Over the past couple of decades, the word “startup” has become insanely trendy, and for most people, it’s synonymous with the promise of inevitable success. We know dozens of stories where an ordinary student started a business in a garage that later turned into a multibillion-dollar company. Everyone wants to try on that role for themselves. To help them, there’s an abundance of books explaining how to create the company of your dreams, refine your idea, and build something people truly need. Even in my blog, I’ve reviewed several such books (for instance, “The Art of the Start“ by Guy Kawasaki and “Zero to One: Notes on Startups, or How to Build the Future“).
Of course, few people mention that for every success story, there are thousands of failures, but who’s interested in those? Everyone wants to look up to the best (this tendency is known as “survivorship bias”). Moreover, not all authors tell you that often, to launch a successful and rapidly growing business, you need funding. At best, they give advice on how to structure your presentations for potential investors. But what comes next… few will shed light on that.
The book “Venture Deals” is one of the rare few that focuses specifically on communicating with investors, the rules of drafting investment deals, and all those details that a future owner of a successful company must know and understand—unless, of course, they want to end up with nothing, even if their business turns out to be groundbreaking. The book’s subtitle is “Be SMARTER Than Your LAWYER and VENTURE CAPITALIST”. And it’s written by none other than those very venture capitalists who’ve mastered the art of such deals.
At first glance, you might wonder, why would they do this? First, to educate people—a noble goal in itself. Second, to make their own lives easier. After all, if a well-prepared business founder comes to you seeking investment, it’s more pleasant and efficient to work with them. This increases the likelihood of success and reduces the time wasted on mediocre pitches.
Even though I’m familiar with working with startups, including the investment side, I realized just a few pages into this book how little I truly know and understand—and how fascinating this new knowledge can be.
I read the book in English, though it was also published in Russian. Interestingly, it happened only once, back in 2012, by the publisher МИФ (Mann, Ivanov & Ferber), and it hasn’t been reprinted since. Not even a digital version is available anywhere, and the publisher’s website doesn’t mention it at all. Meanwhile, in the West, the book is in high demand and constantly reprinted (there have already been four editions).
Now, back to the book. As I mentioned, the authors’ primary goal is to make future business owners more knowledgeable about venture financing. They thoughtfully and systematically introduce all the key topics and terms you’ll need to navigate if you decide to seek funding for your brilliant idea.
To start, they briefly introduce the key players in this game: the entrepreneur, venture capitalists, lawyers, angel investors, syndicates, and so on. Then, they explain how to “raise money” properly, beginning with the question, “Do or don’t—simply trying isn’t enough.” They also offer advice on finding the right investor for you, emphasizing that “not all investors are equally helpful.”
The lion’s share of the book is dedicated to a meticulous breakdown of the so-called Term Sheet—a document outlining the terms under which an investor agrees to put money into your business. Importantly, this is not the final deal but rather a proposal for collaboration with clearly defined and explicit conditions.
It’s in the Term Sheet that you shape the future of your company: who will manage it, how investors can influence decisions, and, critically, how the profits will be divided upon the sale of the company. (Spoiler alert: a savvy investor has plenty of ways to leave the entrepreneur with nothing, even if the company is sold for millions—so read between the lines carefully.) Many believe that the more money investors offer, the better. However, investors aren’t fools, and entrepreneurs must understand what lies behind every dollar invested and every valuation of their business.
The authors break down the Term Sheet into sections focusing on economic terms, governance issues, and everything else. They cover how to calculate money and business equity, who gets what, who makes decisions, who gets protected in case of problems, and much more.
The authors clearly explain which points in the Term Sheet are critical and which ones are better left untouched—and why. Often, fighting over minor details will cost the entrepreneur money (especially if their pricey lawyer insists on it), while the truly important points may go unnoticed.
Starting with, I believe, the third edition, the book also includes commentary from a seasoned entrepreneur—a friend of the authors—who has gone through the investment process multiple times. His advice adds nuance to what the investor-authors describe, offering a perspective “from the other side.”
After dissecting the Term Sheet, the book delves into the differences between convertible debt and standard equity investments, highlighting their benefits and pitfalls. It briefly touches on crowdfunding, which has grown significantly in recent years (particularly after the Kickstarter boom). The authors also provide an overview of the venture capital market and its workings.
In the final chapters, the book offers negotiation advice, covering basic tactics and how to avoid being pushy while seeking funding the “right” way. They also address some legal nuances, primarily focused on the U.S. market.
In summary, this is an excellent book for anyone considering investment but who has never approached it seriously. It helps you understand what to focus on during negotiations and what to worry less about, as well as how to avoid letting your ambitions destroy your business.
While much of the material is explained through examples, some chapters delve into highly specialized financial or legal topics that can be hard to grasp without relevant experience. For me, about 10% of the book fell into this category. I had to reread sections and look up additional information online. This is why I slightly lowered my initial high rating.
That said, the book is essential reading for anyone venturing into the world of investments. At the very least, it will help you avoid a scenario where, after years of hard work, you find yourself owning a successful business—but one that is no longer yours. (And the book provides real-life examples that make it clear how this can happen.)
My rating: 4/5
