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What it argues
Venture Deals is Brad Feld and Jason Mendelson's guide to understanding venture capital term sheets — the documents that define the economic and control terms of startup funding. Both are general partners at Foundry Group; Mendelson spent years as a lawyer before becoming a venture capitalist. The book was written explicitly to reduce the information asymmetry that typically benefits VCs and legal advisors at the expense of founders who are negotiating their first or second funding round without adequate context.
The book walks through the two main categories of term sheet provisions: economic terms and control terms. Economic terms include the pre-money valuation, investment amount, option pool size, liquidation preferences, and anti-dilution provisions. Control terms include board composition, voting rights, protective provisions, and drag-along rights. Each provision is explained in plain language with worked examples showing how it affects founders in both good and bad outcomes.
What it gets right
- 1.
Term sheets have two categories of provisions: economic terms (how the money is divided) and control terms (who makes decisions). Understanding both is essential before signing anything.
- 2.
Liquidation preferences determine who gets paid first and how much in an exit. A 2x participating preferred is dramatically different from a 1x non-participating preferred in most outcome scenarios.
- 3.
The option pool shuffle: VCs often require a large option pool to be created before the investment closes, which dilutes existing shareholders rather than new investors. The pre-money valuation must be evaluated after accounting for this.
What it covers
Who wrote it
Brad Feld is a managing director at Foundry Group, a venture capital firm he co-founded in Boulder, Colorado. He has been investing in early-stage technology companies since 1987 and writes the Feld Thoughts blog. He is also the author of Startup Communities and Do More Faster. Jason Mendelson is a general partner at Foundry Group who previously practiced corporate law. Together they wrote the first edition of Venture Deals in 2011 and have updated it several times as market norms have evolved. The book emerged from a desire to reduce the information asymmetry that disadvantages founders in VC negotiations.
