
What It Takes
Seven Secrets of Success from the World's Greatest Professional Firms
By: Charles D. Ellis
Hardcover | 1 February 2013 | Edition Number 1
At a Glance
304 Pages
23.6 x 16.1 x 2.7
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As each new generation of entrepreneurs emerges, there is a renewed interest in how venture capital deals come together. Yet there is little reliable information focused on venture capital deals. Nobody understands this better than authors Brad Feld and Jason Mendelson. For more than twenty years, they've been involved in hundreds of venture capital financings, and now, with the Second Edition of Venture Deals, they continue to share their experiences in this field with you.
Engaging and informative, this reliable resource skillfully outlines the essential elements of the venture capital term sheet—from terms related to economics to terms related to control. It strives to give a balanced view of the particular terms along with the strategies to getting to a fair deal. In addition to examining the nuts and bolts of the term sheet, Venture Deals, Second Edition also introduces you to the various participants in the process and discusses how fundraising works.
- Fully updated to reflect the intricacies of startups and entrepreneurship in today's dynamic economic environment
- Offers valuable insights into venture capital deal structure and strategies
- Brings a level of transparency to a process that is rarely well understood
About the Authors
Brad Feld has been an early-stage investor and entrepreneur for over twenty years. Prior to cofounding Foundry Group—a Boulder, Colorado-based early-stage venture capital fund that invests in information technology companies all over the United States—he cofounded Mobius Venture Capital. Prior to that, he founded Intensity Ventures, a company that helped launch and operate software companies. Feld is also a cofounder of TechStars and has been active with several nonprofit organizations. He is a nationally recognized speaker on the topics of venture capital investing and entrepreneurship.
Jason Mendelson has over a decade of experience in the venture capital and technology industries in a multitude of investing, operational, and engineering roles. Prior to cofounding Foundry Group, he was a managing director and general counsel for Mobius Venture Capital, where he also acted as its chief administrative partner overseeing all operations of the firm. Mendelson was also an attorney with Cooley LLP, where he practiced corporate and securities law with an emphasis on representation of emerging companies in private and public financings as well as mergers and acquisitions.
Industry Reviews
?This is the best book about corporate leadership that I've ever read. Charley Ellis really knows what he's talking about.??John Whitehead, former Co-Chairman, Goldman Sachs & Co., former Deputy Secretary of State
?Clear, crisp, and actionable insights on leadership, which can only come from a well experienced scholar and practitioner like Charley Ellis in his usual wise simple and riveting story-telling style. And yes, simple doesn't mean easy.??Abdullatif A. Al-Othman, Governor, Saudi Arabia General Investment Authority
?What It Takes is Ellis' finest work on organizational excellence. He has distilled the essential principles of organizational excellence, illustrating them with potent examples and memorable anecdotes. His intimate knowledge of the organizations, deepened by 300 interviewers with insiders, imparts powerful insights and lessons for those aspiring to build and sustain great and enduring organizations.??Ng Kok Song, Chief Investment Officer, Government of Singapore Investment Corporation
?Charley Ellis has taken an incisive look under the hood of some of the world's greatest professional organizations and has put his perceptive finger on not only what has made them succeed but has also led them to endure.??D. Ronald Daniel, former Managing Partner, McKinsey & Company
?Once, again, Charley Ellis has delved into the mysteries of leadership with clarity and insight.??Jim Rothenberg, Chairman, Capital Research and Management Company
?Charley Ellis looks hard at how great firms succeed in fields as different as law, consulting and medicine . . . and finds what it takes that they have in common.??Jeff Bewkes, CEO, Time Warner
?Charley Ellis takes us through a series of master classes on corporate leadership. This is an outstanding contribution to help us understand that which divides winners from losers.??Lord Myners, former UK Treasury Minister
?A very interesting study of the similarities and differences in the leadership of five very different professional firms. Should be required reading for other firms in those professions.??Samuel C. Butler, former Presiding Partner, Cravath, Swaine & Moore
