Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist is the definitive guide to venture financings. This book is for anyone who wants the insider's guide to raising money, negotiating deals, and to know what really makes venture capitalists tick. Don't believe us? Check out these recommendations:

My biggest nightmare is taking advantage of an entrepreneur without even realizing it. It happens because VCs are experts in financings and most entrepreneurs are not. Brad and Jason are out to fix that problem with Venture Deals. This book is long overdue and badly needed. - Fred Wilson, Union Square Ventures I would highly recommend .Venture Deals. to any entrepreneur, venture capitalist, student, or casual reader who wants to get the .true scoop. on how venture deals come together and what the venture capital landscape truly looks like. The authors are not only veterans of the industry, but are willing to share their unvarnished views of what venture is all about. The reader will not find the insights shared here anywhere else. And, perhaps best of all, the authors write in an easily readable, casual style that makes the book quite fun to read. - Craig Dauchy, Cooley LLP I've been reading and loving Brad Feld's blog for years. He's one of my favorite venture capitalists on the planet. I'm delighted Brad and Jason have written the definitive book for entrepreneurs seeking to learn about raising and going through the venture capital process. - Bijan Sabet, Spark Capital Feld and Mendelson pack a graduate level course into this energetic and accessible book. The authors. frank style and incisive insight make this a .must read. for high-growth company entrepreneurs, early stage investors, and graduate students. Start here if you want to understand venture capital deal structure and strategies. I enthusiastically recommend. - Brad Bernthal, CU Boulder, Associate Clinical Professor of Law - Technology Policy, Entrepreneurial Law Venture Deals is a must read for any entrepreneur contemplating or currently leading a venture-backed company. Brad and Jason are highly respected investors who shoot straight from the hip and tell it like it is, bringing a level of transparency to a process that is rarely well understood. Its like having a venture capitalist as a best friend who is looking out for your best interest and happy to answer all of your questions. - Emily Mendell, Vice President of Communications, National Venture Capital Association In my entrepreneurship class at Stanford, the number one topic is venture financing -- how it works and how (or even whether) to get it. There are no two better people to coach an entrepreneur through the venture process than Brad Feld and Jason Mendelson, and next to in-person guidance this book is the next best thing. I am planning to make this required reading for my class at Stanford. - Heidi Roizen, Fenwick and West Entrepreneurship Educator, Stanford University Technology Ventures Program The adventure of starting and growing a company can exhilarating or excruciating.or both. Feld and Mendelson have done a masterful job of shedding light on what can either become one of the most helpful or dreadful experiences for entrepreneurs.accepting venture capital into their firm. This book takes the lid off the black box and helps entrepreneurs understand the economics and control provisions of working with a venture partner. - Lesa Mitchell, Vice President, Advancing Innovation, Kauffman Foundation A must-read book for entrepreneurs. Brad and Jason demystify the overly complex world of term sheets and M&A, cutting through the legalese and focusing on what really matters. That.s a good thing not just for entrepreneurs, but also for venture capitalists, angels and lawyers. Having an educated entrepreneur on the other side of the table means you spend your time negotiating the important issues and ultimately get to the right deal faster. - Greg Gottesman, Managing Director, Madrona Venture Group

We’ve been flattered through the years to hear that several highly acclaimed universities have used our term sheet series to teach business, law and engineering students the ins and outs of the venture financing term sheet.  With the release of our book, Venture Deals:  Be Smarter Than Your Lawyer and Venture Capitalist, we’ve begun to hear that folks are using our book in the classroom, as well.  The book is much more broad than the term sheet series in that it discusses fundraising, negotiation tactics and potentially most importantly, how VC firms are organized and incentivized, thus providing a never-seen-before look into the inner workings of venture firms.

Jason co-teaches a class at the University of Colorado Law School called VC 360 with professor Brad Bernthal.  They’ve been teaching the class for four years now and both enjoyed teaching from the book, rather than cobbling together a disjointed coursepack on the subject matter.  (Okay, we are biased, but take our word for it).

