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). 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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I learned of the book from an interview with the author on NPR (National Public Radio). The examples Eric intrigued me so much, that I ordered my own copy from Amazon. The author can be followed through twitter at @ericries. His website is Startup Lessons Learned.

Unlike some entrepreneurs, Eric Ries does not list his suggestions as a “color by numbers” book. His experiences are less a road map and more of a guideline that can be applied to any startup. His is a self described execution of the scientific method (Hooray for scientists and engineers!). The Lean StartUp company creates new products and services under conditions of extreme uncertainty. As you read the book, you’ll see how his methods are different than how most companies operate today. However, those differences will spur you on to read it and apply his principles

The Process Has Changed

Companies used to take years to manufacture products. Market research and development, factory construction, staffing and finally manufacturing. Startups (technology or otherwise) cannot operate in this slow, linear manner. They must be agile and operate in a constant “feedback loop.” The “Build-Measure -Learn” loop starts with this format:

1. Have an IDEA and know how you will test its success. This is the foundation of your startup or company. In this step, the hypothesis is formed. Begin with the assumptions about the business. To whom will you market? What is your sales strategy? What will your finished product look like? Lots of people come up with good ideas. By reading this book, and following the process, business owners can learn what to do next.
2. Build an MVP (minimal viable product). This is the PRODUCT or service that you can show your customers and get in their hands. As the author notes, prototypes or examples can be developed quickly and cheaply. Small batch production can be changed much more quickly than large scale production. More than a prototype, the benefit to the business owner is the MVP will be shown and sold to potential customers and it’s success will be measurable.
3. MEASURE the results of the MVP using previously agreed upon data. This step is not just “Did it work?” You must be able to measure how well it did or did not meet your objectives. When business owners measure the success of their product or service, they will be able to decide if they should pivot (change the course of their actions) or preserve (keep doing what they are doing).
4. As with all experiments, the next step is evaluation: what did you LEARN. As all researchers (and entrepreneurs) know, the knowledge gained is more valuable than dollars or press mentions. Because this is a circular process, LEARNING leads directly to IDEAS and the process continues. The business owners ideas are going to come from two sources: brand new, fresh ideas or the learning of the current project.

Although the BUILD-MESURE-LEARN process seem like it may take longer up front, it actually shortens the total time necessary for production and process improvement.

Why Read It

“Failure is a prerequisite to learning.” Failure, however, is not a stopping point. Failure is the beginning of the learning process. Failure tells you what you need to fix to reengineer and continue (pivot or preserve). Eric Ries uses examples of why his proposal works: Dropbox, GroupOn, Kodak and Intuit are small and large companies that have used this innovation model to change how companies manufacture goods and services.

The Lean StartUp model can be applied to beginning or existing companies – regardless of size. The best part about the model: it is circular. It is a never ending process. The engineer gets a product that is continuously improving (never perfect). The managers get a product to the customers (i.e. – start making revenue). Customers are part of the process and can directly offer feedback to the company. Read the book and learn how to improve your start up.

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