Capital raising is one of the most challenging and vital aspects of successful entrepreneurship.
Most founders, especially first-time founders, have only limited financial and legal experience to navigate the process. Therefore, a fair bit of risk exists.
Venture Deals to the rescue
Venture Deals, by Brad Feld and Jason Mendelson, helps simplify and demystify the process. It allows founders to have the confidence to do great deals and avoid some of the most costly mistakes!
What costly mistakes, you might ask?
- You give away too much equity and cost yourself millions of dollars at exit.
- You lose control of your company at the board level.
- The deal bombs as you can’t understand the terms and make a sensible agreement.
- The investors pull out as you’re not prepared and professional enough.
- You spend tens of thousands of dollars on unnecessary legal fees.
When joining the Airtree Explorer program last year, the fantastic Airtree team sent me Venture Deals as a welcome gift. As the book just kept resurfacing, I realised just how important its content was.
Another book you had to read, you ask? We are lucky, as for a general understanding, we can go for a ‘summary prepared earlier’ – Thanks Michael Batko for the summary.
But if you’re a founder that’s planning to raise, or working in venture, you better get a copy of the book as it is detailed and technical. You will need it, and it will help.
The book is written for the US market and legal system but most of the concepts work the same in other countries (including Australia) as capital raising processes are very similar.
In my opinion, the best advice from the book revolved around changing the way to approach and think about a deal, rather than the nitty-gritty details of the deal in particular.
Other resources that have helped me
When looking at the Australian early-stage capital raising landscape, to further hone your skills and to prepare for raising, you should check out the Open Source VC, by Airtree.
Key areas that are covered are:
- Terms Sheet – a straight-up term sheet
- Investor list – the best list of active investors that I have seen in Australia
- Seed-stage financing docs – subscription agreement, shareholders agreement, SAFE, IP, and employment. Boom!
In my opinion, you want solid agreements, based on standard terms, executed quickly, and you move on. These templates are a great starting point and can save you thousands.
Take the time to slow down, and understand
When Cake was planning our Seed Round, the major shareholders and directors had several sessions to understand the terms and what they mean technically, and in practice.
I’ve highlighted some of the main terms you should be on top of below. We also discuss some of these terms in our blog on Shareholders Agreements.
We found the terms challenging, even though I have a finance and accounting background. So don’t feel bad!
But with a bit of time and patience, you can learn them well. And as I noted above, it’s essential to your long term strategy!
Good luck, as always, on your capital raising and founder journey. I hope this helps!
If you liked this article, check out The Making of an Angel (Investor) – Part 1
This blog is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.