You Might be Smarter than a Fifth Grader, But Are You Smarter than a Venture Capitalist?

Go ahead, ask yourself. If your answer falls somewhere between “uhhh…” and “I don't know,” don't fret – it is quite common for entrepreneurs to have less information than the people who invest in their firms. “The only people that really understood how venture capital deals work [are] the VCs, lawyers, and entrepreneurs who had done it multiple times,” Brad Feld, co-founder and managing director of Foundry Group, told Benzinga during a recent interview. Full Interview: Brad Feld on How to Be Smarter Than Your Lawyer and Venture Capitalist Feld, who is the co-author of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, says that first-time entrepreneurs often know very little about the process. “Interestingly, many experienced entrepreneurs [know] relatively little about how the deal actually worked because they had either deferred plenty of it to their lawyers or didn't really focus that much on it during the time that they did their deal,” he said. Roughly five years ago, Feld started a blog series on Feld.com, “which decomposed a typical Series A term sheet for a venture capital deal.” “That term sheet series, which was about 30 posts, was very popular. [It] has been used both by numerous entrepreneurs, but also by many schools – business schools, law schools, etc.” Feld said that he and his partner, Jason Mendelson, had discussed the possibility of writing a book for quite some time. “[We] talked about deal making, how the venture capitalist business worked, about some basic negotiating strategy, and also all the different players involved and that's what we took on with this book,” he said. As a former entrepreneur, Feld has always been bothered by the “information asymmetry between entrepreneurs and venture capitalists in the context of deal negotiations.” “We try to keep our deals very straightforward and we try to be very…straight up the middle in terms of negotiation with the entrepreneur,” Feld insists, but says that the fact that entrepreneurs don't have the same information as venture capitalists puts them at a disadvantage. “I feel really strongly that it is the entrepreneur's responsibility to negotiate the deals, not their lawyers,” Feld said. “I think their lawyers can guide them and help them, but I've seen way too many times where entrepreneurs defer to their lawyers and their lawyers are either not that sophisticated with these types of investments or they're too busy and they're not paying attention or they don't really understand the nuances that the entrepreneur really cares about.” That makes for “generic tradeoffs,” Feld adds, “[and] if the entrepreneur wants to be the one that is driving the negotiation, then being armed with more information is better for them and we viewed that as a good thing for the universe.” To hear more from the Foundry Group co-founder and managing director, don't miss Benzinga's full interview with Brad Feld. Follow me @LouisBedigian