Brad Feld and Jason Mendelson Reveal VCs Traps and Tricks

Don't let their fancy suits fool you.

“As we say many times in the book, this is not a substitute for hiring a good lawyer,” Jason Mendelson said, sitting in a 46th floor conference room at Cooley LLP. “But most venture lawyers suck anyway.”

Mr. Mendelson was in town with Brad Feld, his partner at the Foundry Group in Boulder, Colorado, to promote their new book, Venture Deals: Be Smarter Than Your Lawyer or Venture Capitalist.

“The thing is, many lawyers who don’t specialize in VC will get bogged down in details that don’t matter, and that ends up souring a good deal,” Mr. Feld added.

Babak “Bo” Yaghmaie, a partner in Cooley’s venture practice, nodded in assent. “An entrepreneur who doesn’t read this book, who doesn’t have the sort of basic, 101 understanding of how the process works, probably doesn’t deserve to be funded.”

The book came out of a series of blog posts that Mr. Feld and Mr. Mendelson wrote entitled the Term Sheet Series, an attempt to demystify the often complex legalese that surrounds venture funding. What once might have been a one page letter asking to exchange $100,000 for 50 percent of a company is now a dense, eight page legal document filled with terms like drag along rights and pari passu.

“When we first started writing the series, some VCs did object,” said Mr. Mendelson. “But fuck ’em. This is a personal thing for us, to help everyone in the ecosystem learn to communicate better. Because while both Brad and I teach some guest classes at universities, most of this stuff can’t be learned in school.”

The basic maxim of the book is that, setting aside all the turgid legalese in many of today’s term sheets, only two things really matter in a funding negotiation: economics and control. “We try and prepare founders for all the pressures that might emerge downstream. If your VC needs to go out a raise a new fund, many of their motivations may change, and you want to understand who’s really in control.”

As the meeting wrapped up Mr. Feld headed off for a meeting at Tumblr and Mr. Mendelson grabbed a cab down to TechStars. “Founders might find this stuff intimidating, but that’s silly,” said Mr. Mendelson. “When I teach this stuff at colleges, it’s a mix of law students, MBAs and engineers. Typically the engineers finish the material first and end up kicking everyone else’s butt.”

Brad Feld and Jason Mendelson Reveal VCs Traps and Tricks