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:

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 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 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 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 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 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

Today’s best post is from my partner Jason Mendelson and is titled What’s The Value Of My Startup?  In it, Jason covers many of the inputs that go into a VC’s mind when coming up with the valuation for a startup.

Stu Phillips has the great VC post of the day up titled The Valuation Trap.  In it, he tells you how to answer the question from a VC of "what valuation are you looking for?"  Of course, if I ask you the question, please ignore Stu’s advice and just give me a number.

Question: Valuation is often one of the first questions VC’s ask of companies seeking capital.  It seems that VC firms have their own way of doing a down and dirty estimate of the companies value.  Will you share some of the common “quick ways” they arrive at the companies value?

The short answer is “no – we won’t share common quick ways VCs arrive at companies value – that’s part of the secret VC voodoo magic that we keep secret from entrepreneurs, especially if they are on double secret probation.”  Oops – that was mean for the blog www.dontaskthevc.com – I forgot which one I was posting to.

Valuation – especially for early stage companies – falls in the category of “more art than science.”  While buyout investors who are acquiring companies with meaningful cash flow streams love their multi-sheet Excel models with 37 pivot tables, most early stage VCs can do valuations on a napkin (or – if they are good at simple math (e.g. addition and subtraction) – in their head.)  In the early stages three things drive valuation: (a) ownership dynamics, (b) market terms, and (c) competitive deal dynamics. 

Ownership dynamics are the most vague – many VC firms have a view of their “target ownership” of a company (e.g. “we like to own 20% of the companies we invest in”) and use this to back into a valuation.  However, the specific amount varies by firm.  In addition, most firms – especially larger ones – can simply write bigger checks to get the ownership they want, which results in larger post money (but not always premoney) valuations.

Market terms are a little easier to understand.  If you are an early stage company, you’ll start hearing things like “1 on 2” or “3 on 3” or “5 on 4”.  “1 on 2” is VC shorthand for “$1m buys 33% of the company.”  While market terms move around over time, most seed deals get done between $1m and $3m premoney and most first round investments typically get done where the capital in buys 50% of the company (e.g. “4 on 4” or “5 on 5.”)  Again – this is art – there is no scientific way to really value three guys and a powerpoint slide or a web service with 10,000 subscribers of which 250 are active (although no one can prove that only 250 are active.)  When you are in this position and your prospective VC starts talking about discounted cash flow in year 10, run screaming from the building – he is not the droid you are looking for.

Competitive deal dynamics are where all of this goes out the window.  If you only have one VC interested in your deal, you have relatively little negotiating leverage.  However, if you are the hottest company of the week, have a dozen different firms that want to get into your deal, and you have three great angel investors ready to write $500k checks each to fund your first round, you probably can negotiate a meaningfully higher price.