Venture Deals

Convertible Debt Be Dangerous? 126 An Alternative to Convertible Debt 127 Chapter 9 The Capitalization Table 129 Price per Share with Convertible Notes 131 Pre-Money Method 132 Percentage-Ownership Method 133 Dollars-Invested Method 133 Chapter 10 Crowdfunding 137 Product Crowdfunding 137 Equity Crowdfunding 139 How Equity Crowdfunding Differs 141 Token Crowdfunding 143 Chapter 11 Venture Debt 145 The Role of Debt versus Equity 145 The Players 147 How Lenders Think about Loan Types 148 Economic Terms 151 Amortization Terms 154 Control Terms 157 Negotiation Tactics 161 Restructuring the Deal 163 Chapter 12 How Venture Capital Funds Work 167 Overview of a Typical Structure 168 How Firms Raise Money 169 How Venture Capitalists Make Money 171 How Time Impacts Fund Activity 175 Reserves 177 Cash Flow 179 Cross-Fund Investing 179 Departing Partners 181 Corporate Venture Capital 181 Strategic Investors 183 Fiduciary Duties 184 Implications for the Entrepreneur 185 Chapter 13 Negotiation Tactics 187 What Really Matters? 187 Preparing for the Negotiation 188 A Brief Introduction to Game Theory 191 Negotiating in the Game of Financings 193 Negotiating Other Games 194 Negotiating Styles and Approaches 195 Collaborative Negotiation versus Walk-Away Threats 199 Building Leverage and Getting to Yes 200 Things Not to Do 203 Great Lawyers versus Bad Lawyers versus No Lawyers 205 Can You Make a Bad Deal Better? 206 Chapter 14 Raising Money the Right Way 209 Don't Be a Machine 209 Don't Ask for a Nondisclosure Agreement 210 Don't Email Carpet-Bomb VCs 210 No Often Means No 211 Don't Ask for a Referral If You Get a No 211 Don't Be a Solo Founder 212 Don't Overemphasize Patents 213 Don't Be Silent If You Witness Bad Behavior 213 Chapter 15 Issues at Different Financing Stages 215 Seed Deals 215 Early Stage 216 Mid and Late Stages 217 Chapter 16 Letters of Intent: The Other Term Sheet 221 Structure of a Deal 222 Asset Deal versus Stock Deal 225 Form of Consideration 227 Assumption of Stock Options 228 Representations, Warranties, and Indemnification 232 Escrow 233 Confidentiality/Nondisclosure Agreement 235 Employee Matters 236 Conditions to Close 237 The No-Shop Clause 238 Fees, Fees, and More Fees 239 Registration Rights 240 Shareholder Representatives 241 Chapter 17 How to Engage an Investment Banker 243 Why Hire an Investment Banker? 243 How to Choose an M&A Adviser 245 Negotiating the Engagement Letter 247 Helping Your Banker Maximize the Outcome 251 Chapter 18 Why Do Term Sheets Even Exist? 253 Constraining Behavior and the Alignment of Incentives 254 Transaction Costs 255 Agency Costs and Information Asymmetry 256 Reputation Constraints 257 Chapter 19 Legal Things Every Entrepreneur Should Know 259 Intellectual Property 259 Patents 261 Trademarks 262 Employment Issues 263 Type of Corporate Structure 264 Accredited Investors 265 Section 409A Valuations 266 (83)b Elections 267 Founders' Stock 268 Consultants versus Employees 269 Compensating Service Providers 270 Authors' Note 273 Appendix A: Sample Term Sheet 275 Appendix B: Foundry Group Term Sheet 285 Appendix C: Sample Letter of Intent 295 Appendix D: Additional Resources 303 Glossary 307 About the Authors 321 Index 323 Excerpt from Startup Communities 333