We’ve also learned that Woody Benson and Philip Lowe are teaching a course at Bentley University using the book.

With that in mind, we’ve created a new page at AskTheVC.com: Teaching.  To start, the University of Colorado and Bentley University have open sourced their syllabi and we welcome other educators to join us by posting theirs as well.  If you want to get involved, just leave a comment and we’ll get back to you.

We’ve also created a forum in case we get enough participation that we can share stories and issues about teaching from the book. Finally, Brad Bernthal and us will be writing a teacher manual for the book to help future use in the education ecosystem.

Thanks Philip and Woody on being our first partners!

Question: How hard is for USA VCs fund an abroad startup? e.g. Brazil. There are not so many VCs here, so I would like apply for investors in the USA. Have you seen that before?

US-based VCs tend to fall into two categories – those who don’t do any deals outside the US (other than Canada) and those who do. So before you start talking to VCs, make sure you which category they fall into. For example, our firm – Foundry Group – doesn’t invest outside the US while our friends at Union Square Ventures do, although their portfolio is concentrated in Europe.

Assuming a firm invests outside the US, you should be able to easily check from their portfolio whether they’ve invested in your country (in this case, Brazil). If they haven’t, it’s a long shot that they will. If they have, they are likely a good target for you.

As US VC firms have expanded to Europe and Asia (especially China and India), they have built local teams in the countries they are expanding to. In some cases, firms like FIR Capital are affiliated with a VC network (in this case, the DFJ Network).

I don’t know anything about the Brazilian entrepreneur or VC market although a quick Google search for VCs in Brazil turns up some good data about firms both in Brazil as well as US firms that have invested in Brazil. Not surprisingly, there’s also some data on Quora. And in my exploration, I found Rodrigo Baer, a partner at Warehouse Investimentos in São Paulo, who is a VC blogger (and has been added to our VC Blogger sidebar). So there is plenty of info out there about VC firms investing in Brazil.

The basic message is “know who you are talking to and where they like to invest.”

Today’s great VC post is from my partner (and co-author of this blog) Jason Mendelson.  Jason post Where Do Venture Capitalists Find Their Companies? has a detailed breakdown, from Jason’s point of view, on where VCs find (and look for) companies to invest in.

And – as a bonus post – Mark Suster has a dynamite rant titled Is VC too Fat and Happy?

Q: Is it a bad idea to send a business plan to too many VC firms? I have access to a large list of VCs that invest in my type of company and I was thinking about blasting out a business plan to all them. My thought process is it is a numbers game and the more people that see it the better the odds are that someone will be interested in it. I am just a little worried about the intellectual property side of things and by sending it to too many firms it could be vulnerable.

A: (Brad) This is a terrible idea.

First of all, don’t send your full business plan in your first email to a VC.  Instead, send a short overview (in the text of the email) and an executive summary.  A VC should be able to quickly determine whether or not he wants to spend time with you from this information.

More importantly though, simply sending your business plan (or overview) out to a large number of VCs with whom you have no relationship with is unlikely to yield any results.  When you are raising money, it’s a "quality" game, not a "numbers" game.  The higher quality your introduction, the greater the change you will get an audience from a VC. 

Some VCs take a look at every email that comes in over the transom (I do – and I always try to respond.)  However, if it’s a totally cold, random, "Dear Sir" type email, I give it less weight than if an introduction is made by a colleague that I know and respect.  While there is a range that varies based on how busy I am at any particular moment, what kind of mood I’m in, and whether or not my dog woke me up too early in the morning, some sort of connection to someone or something I know is always better.

Finally, I wouldn’t worry to much about the intellectual property side of things.  Even though the theme that "VCs steal entrepreneurs ideas" seems to go around the system regularly, my experience (as an entrepreneur, angel investor, and VC) is that this is an urban myth.  Most VCs will simply ignore your email blast.

