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Venture Deals: Understanding the Venture Capital Industry

Posted By Eric Anderson On March 25, 2012 @ 8:30 am In Business Books | 6 Comments

Venture DealsEverything that an entrepreneur wanted to know about venture capital but was afraid to ask.  Or maybe you are so lost, you don’t even know what questions to ask.  Term sheets? Accelerators? Convertible debt? When do you use a venture capital firm? All of these were topics completely foreign to me, until I picked up a copy of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist [1] at the local library.

All entrepreneurs need money to start and grow their business. But how are you going to get it? Bank? Friends? Begging on the street? I first learned about Venture Deals during a panel discussion on micro-VC efforts. The presenter said this would be a good starting point, and he was right.

The authors are a former lawyer (Jason Mendelson) and entrepreneur Brad Feld (@bfeld [2]). The best part about the book is that the terms and practices are explained in a way that is easy to understand by people who have never raised money using VC firms. Most paragraphs are summarized with “The Entrepreneur’s Perspective” – a simple explanation of what was just read and how it pertains to the entrepreneur.

The book opens with an overview of venture capital: who’s involved and how to raise money. These chapters do a good job of asking entrepreneurs questions they may not have thought of before:

  • How much money are  you going to need?
  • How do you find the right VC?
  • Who’s involved in raising money?

Then the deep dive begins: the term sheet. The term sheet is the first critical element of venture capital. For clarification and understanding, the authors divide it into four sections: the overview, the economic terms, the control terms and “other.” The Economic Terms illustrates the financial aspects of the term sheet. Control Terms describes how the VC is going to control their ownership of the company. Here the reader is introduced to: the Board of Directors, conversion and protective provisions, etc. The final Term Sheet section is the catchall for other legal and financial verbiage.

The process continues with chapters that explain the process from a higher view: how venture capital funds work, negotiation tactics, correctly raising money, and the stages of VC investing. The section “Negotiation Tactics” could have been a stand along book, but the authors do a good job of highlighting what’s important for the entrepreneur. This section expands on styles and simple Do and Do Not Do explanations.

Still lost in some of the wording? The authors even included a glossary and index to accompany the examples in the book. All of the bases are covered.

If you are interested AT ALL in raising money for your company, read this book. Even if you do not use a VC firm, READ THIS BOOK. Venture Deals is an easy to understand book that quickly gives you an understanding of the VC industry.


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URLs in this post:

[1] Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist: http://www.amazon.com/Venture-Deals-Smarter-Capitalist-Editions/dp/0470929820/ref=sr_1_1?s=books&ie=UTF8&qid=1331655404&sr=1-1

[2] @bfeld: http://www.twitter.com/bfeld