Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms

255 Pages·2011·23.23 MB·English

by  Jeffrey Bussgang

M A S T E R I N G
T H E V C G A M E
A Venture Capital Insider Reveals
How to Get from Start-up to IPO
on YOUR Terms
JEFFREY BUSSGANG
General Partner, Flybridge Capital Partners
U.S. $25.95
Canada $32.50
"There are tons of books to help entrepreneurs
understand things like accounting, marketing,
and sales. But until now, you were left to fend for
yourselfto graspthe insidergameof venturecapital
funding. Read this book right now so you can look
your potential VC in the eye with confidence."
—David Meerman Scott, bestsellingauthor of
TheNewRules ofMarketing&PR
Entrepreneurs who dream of building the
next Amazon, Facebook, or Google can
takeadvantage ofone ofthe most powerful
economic engines the world has ever known:
venture capital. Todo so, you need to woo, impress,
and persuadeventurecapitaliststo takea risk on an
unproven idea. Thattask is challenge enough. But
choosingthe rightinvestor can be harder still. Even
ifyou managetoget backing,youwantyour VCto be
a partner, not some adversary who will undermine
your vision in orderto make a quick return.
Jeffrey Bussgang is one of a few people who
have played on both sides of this high-stakes
game. By his earlythirties, he had helped build two
successful start-ups—one went public, the other
wasacquired. Now hedraws on his experience and
unique perspective on the "otherside" as a venture
capitalist helping entrepreneurs bringtheir dreams
to fruition.
Bussgang offers detailed insights, colorful sto
ries, and practical advice gathered from his own
experience as well as from interviews with dozens
of the most successful players on both sides of the
game, including Twitter's Jack Dorsey and Linked-
In's Reid Hoffman. He reveals how to get noticed,
perfect a pitch, and negotiate a partnership that
works for everyone.
An insider's guide to the secrets of the world of
venture capital, Masteringthe VC Gamewill prove
invaluable for entrepreneurs seeking capital and
successful partnerships.
0510
MASTERING
THE VC GAME
MASTERING
theVC GAME
A Venture Capital Insider
Reveals How to Get
FROM START-UP TO IPO
on YOUR Own Terms
JEFFREY BUSSGANG
PORTFOLIO
PORTFOLip
PublishedbythePenguinGroup
PenguinGroup(USA)Inc.,375HudsonStreet,
NewYork,NewYork10014,U.S.A.
PenguinGroup(Canada),90EglintonAvenueEast,Suite700,
Toronto,Ontario,CanadaM4P2Y3
(adivisionofPearsonPenguinCanadaInc.)
PenguinBooks Ltd, 80Strand,LondonWC2RORL,England
PenguinIreland,25St.Stephen'sGreen,Dublin2,Ireland
(adivisionofPenguinBooksLtd)
PenguinBooksAustraliaLtd,250CamberwellRoad,Camberwell,
Victoria3124,Australia
(adivisionofPearsonAustraliaGroupPtyLtd)
PenguinBooksIndiaPvtLtd,11CommunityCentre,PanchsheelPark,
NewDelhi-110017,India
PenguinGroup(NZ),67ApolloDrive,Rosedale,NorthShore0632,
NewZealand(adivisionofPearsonNewZealand Ltd)
PenguinBooks(SouthAfrica)(Pty)Ltd,24SturdeeAvenue,
Rosebank,Johannesburg2196,SouthAfrica
PenguinBooksLtd,RegisteredOffices:80Strand,LondonWC2RORL,England
Firstpublishedin2010byPortfolio,amemberofPenguinGroup(USA)Inc.
13579108642
Copyright©JeffreyBussgang,2010
Allrightsreserved
LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA
Bussgang,Jeffrey.
MasteringtheVC game:aventurecapitalinsiderrevealshowtogetfrom
start-uptoIPOonyourownterms/JeffreyBussgang.
p.cm.
Includesindex.