Q: How important is having a partner?  As a sole entrepreneur that’s investigating venture capital, is having a partner typically required? What are the justifications to requiring a partner?

If I pursue a venture capital firm without a partner or team, is that a show-stopper?  Can I explain that finding a partner is difficult, or are there no options at all?

A: (Jason).  In my opinion, it is mandatory to have a partner and / or team to raise venture capital.  There are several reasons for this:

1. No single person can do everything.  Everyone needs a partner to balance out his/her actual or perceived weaknesses.  I’ve not met anyone who can do absolutely everything from product vision, executing on a plan, engineering development, marketing, sales, operations, etc.  There are just to many mission-critical tasks in getting a successful company launched.  You will be much happier if you have a partner and / or team to back you up.

2. It’s not a good sign if you can’t get others to get excited about your plan.  It’s hard enough to get venture capitalists to write checks to fund your company, so if you can’t find other team members with the same passion and beliefs as you, this is a warning sign to anyone that might want to fund your company. 

3. If you don’t have a team, what is the venture capitalist investing in?  Just as important as the idea is the team executing it.  In fact, I think most VCs would tell you that they’ve made money on "B" ideas with grade "A" teams but that many an "A" idea was left in the dustbin due to a substandard team. 

The one exception would a repeat entrepreneur.  If the venture fund has had a good experience with an entrepreneur before and believes they can build a solid team post-funding, then he / she has a chance to get funded as a sole entrepreneur.

Q:  Does having an H1B founder (among other non-H1B founders) inherently prevent a startup from being funded? For example, what if a U.S. citizen creates the company which receives funding, and then applies for the H1B founder to join as a regular employee and then issue a founder-sized portion of the company stock?

One possible problem is that the founder will be working on the idea in their spare time while employed, but at least in the state of California this isn’t a problem if the H1B founder’s work isn’t related and he does it on is own time and resources. Are there other issues? I’m just trying to figure out the general "gotchas" of an H1B founder (who is sufficiently skilled and productive to make it worthwhile to have on board).

A:  (Jason)  I am not an immigration lawyer, so the "gotcha" part of your question isn’t something that I can answer, be I can provide the VC perspective.  The answer is "no."  Having a H1B co-founder is not inherently a problem to get funded.  So long as the co-founder can work full time and provide comparable contributions to the company, then VCs shouldn’t care. 

A couple things to consider:

1.  Timing of grant.  If the grant is only going to occur upon the issuance of the H1B visa, then you should consider the timing issues of your grants being made at a different time than the other founders (and potentially at a higher price);

2.  Timing of the visa application.  It seems like the U.S. is running out of H1B visas earlier and earlier every year.  You should take this into consideration when forming the company and sponsoring the application.  Short answer:  get this done early in the year before the visas are exhausted.

Good luck with your venture.

Q:  I self-financed and run a profitable Internet based start-up with more customers than I can handle. I can take the business to where it needs to be without outside funding. However, it will take much longer to grow organically. I’ve considered working with financiers for guidance and capital.

What is the best route to take?  I’m in a position where I have several VCs interested and their terms are different.  Do I go with no money?  The best money terms?  the best guidance?

A:  (Jason).  Venture Capitalists bring 4 types of "capital" to any transaction:  Monetary, Social, Interpersonal and Experience. 

Monetary is simply money – a checkbook, if you will.  Social is the network and connections that a good VC can bring to the table.  Interpersonal is the capital that VCs bring that allow them to mentor their investment executives.  It also helps them to be helpful board members.  Experience is just that- having been there and "done that" time and time again. 

The question to ask yourself is which of these types of capital you need more?  Is it all about the money, or do you really need help that you don’t have inside the company?  And which one of your potential VC suitors do you find better equipped to provide this non-monetary capital? 