?What It Takes is a clear-eyed view into the complexities of building and sustaining great organizations. Charley Ellis? artful storytelling imparts insights that would benefit anyone aspiring to thoughtful, effective leadership throughout markets and histories.??Lei Zhang, Founder and CEO, Hillhouse Capital Management Group
?I cannot imagine anyone better qualified than Charley Ellis to analyze, identify and describe those characteristics which separate outstandingly successful professional firms from the merely very good ones. This fascinating book should be recommended reading for anyone wishing to become a leader in any of the professions described and indeed for anyone with an ambition to succeed in business.??Peter Stormonth Darling, former Chairman, Mercury Asset Management
?Of course everyone knows of the five great institutions which are the subject of Charley Ellis' latest book. But what is it that made them outstanding? Charley in this searching and unsentimental if admiring analysis provides answers: A good idea transformed into a novel business model, passion, commitment, good judgment particularly in the early years and great people. Another Charley Ellis book to treasure.??Sir Winfried Bischoff, Chairman, Lloyds Banking Group
Preface xiii
Acknowledgments xix
Introduction: The Art of the Term Sheet 1
1 The Players 5
The Entrepreneur 5
The Venture Capitalist 6
The Angel Investor 8
The Syndicate 10
The Lawyer 11
The Mentor 13
2 How to Raise Money 15
Do or Do Not; There Is No Try 15
Determine How Much You Are Raising 16
Fund-Raising Materials 17
Due Diligence Materials 23
Finding the Right VC 23
Finding a Lead VC 25
How VCs Decide to Invest 26
Closing the Deal 28
3 Overview of the Term Sheet 31
The Key Concepts: Economics and Control 32
4 Economic Terms of the Term Sheet 35
Price 35
Liquidation Preference 41
Pay-to-Play 47
Vesting 50
Employee Pool 54
Antidilution 55
5 Control Terms of the Term Sheet 61
Board of Directors 61
Protective Provisions 63
Drag-Along Agreement 68
Conversion 70
6 Other Terms of the Term Sheet 73
Dividends 73
Redemption Rights 75
Conditions Precedent to Financing 77
Information Rights 79
Registration Rights 80
Right of First Refusal 83
Voting Rights 84
Restriction on Sales 85
Proprietary Information and Inventions Agreement 86
Co-Sale Agreement 87
Founders’ Activities 88
Initial Public Offering Shares Purchase 89
No-Shop Agreement 90
Indemnification 93
Assignment 93
7 The Capitalization Table 95
8 Convertible Debt 99
Arguments For and Against Convertible Debt 100
The Discount 102
Valuation Caps 103
Interest Rate 104
Conversion Mechanics 105
Conversion in a Sale of the Company 107
Warrants 108
Other Terms 110
Early Stage versus Late Stage Dynamics 111
Can Convertible Debt Be Dangerous? 112
9 How Venture Capital Funds Work 115
Overview of a Typical Structure 115
How Firms Raise Money 117
How Venture Capitalists Make Money 118
How Time Impacts Fund Activity 122
Reserves 124
Cash Flow 126
Cross-Fund Investing 127
Departing Partners 127
Fiduciary Duties 128
Implications for the Entrepreneur 128
10 Negotiation Tactics 129
What Really Matters? 129
Preparing for the Negotiation 130
A Brief Introduction to Game Theory 132
Negotiating in the Game of Financings 134
Negotiating Styles and Approaches 136
Collaborative Negotiation versus Walk-Away Threats 139
Building Leverage and Getting to Yes 140
Things Not to Do 142
Great Lawyers versus Bad Lawyers versus No Lawyers 145
Can You Make a Bad Deal Better? 145
11 Raising Money the Right Way 149
Don’t Ask for a Nondisclosure Agreement 149
Don’t Email Carpet Bomb VCs 150
No Often Means No 150
Don’t Ask for a Referral If You Get a No 150
Don’t Be a Solo Founder 151
Don’t Overemphasize Patents 152
12 Issues at Different Financing Stages 153
Seed Deals 153
Early Stage 154
Mid and Late Stages 154
Other Approaches to Early Stage Deals 155
13 Letters of Intent—The Other Term Sheet 157
Structure of a Deal 158
Asset Deal versus Stock Deal 161
Form of Consideration 163
Assumption of Stock Options 164
Representations, Warranties, and Indemnification 167
Escrow 169
Confidentiality/Nondisclosure Agreement 170
Employee Matters 171
Conditions to Close 172
The No-Shop Clause 173
Fees, Fees, and More Fees 174
Registration Rights 175
Shareholder Representatives 176
14 Legal Things Every Entrepreneur Should Know 179
Intellectual Property 179
Employment Issues 181
State of Incorporation 182
Accredited Investors 182
Filing an 83(b) Election 183
Section 409A Valuations 184
Authors’ Note 187
Appendix A: Sample Term Sheet 189
Appendix B: Sample Letter of Intent 209
Appendix C: Additional Resources 217
Glossary 221
About the Authors 229
Index 231
Excerpt from Startup Communities 237
ISBN: 9781118517727
ISBN-10: 1118517725
Published: 1st February 2013
Format: Hardcover
Language: English
Number of Pages: 304
Audience: General Adult
Publisher: John Wiley & Sons Inc (US)
Country of Publication: GB
Edition Number: 1
Dimensions (cm): 23.6 x 16.1 x 2.7
Weight (kg): 0.49
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