Venture Deals

Chapter 1-4 Overview

Aaron | Ryder | Lauren | Dillon | Caleb

Chapter 1
The Players
1. Entrepreneur
○ Center of the entrepreneur universe
○ Co-founder may leave when life priorities change (spouse/kid)
2. Venture Capitalist
○ Senior person in the firm is a Managing Director (MD) or General Partner (GP)
○ Some firms give everyone a “partner” title to blur the lines so entrepreneurs don’t know the seniority level
○ Principles in firms have some power but not the final say
○ Analysts are at the bottom of the pool
○ Figure out who you are talking to
i. Best way to do this is passed entrepreneurs who have worked with the firm
○ MDs and GPs are the ones that matter
○ Most firms define themselves by what type of investing they do
○ Old series A became series Seed and series B became series A
○ Company investing on the same terms but a different price leads to a letter then a number such as B1 or B2
3. Angel investors
○ Angel investors are typically high-net worth individuals that invest in the early stages of a startup company’s
life (Check size is usually $100k or under, but sometimes higher).
○ Angels are sometimes:
i. Lawyers
ii. Accountants
iii. Startup enthusiasts
iv. Former operators in the industry or an adjacent industry of the startup

Chapter 2: Preparing for Fundraising

● Before jumping into fundraising make sure you are prepared by getting a good lawyer
● Partnering with a law firm experienced in representing startups is a good idea (often well connected to investors)
● Meet investors expectations
● Any company receiving venture funding should be set up as a C-Corporation registered in Delaware
● Form a data site
● VCs will expect original company documents so gather all of the documents you can
● Make sure the company’s intellectual property is safeguarded before a financing

Chapter 3: How to Raise Money

Determining How Much You Are Raising
● Before going in front of investors, entrepreneurs should figure out how much money they are going to raise
● Entrepreneurs should focus on the length of time they want to fund their company to get to the next milestone

Fundraising Materials
1. Business Description (Elevator Pitch)
a. 1 to 3 paragraphs submitted in an email (not a separate attachment)
b. Describes the product, team, and business
2. Executive Summary
a. Short, concise, and well-written description
i. The Idea
ii. Product (why is it awesome?)
iii. Team (why is your team the right one to pursue it?)
iv. Business
3. Presentation
a. Be expected to give or email a presentation (10 to 20 page PowerPoint)
b. Consider the audience:
i. One person
ii. VC partnership
iii. 500 people at an event
 c. Goal → communicate the information from the executive summary in a visual manner (with more examples)
d. Remember the importance of design, specifically focusing on flow and format
4. Private Placement Memorandum (PPM)
a. A traditional business plan with legal disclaimers
b. Time consuming and expensive to prepare (proofread by lawyers to prevent any lawsuits)
c. Only generated when an investment bank is involved or when large investors demand a PPM
5. Business Plan
a. Some, not all VCs, care about a business plan → prepare one to have on deck
b. 30+ page document with multiple sections that expands upon the executive summary
i. Market iv. Go-to-market Strategy
ii. Product v. Team
iii. Target Customer vi. Financials
c. Allows the entrepreneur to write down thoughts, hypothesis’ about the business, and expectations
d. For software companies -> Lean Startup Methodology may be more useful than a business plan
6. Financial Model
a. Many financial predictions of startups are wrong
b. Expenses of a financial plan are indicative of how an entrepreneur thinks of their business
c. Venture Deals chooses to focus on the following: assumptions underlying the revenue forecast and monthly
burn rate of the business (cash consumption)
7. Prototype or Demo (AKA “alpha”)
a. Allows investors to learn more about their emotional interest in the product and a chance to talk directly with
entrepreneurs about their current and future products
b. Investors expect demos to be underfeatured or “rough around the edges”
i. The main goal is for the demo to tell a story about the problem the product addresses
Due Diligence Materials
● If a VC offers a term sheet → expect their lawyers to ask for additional materials
● The list of documents requested during the formal due diligence process can be long
● Organize all of the documents (regardless of how long the company has been in business) for quick delivery prior to
fundraising
● Deal with the messy stuff up front
Finding a VC
1. Finding the right VC
a. Ask friends and other entrepreneurs for recommendations (most efficient approach)
b. Utilize social media to discover info on potential future VC partners and engage at a personal level
2. Finding a lead VC
a. Investors can be categorized by leaders, followers, and everyone else
b. Goal of an entrepreneur → find a lead VC
c. Potential VCs may fall into one of the following categories:
i. Clearly interested and wants to lead
ii. Isn’t interested and passes
iii. Maybe (seems interested but doesn’t step up their level of engagement)
iv. Slow No (hardest to figure out, think of them as “no”)
The Process of How VCs Invest
1. Using Multiple VCs to Create Competition
a. Choice is power d. Make sure the timing of each of the VCs
b. Multiple VCs interested → provides insight process lines up
into how different firms work e. Never answer the question of “who else
c. Allow at least 3-6 months to raise are you talking to?”
money f. Be strategic with financing
2. Deal Closing (Close the deal → raise the money → get back to running the business)
a. Signing of the term sheet often results in a financing that closes
b. Signing the definitive documents and receiving cash are handled mostly by lawyers who negotiate the terms
Chapter 4: The Term Sheet
● Many VCs like to negotiate hard on every term. ○ Economics: return the investors get
● Term sheet is critical because it often determines ○ Control: allow the investors to control
the final deal structure over aspects of business
● Think of it as a blueprint with your future ● VCs almost always get preferred stock, not
relationship with your investor common stock.
● VCs ultimately care about two things ● Financing rounds go by alphabetical letters after
○ Economics and Control Pre-Seed & Seed