for start-ups.

Imagine that you’ve finally started putting your great business idea into action; you’ve founded your company and have a motivated team behind you. So what’s missing?

Right, you need money to have your breakthrough. But money doesn’t grow on trees. Where on earth are you going to find it? Many start-ups look to venture capital to find the money they need for success.

When entrepreneurs raise venture capital, they receive an influx of cash from an investor, called a venture capitalist (VC), in exchange for shares (and thus control) over the their companies.

While venture capital is a fairly uncommon funding strategy, for innovative start-ups with risky ideas it can be the most effective:

Start-ups lack the long operational history necessary to raise funds on credit, e.g., from a bank loan. Venture capital, in contrast, doesn’t require a company to be established, and therefore is perfect for start-ups.

Even some of today’s largest, most successful companies had humble beginnings that were jump-started by venture capital. Google, for example, got its first venture capital injection of $100,000 in 2000, two years after its founding. One year later it attracted another $25 million investment.

It was this huge investment that allowed Google to quickly expand to the point that it now has its own venture capital arm to invest in other new firms.

However, venture capital becomes complicated when it involves different people with different goals. Because venture capital is often raised with several financing rounds, companies have an opportunity to get multiple cash injections, but it comes at a cost:

It’s quite common for companies to be financed by multiple investors, which in turn means dealing with multiple shareholders, their interests and influence. Of course, they don’t all share the same goals.

For example, one shareholder might want to make a quick buck, and thus push for risky strategies and then sell his shares, whereas others play it safe and push for long-term gains.

There are many people involved in venture deals; always focus on the investors.

Imagine you are trying to get a venture deal: how many parties do you think are involved? A venture deal involves more than just the entrepreneur and VC. In fact, once all the lawyers, mentors and so on have been accounted for, there could easily be six or more people at the negotiating table.

Still, no matter how many people are involved, entrepreneurs should always focus their attention on the investors (the VCs).

Make sure you know how venture capital funds work.

If you want to make the most out of your relationship with venture capital, you’ll need to understand how it works.

Venture capital funds are complicated networks of investors, managing firms and companies, and the relationships among them are not always easy to understand. However, there are two insights into the structure of venture capital that are helpful for all entrepreneurs:

Successful venture deals all boil down to one thing: the term sheet.

Today’s investment world is full of intricacies, meaning that a simple handshake is no longer enough to ensure that everyone understands and adheres to an agreement. Nowadays, everything is recorded in term sheets, more or less standardized documents that summarize the financial agreements between the VC and entrepreneur.

The most important components of term sheets are the ones that involve money. Here, entrepreneurs must be aware of investors’ tricks and pay close attention to detail if they don’t want to end up losing a significant share of future returns.

Preparation is key when approaching a potential venture capitalist.

Before you take your great business to VCs in hopes of getting funding, you should first prepare a few things to avoid potential disaster:

Most obviously, make sure that you’ve prepared all your materials and presentations in a clear and compelling way.

A good lawyer acts as the buttress for successful deals.

You’re at the negotiating table with your investor, hammering out the details to your big break into the business world. You’re quite happy with the results so far, but your lawyer gets stuck on a trivial detail and starts behaving rudely. You begin to panic – not only because his rude behavior is embarrassing, but also because your aspirations seem to be going up in flames before your very eyes!

Obviously, you don’t have a good lawyer! A good lawyer will understand how to arrange and close an investment deal as well as how to keep the focus on the most important issues concerning money and control.

Negotiating isn’t easy – but with the right preparation, you’ve already won half the battle.

Imagine that you’re a young start-up approaching an experienced investor. As you enter her office, you feel nervous that you’ll make a mistake and lose her interest. After all, why should she listen to you anyway?

If you follow these steps, then you can rest assured that she'll listen and that you’ll get what you want!

Be shrewd but honest.

We negotiate every day – with our friends, family, significant others and even our coworkers. But often, we don’t think about how these decisions are actually made.

However, when it comes to business negotiations, you don’t have the luxury of being so laid back. Here are a few rules for when you’re sitting across from a potential investor at the negotiating table:

Beware of some easily made mistakes during negotiations.

As an entrepreneur, there’s a lot riding on the outcome of your negotiations with potential investors. Here are a few tips that will help you avoid some of the most common blunders:

If you don’t know what to do or say, then wait for them to act first. In fact, in the finance world, it’s better to react than to act! When you enter negotiations, no one knows exactly what the other wants, and it’s better to let the person on the other side of the table reveal her hand first.

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What is Venture Deals about?

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.

Venture Deals Review

Venture Deals (2012) by Brad Feld and Jason Mendelson is an essential read for anyone interested in understanding the world of venture capital and startup financing. Here are three reasons why this book stands out:

With its insider knowledge and expertise, it provides a comprehensive and practical guide to navigating the complexities of venture deals.
Real-world examples and case studies offer valuable insights into the negotiation process, helping readers gain a deeper understanding of the dynamics at play.
The authors' straightforward and honest approach makes the book relatable and engaging, ensuring that readers stay hooked from start to finish.

Best quote from Venture Deals

Fact: Between 3000 to 4000 companies are funded by venture capital each year in the US.

—Brad Feld and Jason Mendelson

Who should read 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 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.

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