Raising Venture Capital for the Serious Entrepreneur
Author: Dermot Berkery
Have the negotiating edge when getting your new business off the ground
Written by Dermot Berkery, an internationally known venture capitalist with Delta Partners, this complete toolbook thoroughly details how venture capitalists arrange the financing for a company; what they look for in a business plan; how they value a business; and how they structure the terms of an agreement. Within its pages, you'll find everything you need to successfully raise new business capital with the most attractive terms possible.
Using informative case studies, detailed charts, and term sheet exercises, Raising Venture Capital for the Serious Entrepreneur discusses the basic principles of the venture capital method, strategies for raising capital, methods of valuing the early-stage venture, and proven techniques for negotiating the deal. The author leads you step-by-step through:
- Developing a Financing Map
- Getting to the First Stepping Stone
- Understanding the Unique Cash Flow and Risk Dynamics of Early Stage Ventures
- Determining the Amount of Capital to Raise and What to Spend It on
- Learning How Venture Capital Firms Think
- Creating a Winning Business Plan
- Funding Early-Stage Companies
- Agreeing on a Term Sheet with a Venture Capitalist
- Setting Terms for Splitting the Rewards
- Allocating Control between Founders/Management and Investors
- Aligning the Interests of Founders/Management and Investors
This invaluable guide also includes term sheet exercises that test your understanding of various financing situations facing companies. In addition, the book features three extensive case studies: the first covering afictional start-up company used throughout the book, the second offering a stepping stone map, and the third presenting a term sheet used in practice by venture capitalists.
Table of Contents:
Foreword xiiiPreface xv
Acknowledgments xvii
Introduction 1
Creditica Software Inc. Case Study 7
Understanding the Basics of the Venture Capital Method
Developing a Financing Map 19
Creating a Set of Stepping-Stones for a New Business 20
Matching the Financing Strategy to the Stepping-Stones 21
Developing a Map of Possible Stepping-Stones 23
Capturing as Much of the Prize as You Can 31
Getting to the First Stepping-Stone 33
Why New Ventures Are Not Fully Funded from the Start 34
Fleshing Out the First Stepping-Stone 35
Options at the End of Each Stage of Investment 38
The Chief Financial Officer as Strategist 39
Why Corporations Fail in Creating New Businesses 43
The Unique Cash Flow and Risk Dynamics of Early-Stage Ventures 47
Costs Known-Revenues Unknown 48
J Curves and Peak Cash Needs 53
Milestone Funding: Option or Investment? 59
A 12- to 24-Month Ticking Clock 63
Timing Is Everything-Buy Low, Sell High 65
A Five- to Seven-Year Marathon in Three to Four Stages 66
Gross Margins of 80 to 100% 68
No Correlation between the Amount of Money Raised and the Company's Success 70
A Tension between the "Lemons Ripening Early" and the "Valley of Death" 70
A Binary Payoff Profile 72
Raising the Finance
Determining the Amount of Capital to Raise and What to Spend It On 77
An Established Company-Estimating the Amount of Capital to Raise 78
A New Company-Estimating the Amount of Capital to Raise 78
Activities in a New Business That Absorb Capital 79
Investors' Views of the Five Capital-Absorbing Activities 90
Businesses with Different Capital-Absorbing Profiles 93
Getting Behind How Venture Capital Firms Think 97
Structure of Venture Capital Funds 97
Types of Investors in Venture Capital Funds 100
Size and Internal Structure of VC Firms 102
How VC Firms Are Compensated 103
Valuation of Investments within a VC Portfolio 106
Cash Flows and J Curve at a Fund Level 108
Expected Returns on a VC Fund 111
Expected Returns on Individual Investments in a VC Fund 114
It's All about Big Winners 117
Portfolio Construction 118
Sorting Out Conflicts of Interest 120
Creating a Winning Business Plan 123
Market Power-the Key Ingredient Missing in Most Business Plans 124
Evidence to Include in the Business Plan 125
Potential for Accelerated Growth in a Big, Accessible Market 125
Achievable Position of Market Power 130
Capable, Ambitious, Trustworthy Management 135
Plausible, Value-Enhancing Stepping-Stones 136
Realistic Valuation 137
Promising Exit Possibilities 137
Valuing the Early-Stage Venture
Valuing Early-Stage Companies 141
Traditional Valuation Methods-Why They Don't Work for Early-Stage Ventures 142
Are Valuations of Technology Companies Crazy? 145
Corporate Finance Theory-Technology Company Valuation 147
Triangulation Process of Venture Capitalists 150
How the Company Can Maximize Its Valuation 160
Why Big Companies Buy Small Companies 161
