Venture Deals

Venture Deals by Brad Feld and Jason Mendelson is often described as the Bible of startup financing. The book doesn’t just explain how venture capital (VC) works—it exposes the incentives, personalities, and power dynamics that shape every deal. Feld and Mendelson, co-founders of the Foundry Group, have spent decades on both sides of the table—as founders seeking capital and as investors providing it. This dual perspective makes their advice uniquely practical and brutally honest.

The authors begin by explaining that most entrepreneurs misunderstand how venture capitalists think. Founders often believe that VCs are merely sources of cash, but in reality, they’re portfolio managers trying to generate huge returns on behalf of limited partners (LPs)—the institutions and individuals who fund VC firms. Understanding this context is vital: VCs care about risk, timing, and ownership stakes that will help them achieve a 10x or even 100x return on investment.

For example, if a VC fund is $200 million, each investment must have the potential to return at least $20 million (10% of the fund) for the economics to make sense. This is why investors often push for high ownership percentages, board seats, and liquidation preferences—they need control mechanisms to protect their upside. Venture Deals teaches founders to recognize these motives not as hostility, but as part of the VC’s job—and to negotiate accordingly.

The Two Pillars of Every Venture Deal: Economics and Control

The authors boil venture capital down to two essential ingredients: economics (who gets paid, and how much) and control (who makes the key decisions). Everything else—legal clauses, valuation debates, investor presentations—ultimately affects one or both of these pillars.

• Economics governs how profits are distributed: through valuation, liquidation preference, anti-dilution protection, and dividends.

• Control determines who runs the company, who approves big moves, and who can block decisions. This includes board seats, voting rights, and protective provisions.

For instance, imagine a founder who gives a VC 30% of her startup for $3 million. She still owns 70%, but the investor holds two board seats, has veto power over new share issuances, and must approve any sale. The founder might technically own most of the company, yet she’s effectively lost control of its direction.

Feld and Mendelson recount numerous stories of founders being “fired” from their own companies due to control terms they didn’t fully understand. Their key lesson: ownership percentage means little without control, and control can vanish even when you hold the majority of shares.

The Term Sheet: Your Startup’s Blueprint

The term sheet is the foundation of every deal—it’s the non-binding agreement that outlines all major investment terms before formal legal contracts are drafted. Feld and Mendelson call it “the document that defines your business marriage.” While most founders treat it like a formality, it’s actually the single most important document in the VC process.

A typical term sheet includes:

• Valuation (pre- and post-money).

• Investment amount and share price.

• Type of stock (usually preferred shares).

• Liquidation preference and dividends.

• Anti-dilution protections.

• Board composition.

• Protective provisions and voting rights.

• Employee option pool.

Feld and Mendelson illustrate with a story of a software startup that celebrated a $10 million ...