We’ve found that many of the companies we invest in are more interested in the non-monetary capital that we can bring to the table and we are quite proud of that fact. 

Q:  Can you please clarify the distinction between the roles of a CEO and a COO?

I had my own impression of the roles of a CEO, which included managing and motivating the team as a whole and ensuring the execution of day-to-day tasks.

However, after speaking with a mentor, who has been a CEO and a COO of Fortune 500 companies, he informed me that the CEO’s roles are first and foremost, obtaining financing (a large majority of the CEO’s time), along with setting the vision, followed by finding talent and creating alliances. Additionally, the CEO should guide top-level management, but not be very involved in the day-to-day.

The COO is supposedly responsible for ensuring the execution of all of the day-to-day tasks necessary to achieve the company’s vision, managing the company’s non-senior level employees, and "making things happen."

Can you please confirm or refute the roles as defined above, and provide an explanation? Additionally, can you please mention some of the necessary skill sets that each role requires (e.g., CEO: strong grasp on finance, general knowledge of all aspects of a business, etc.).

A: (Jason) There isn’t really a definitive answer to your question.  In my opinion, you are both right.  There are two components which weigh heavily into what the CEO / COO distinction is, but there are others too.

The first question to ask is "what stage is the company in its lifecycle?"  Many early stage companies don’t have COOs, so the CEO is doing "all the above."  See Brad’s recent post on why he doesn’t like COOs in early stage companies.  In later stage companies (especially Fortune 500 companies) you’ll usually see the CEO as the "front man"  in organization with investor relations, overall culture, vision and strategic direction being very important, while the COO, or other operations person (CFO or General Counsel) responsible for more other day-to-day tasks.

The second question is what "style" the CEO employees, as well as what his/her previous area of expertise is.  Some CEOs are master delegators to their executive staff.  Some are detailed orientated and want to be involved in every decision.  This is purely a factor of management style.  Furthermore, depending on where a CEO "grew up" experience-wise (sales, tech, marketing, finance, etc.) you may see them be more or less involved in certain functional areas. 

So there is no "one size fits all" CEO job description.  And because of this, there really isn’t a "necessary skill set."  I think for all CEOs it is important that they are good communicators, create a healthy culture at their companies and are someone who inspires – both employees and the outside word alike.

Today’s guest poster is Frank Ronchetti, CFO of a local startup in Boulder. His “ask the vc” question became more of an observation and I thought that I would post in its entirety and then comment below. Frank, you have the floor.

Are VCs incompetent or just inconsiderate? Not all venture capitalists mind you, just the ones who solicit your proposal, read your executive summary, or even meet with you, and then you never hear another word from them. What’s up with that?

There is a subset of the VC community that will just go silent at some point and you never hear from them again. I have raised venture funding for a few companies, and I would estimate this number at around 10-20% of all the funds I have approached. The Berkshire Hathaway annual report’s Acquisition Criteria section always contains the quote, "When the phone don’t ring, you’ll know it’s me." But that only applies where someone looking for funding doesn’t do their homework and sends in a proposal that doesn’t meet their criteria.

The problem in the VC community is broader than that. I have seen potential investors go silent:

• After researching their investment criteria and seeing that we may be a good fit.
• After getting an introduction to the fund from a respected referral source.
• After communicating with a partner who said, “This looks interesting. I will look at your executive summary and get back to you.”
• And even after having a conference call or face-to-face meeting to go through our business plan in detail.

If silence always meant rejection, then this wouldn’t be such a problem, other than the fact that I waste my time making multiple calls or sending several e-mails to follow up. But silence doesn’t always mean rejection. I have spent literally weeks trying to get a response from a VC, only to hear, “Thank you for being so persistent. We remain interested, but we’ve been swamped / we just closed our new fund / an investment committee member has been on vacation / etc.” The process has then continued. So you can’t just give up.