Value of Small Companies Compared to Large Companies 162
Negotiating the Deal: Term Sheets
Agreeing on a Term Sheet with a Venture Capitalist 169
Percentage Ownership of the Company Granted to the Investor 169
What Each Side Tries to Achieve in a Term Sheet 173
Why It Isn't Like Investing in a Public Company 175
Terms for Splitting the Rewards 177
Exit Preferences, Linked to the Type of Preferred Stock 178
Staging of Investment against Milestones 191
Options to Invest More Money at a Defined Price per Share 192
Preferred Dividends 193
Antidilution 194
Problems with Ratchets 204
Pay-to-Play Clauses 207
Washout Financing Rounds-Down (and Out!) Rounds 210
Allocating Control Between Founders/Management and Investors 213
Restricted Transactions/Protective Covenants 213
Structure of the Board of Directors 219
Redemption 226
Forced Sale 227
Registration Rights 229
Tagalong Rights, Dragalong Rights 230
Information Rights 233
Right of Access to the Premises and Records and Right to Appoint a Consultant 233
Preemption Rights 233
Transfer Provisions 234
Exclusivity Clause 235
Aligning the Interests of Founders/Management and Investors 237
Founders' Stock 238
Option Pool 238
Vesting Arrangements 240
Noncompete Agreements 245
Intellectual Property Assignment 246
Warranties and Representations 246
Exercises
Term Sheet Exercises 251
Security Portal Inc. 267
Standard Term Sheet Clauses 273
Index 281
Interesting textbook: Managing in the Global Economy or Irrestible Empire
Electrical Safety Handbook
Author: John Cadick
This is an accident-avoiding prescription for electricians, safety managers, and inspectors, and engineers dealing with electricity any voltage level. Presenting crucial protective safety strategies for industrial and commercial systems, the Handbook references all major safety codes (OSHA, NEC, NESC, and NFPA) where appropriate, creating a unique, one-stop compliance manual for any company’s electrical safety training and reference needs.
John Cadick, P.E., is a registered professional engineer and the founder and president of the Cadick Corporation. Mr. Cadick has specialized for over three decades in electrical engineering, training, and management. His consulting firm, based in Garland, Texas, specializes in electrical engineering and training and works extensively in the areas of power system design and engineering studies, condition-based maintenance programs, and electrical safety. Prior to creating the Cadick Corporation and its predecessor, Cadick Professional Services, he held a number of technical and managerial positions with electric utilities, electrical testing companies, and consulting firms. In addition to his consultation work in the electrical power industry, Mr. Cadick is the author of Cables and Wiring and of numerous professional articles and technical papers.
Mary Capelli-Schellpfeffer, M.D., M.P.A., delivers outpatient medical care services to employees in occupational health service centers. Board-certified as a physician in general preventive medicine and public health, she is also a consultant to both the NJATC (National Joint Apprenticeship and Training Committee of National Electrical Contractors Association and InternationalBrotherhood of Electrical Workers) and IEEE (Institute of Electrical and Electronics Engineers) Standards Committees. She lives in Chicago, Illinois.
Dennis K. Neitzel, C.P.E., is a certified plant engineer and has 33 years of experience in the electrical field. During eight years with the U.S. Air Force he served consecutively as an electrician, electrical shift supervisor, quality control inspector, and evaluator. Subsequent civilian employment included positions at the Idaho National Engineering Laboratory and at Westinghouse Idaho Nuclear, where he advanced to senior project engineer. Mr. Neitzel went to AVO International Training Institute in 1986 and has progressed from senior training specialist to Institute Director. He has served as a principal committee member for NFPA 70E standards since 1992 and is currently working on the revision of OSHA regulations. Mr. Neitzel has published articles on electrical safety, holds a master's degree in electrical engineering applied sciences, and is a certified electrical inspector.
Booknews
A guide to improving safety in industrial and commercial electrical systems, for plant engineers, safety managers, and electricians. It comprehensively covers the hazards associated with electrical systems, as well as the safety procedures, equipment, and standards required to reduce the risk of accident or injury to acceptable levels. Covers the most recent OSHA, NEC, NFPA, and NESC safety standards. Annotation c. Book News, Inc., Portland, OR (booknews.com)
No comments:
Post a Comment