ISBN978-l-59184:325-2
1.Venturecapital. 2.Newbusinessenterprises—Finance. 3.Goingpublic
(Securities) I. Title.
HG4751.B875 2010
658.15'224-dc22 2009053945
PrintedintheUnitedStatesofAmerica
SetinStempelGaramond
DesignedbyVictoriaHartman
Withoutlimitingtherightsundercopyrightreservedabove,nopartofthis
publicationmaybereproduced,storedinorintroducedintoaretrievalsystem,
ortransmitted,inanyformorbyanymeans(electronic,mechanical,photocopying,
recording,orotherwise),withoutthepriorwrittenpermissionofboththecopyright
ownerandtheabovepublisherofthisbook.
The scanning,uploading,anddistributionofthisbookviatheInternet orvia
anyothermeanswithoutthepermissionofthepublisherisillegalandpunishable
bylaw.Pleasepurchaseonlyauthorizedelectroniceditionsanddonotparticipate
inorencourageelectronicpiracyofcopyrightablematerials.Your support
oftheauthor'srightsisappreciated.
While theauthorhasmadeeveryefforttoprovideaccuratetelephonenumbers
andInternetaddressesatthetime ofpublication,neitherthepublishernorthe
authorassumesanyresponsibilityforerrors,orforchangesthatoccurafter
publication.Further,publisherdoesnothaveanycontroloveranddoesnot
assumeanyresponsibility forauthororthird-partyWebsitesortheircontent.
Tomyparents,who createdme,
and mywife,whosustainsme
CONTENTS
Introduction 1
1. The Entrepreneurial Itch: Change the World 7
What makesanentrepreneurtick—-profiles of
Sirtris'sChristophWestphal, Twitter'sJackDorsey,
Linkedln's Reid Hoffman
2. Inside the VC Club: The One Thousand Deciders 38
Alookinsidethe exclusiveVCclub—profiles of
August Capital's DavidHornik, DFJ'sTim Draper,
Union Square'sFred Wilson
3. The Pitch: Being the One inThree Hundred 77
How to succeedin pitching VCs—give them what
they arelooking for:asetofdiscreteexperiments
with clear milestones
viii I Contents
4. When the DogCatches the Bus:
Making the Pick and Doingthe Deal 110
How VCsaddvalueto start-ups andhow to
negotiateaterm sheetwith them
i
5. As the Start-up Turns: Every Company Is a Soap Opera 145
How to manageyour board ofdirectors and avert
afallfrom grace
6. Jackpot: Routes to Cashing Out 170
Exit considerations: who, what, when, and how-
profilesofConstant Contact's Gail Goodman
and Brontes' EricPaley
7. The Venture-Backed Start-up: America's
Greatest Export 196
Asampling ofhowVCispracticed abroad—
profiles ofChina,Vietnam, andEurope
Looking Ahead 218
Acknowledgments 227
BlogRoll 229.
Photo Credits 235
Index 237
MASTERING
THE VC GAME
INTRODUCTION
Iwas born to beanentrepreneur. Becoming aventure capital
ist(VC)wasneverpart ofmylife plan.
Reid Hoffman, founder of Linkedln, observed that an
entrepreneur issomeone whowilljumpoffacliffandassem
ble anairplane ontheway down. Thisiscertainly animpulse
to which I can relate. I credit my father with sparking my
entrepreneurial drive. Hewas aHolocaust refugee andsurvi
vor,who cameto America, penniless, in 1949 and earned his
master's inengineeringfrom MITandPhDinappliedphysics
from Harvard. He then started a successful high-technology
companytheold-fashionedway—living handto mouth,oper
ating with customer revenues only, and without benefit of
any outside capital. Watching myimmigrant father embrace
entrepreneurship inspired inme apassion forthefield andan
unyieldingbeliefinitspowerto effectchange.
Armedwitha"kitchentable"MBA,aswellasthe realthing
from Harvard Business School, I set out many years ago on