My strategy when I get the silent treatment has been to leave a series of three to five messages (depending on the quality of the introduction or level of previous engagement) with the last one politely saying, “This is the last time I’m going to call.” But boy, what a waste of time this is. Entrepreneurs bust their butts and spend dozens of hours writing business plans, arranging investor meetings, and preparing and making presentations. Venture capital fund managers owe them the courtesy and respect of making a two-minute phone call to say, “No thank you.”

Thanks Frank, that is indeed frustrating. So what’s the deal? Here is my take:

I’ve always taken the approach (as does my co-author Brad) that you try to keep communication as efficient and responsive as possible. We regularly say that we will return any email that we get, but also caution that phone calls are much harder to return. I think there are two takeaways from this: first, whomever you are dealing with, try to find out their preferred mode of communication and two; I don’t necessarily think that we represent the norm when it comes to responsiveness.

We also try to say “no” as quickly as possible to deals that we are evaluating in our pipeline that aren’t going to be funded by us. There is no use keeping the entrepreneur on the hook if you aren’t going to fund a deal and we try to come to the “no” decision as quickly as possible.

I agree, Frank, there is a lot of bad communication “mojo” in the venture world. In fact, I see it too. I’ve seen countless times where VCs have been unresponsive to entrepreneurs, other VCs, or even their own portfolio companies.

In fairness, keep in mind that most good VCs are reviewing a massive amount of emails, business plans and proposals, so there are times when one can get buried. Take for instance the situation where one of my companies is in the middle of a sale process, while I’m in fundraising mode and moving into a new office. (That actually happened to me last fall). I’m clearly going to get slower in responses, but this normally affects timing by days, not weeks, as you mentioned above.

Okay, I haven’t answered your question: Are VCs incompetent or just inconsiderate? I think it’s more of the latter than the former, but ineffective communication styles, in my opinion, will eventually affect a VCs returns as reputations do matter in this business.

Q:  What is the the impact of the U.S. economy going into a (possible) recession on venture funding for new startups?

A:  (Jason).  Somewhere my undergrad economics professors are shuddering as I type this answer.  I won’t hold myself up as an professional economist or fortune teller, but there are some takeaways that have have been learned from prior downturns.

The first takeaway is that a lot of the effects of a recession are dependant upon how deep and long the recession is.  For instance, a longer recession will certainly lessen companies desire for buy advertising, whereas a shorter one may not.  Given advertising’s importance in the revenue models of many vc-backed companies, a protracted downturn will impact their revenue growth and decrease their chances for achieving profitability.  If a VC has a lot of companies in its portfolio that rely on advertising revenues, then it is possible that they’ll have difficulty supporting their companies financially if all of them suddenly experience longer roads to cash flow break even. 

Furthermore, companies will start to conserve cash to maximize earnings and this usually means a reduction in IT expenditures.  Venture companies who rely on enterprise sales will be affected similarly to ones analyzed above.

Along with companies trying to conserve cash, they will tend to acquire less companies and the ones they do will be for lower prices.  IPOs will not be possible in the choppy markets that are common during a recession.

All of the above will cause a lot of noise, grumbling and folks on MSNBC talking about how the sky is falling. 

Now how does this all affect VC financings?  Well, history would tell us that VCs will put less money into funding companies, converse cash and wait until the acquisition and public markets open up a bit.  With a lack of good exits, why would a VC want to invest in a company?  However, that’s never made much sense to me, especially if we limit investments to early-staged companies.  I’ve always thought the best time to invest in young startups is when things are choppy.  You usually can invest at lower prices, hire folks for less than you normally would, etc.  Also, I’d never expect an investment to exit in the near future (1-3 years, for sure) and therefore the company will be well positioned to exit at the end of the recession.  If you wait until the recession is over, you are already paying too much.

So bottom line is "we’ll see."  The last go around saw a tremendous drop in venture investing during hard economic times.  If i was a betting man, I’d probably still expect the same, but I can see a strong argument for continuing to invest regularly through the cycle.