Secrets of Sand Hill Road – Venture Capital and How to Get It, by Scott Kupor

3rd February 2020 by Jens Düing, Senior Partner

Over the past ten to fifteen years, few firms have made an impression on the Venture Capital model like Andreessen Horowitz (aka “a16z”). So, when one of their Managing Partners, Scott Kupor, penned a book about venture capital, I thought that I should perhaps give it a read.

Kupor’s background – he worked for venture backed companies during the internet bubble and was a founding partner of a16z – means that he has seen and acted in the fundraising process on both sides of the table, allowing him to empathise with the entrepreneur and the investor. It is his recognition that entrepreneurs and CEO’s of companies seeking funding often lack insight on the circumstances and constraints affecting the VCs that makes this book stand out.

For example, Kupor not only dedicates two chapters to discussing numerous clauses typically found in a term sheet, he also offers a full sample term sheet to show CEOs the language and terms often contained in such term sheets. Take for instance the impact of a liquidation preference – in essence the term that determines in which order any proceeds might get paid out.

But that is not all. Whether a liquidation preference is participating (the VC gets her money back first and then participates pro-rata to her shareholding in any further proceeds) or non-participating (the VC chooses either to get her money back first or to participate pro-rata in the proceeds) has a profound impact on who receives how much in case of a successful sale of the company. Kupor dedicates a well written sub-chapter to walk the reader through a worked example.

Beyond the economic impact contained in the terms, corporate governance is a topic often overlooked – an you do so at your own peril. Kupor avoids falling into this trap and dedicates a chapter to this topic. Board composition and control rights are typically the topics entrepreneurs think of when governance is mentioned, however, Kupor does a great job explaining the provenance and importance to Venture Capitalist for other, often less contentious, terms such as pro-rata investment rights and founder vesting.

For instance, on the importance of the pro-rata investment rights for the Venture Capitalist, Kupor points out she will want to – need to – back the winners in her portfolio to make up for the losses. This is particularly true for early stage venture capital, and thus in contrast to scale-up focus we pursue at Frog. In essence, the companies whose scaling we back and support have already found a fitting market for their product and have significantly less risk of not reaching sustainability, or not producing a positive return for our investors. As a consequence, we support all of our investments rather than supporting the select few.

In summary, Kupor contributes a very readable book for CEOs looking to raise capital from Venture Capital. The breadth covered by him makes Secrets of Sand Hill Road an instant reference book ahead of any fundraise.

Jens Düing

Article by Jens Düing, Senior Partner

Jens joined Frog in 2012 and became a Partner in 2016. Active across all Frog’s investment themes, he has a particular focus on investment opportunities in German-speaking Europe and BeNeLux.