Ever since college, I knew I wanted to do a startup someday. Thus, I began laying the groundwork. I believe in being prepared before the opportunities show up to make the most out of them.
I knew I had to learn about engineering, marketing, sales, hiring, and operations. I underestimated the importance of legal contracts. But then, the Silicon Valley TV show was released. It opened up my mind. I realised I would need to deal with Venture Capitalists, Private Equity folks and public markets at some point. Thus, I began my journey of understanding their world. They do have a beautiful world that they have created with their language and emotions. I read the book Venture Deals by Brad Feld and loved it. When COVID happened, I, along with Preetish Pallerla took the Techstars course. The most fun and helpful exercise was calculating the returns in different outcomes when a startup has multiple rounds of financing.
I couldn't believe the fact that Brad Feld who is a Venture Capitalist (VC) was willing to share this information with what I would call future counter-parties, and I soaked up as much as I could. Over time, I slowly realised that growing the ecosystem is one of the best ways to deliver alpha (read as excess return for the risk taken). It also helps to build trust. Since he was a relatively later-stage VC, I suppose he was also pissed with the fact that earlier VCs screwed up the term sheets, which became difficult for the company and him. E.g. when a Series A VC has 2X participating liquidation preference, and he comes at Series B, he has to layer his 2X participating preferred, which lowers the value of a Series A VC significantly compared to what would have been if Series A had been a 1X non-participating liquidation preference. Such scenarios also leave the founder demotivated for an M&A exit if they build a valuable company but can't exist as an independent public market company. So, instead of converting their illiquid stock into a more liquid one, the VCs must write it off completely. Some other day, I will explain in detail why and how.
A few years later, when LLMs were released, I thought of rereading the book. I realised the LLMs have gotten powerful enough that I can help a founder who hasn't read the book but has a term sheet to understand just enough not to be screwed over.
Thus I launched Know Your Term Sheet AI Prompt.
I hope it helps fellow founders. Would love suggestions on improving this at pranit <at> bauva.com
