There has never been a manual for the entrepreneur raising venture capital — until now. Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist is a must-read book for any entrepreneur actively (or considering) raising capital.
Written by two of Foundry Group’s Managing Directors, (Brad Feld and Jason Mendelson), Venture Deals is a 214 page equivalent of a MBA in fund raising. It covers everything from how not to look completely clueless by asking a VC to sign an NDA to breaking down a typical term sheet into its component parts, and which of those parts are worth taking a hard stand on during negotiations.
In Chapter 2 — under the heading “Do or Do Not; There Is No Try” — Feld and Mendelson show off their sense of humor while making an interesting point:
In addition to being a small, green, hairy puppet, Yoda was a wise man. His seminal advice to young Luke Skywalker is one we believe every entrepreneur should internalize before hitting the fund raising trail. You must have the mind-set you will succeed on your quest.
They go on to say that when they meet entrepreneurs “trying to raise money,” “testing the waters,” or “exploring different options,” it implies weakness on the part of the entrepreneur. It shows they have not yet had success and it is a major VC turn-off.
The point being stressed is that VCs know why you are there; you want their money. Like any business negotiation, victory comes in knowing the dance, avoiding pitfalls, and capitalizing on your opportunity by being confident, knowing when to strike and when to parry.
As Feld and Mendelson weave the total story of VC fund raising, they sprinkle boxes throughout the book called, “Entrepreneur’s Perspective.” These boxes generally come after breaking down some aspect of the fund-raising process and warn the entrepreneur about the parts they should care about and pay attention to.
What sets Venture Deals apart from other books, blogs, or articles I have read on fund raising is that Feld and Mendelson write this book as VCs opening the door to the secret cave all entrepreneurs think VCs live in as they plot their takeover of the world, cackling maniacally.
Here is an excerpt of Feld and Mendelson defining a Venture Capitalist:
Venture Capital firms have their own hierarchies that are important for an entrepreneur to understand. Later in the book we’ll dive into all the deep, dark secrets about how VCs are motivated and paid, and what their incentives can be. For now, we’ll consider VCs as humans and talk about the people.
I probably laughed for a good five minutes after, “For now we’ll consider VCs as human…” These guys are under no delusions about what they do for a living and know that entrepreneurs view VCs as some sort of Demi-Gods on Mount Olympus and if they could ONLY have five minutes with them, they’d definitely understand the business and write a check. Today.
Without having met Feld or Mendelson (with the exception of a few messages on Google+) it seems clear they have their egos (mostly) in check with their humorous anecdotes and advice that pops up periodically such as:
Q: What to do after having yet another pitch session with VCs when you’re alone in your crappy hotel room?
A: Scotch. (Drink it).
Q: Do I need a business plan?
A: “We haven’t read a business plan in 20 years”
Q: How Important are the Detailed Financial Models?
A: “The only thing we know about financial predictions of start-ups is that 100 percent of them are wrong.”
They even go on to give examples of how a young, inexperienced entrepreneur took their advice on negotiating and used their own tactic against them successfully. (They invested in his startup.)
The book — which has appendices with typical examples of term sheets — ends with an eight page glossary. Venture Deals is a critical, must-read for a serious entrepreneur interested in VCs funding their business. It is very readable and invaluable in terms of the content assembled. (I have already recommended this book to half a dozen people.)
The following video was done as a promo for Venture Deals by the four Managing Directors of Foundry Group and is pretty funny with lines like:
$20 Pre (valuation),
I can’t believe,
You think that’s cheap,
For a company you started with your dog last week.