Nilesh Shah –
“Secrets of Sand Hill Road – Venture Capital and How to get it” is a book authored by the highly respected Mr. Scott Kupor, Managing Partner of the hallowed venture capital fund Andreessen Horowitz. This book has been making waves in Silicon Valley ever since it was published on June 2019.
I just ﬁnished reading this fantastic book and cannot recommend it enough. As an investor who has navigated the world of investing in high growth businesses, I can appreciate and empathize with the enriching insights being shared through this book. I would list this book as a must-read for all entrepreneurs seeking to raise capital for their businesses. Filled with real-life case studies and anecdotes this book is more like a mentoring session and makes for an easy and educative read.
Scott Kupor succinctly explains how venture capital funds decide about their investments. He provides an insiders view on how entrepreneurs aspiring to raise venture capital can be successful in their goal of securing the best possible deal. Entrepreneurs who heed the advice meted out through this book would be able to make the most of their relationships with the venture capital funds. Scott deconstructs the entire venture capital deal-making process into simple to understand steps. Entrepreneurs who usually ﬁnd ﬁnancial and investment terms diﬃcult to comprehend can easily grasp complex venture capital ideas through this book thanks to its simple and plain-speaking style.
Readers gain a crisp understanding of what is the essence of venture capital. One can ascertain if venture capital is the right source of capital for a new business.
Scott explains how early-stage venture capital funds make their investment decisions. He then details how venture capital funds evaluate the three most important aspects: people / team, product, and market size. Venture capital funds usually select only one bet in a space – Scott explains that thought quite well.
Roles of limited partners – the real and eventual source of capital and general partners are lucidly laid out. Complex concepts such as GP management fees and carried interest are nicely explained. Scott also explains each category of limited partners and their expectations in terms of returns as well as time horizons. This book explains how a match has to exist between the LP’s expectations, Venture Capital fund plans, and the invested company’s trajectory.
Intelligent tips for crafting a compelling fund-raising pitch is the most impressive reason for reading this book. Scott aptly explains how the ability to tell a compelling story is usually the most important factor which decides whether an entrepreneur would win interest from investors. It’s not the numbers but how the story is weaved through the numbers. From my investment experience, I wholeheartedly agree with this advice.
Term sheets structure and clauses are also addressed in a simpliﬁed manner. Economic and legal terms such as valuation, preferred shares, convertible instruments, per share workings,
liquidation preferences and other related concepts are explained in a layman, friendly manner. Governance related terms such as board composition, protective rights, registration rights, pro-rata rights and other terms are also touched upon.
This book also lays down the framework of how to evaluate competing deals which an entrepreneur may have on her table at the end of the pitching process. Hypothetical case studies are used to explain how an entrepreneur can evaluate each aspect of the term sheet oﬀered by a venture capital fund and compare it with the terms contained in another sheet. This kind of analysis is very useful and most investment bankers and attorneys would also agree with me that this book does it justice.
Scott provides his guidance on how to best leverage the board and how eﬀective board engagement can make all the diﬀerence. Readers will learn about the special aspects of the role of the board of directors in a venture capital-funded business.
Scott does not shy away from talking about the dreaded “down round”- when the high adrenaline rides hit a bump and the company is forced to raise the next round of ﬁnancing at valuations lower than the earlier raises. Guidance on this aspect is truly unique.
Finally, the book also provides insight into the process of preparing for and structuring a successful win-win exit – the step which all venture capital funds eagerly wait for. Scott righty explains that it is important to prepare for an exit by proactively nurturing relationships well in advance.
Filled with a successful investor’s ﬁrst hand experiences, Secrets of Sand Hill Road is the friendly guide book that Silicon Valley’s Visionaries can use while building their startup into the next unicorn. Whether one is attempting to launch a new start-up or scale an existing business, one needs to understand how venture capital works. This elusive know-how is now within reach. I believe this book lives up to its promise of attempting to democratize opportunity by demystifying venture capital. Go read it now!
[Nilesh Shah is an Investor, based in silicon valley. These are the author’s personal views. These are the author’s personal views. This note is not intended to be legal or investment advice. Prospective investors should seek inputs from licensed immigration attorneys, securities broker/dealers, and other competed professionals. ]