Venture Deals

It occurred to me recently that, while I plough through a lot of books on my Kindle, I’ve not made an attempt to keep any sort of notes. As Mortimer Adler points out in How to Read A Book, books are best understood when actively engaged or discussed.


I resolved to begin doing so, starting today. The last book I read to completion was Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, by Brad Feld and Jason Mendelson; that’s where I’ll begin.

Some background is necessary. Since completing my honours, I’ve been planning to commercialise my research. To do so requires time, and of course, money is a socially-acceptable substitutable for time in a wide variety of situations. The practical upshot was that I’ve being considering how to raise money.

I’ve flown to Perth this week to graduate. Located here is this new venture capital fund, who are probably the first such outfit in Perth.

My original plan was: fly to Perth for the week, and during that week, saunter into their office with some vague hand-waving and wander out with a cheque for squillions of dollars. That’s how some folk in Silicon Valley seem to do it: why not me?

The part of me which is most like my father decided that perhaps I could do just a smidge of background reading; the part of me which used to be a law student heartily agreed. So I bought Venture Deals to get the background.

So: the book.

The meat of the book is a discussion of the Term Sheet, a document which usually embodies the key points of agreement when a venture capital investment is made. The authors helpfully point out that term sheet clauses fall into three categories: economics, control, and other. The first two are important.

The book takes a tour of these different clauses, exposing in particular the trickier bits of boilerplate that a VC might try to slip in. Parts of this are very detailed — the sort of thing that’d be clearer with an actual offer from an actual VC.

Also covered is a useful discussion of the tactics and timing matters of negotiating, an illuminating discussion of the internal structure and dynamics of venture capital firms and a chapter on Letters of Intent — a cousin of the term sheet sent when another company offers to buy yours out.

Unsurprisingly, the book is totally US-centric. Most VC firms are in the USA, most companies who take VC funding eventually incorporate in the USA and operate under US laws. Nevertheless, I think the authors might have made a clearer distinction between what is done in VC everywhere, and those particulars applying to US-based companies only.

Quality

Self-published books sometimes need more loving attention than they receive. This one is actually pretty reasonable — I didn’t notice any typos or egregious grammos. There were some sections where massaging the explanations might have helped me to get a clearer understanding of the process in hand.

One thing that would make a nice addition to a future edition would be a charts detailing common negotiation lifecycles and flow charts for trading off different clauses. Flow charts and diagrammatic representations are tools I have found very useful both when studying law and in my daily work as an analyst/programmer. Sometimes you need a picture to know what’s happening.

The most important thing

What I really took away from this book is: it’s too soon for me to be worrying about venture capital. I should be looking at raising money in smaller amounts from a different class of investor.

However, if you’re a US-based company looking for funds from a US-based venture capital firm, I think this book would provide a short, useful introduction to the issues.

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