Venture Capital & Term Sheets
How to raise venture money in stages, each round paying to remove a specific risk, with the financing math to match.
The big idea
Berkery's central idea is that venture investors pay to remove risk, and that a company's value rises as each major risk is retired. The smart financing plan raises money in stages tied to milestones that eliminate specific risks, so each later round is priced higher. He backs this with practical tools: sizing a raise from the low point of projected cumulative cash flow, reading use of funds as a statement of priorities, and modeling how term sheet structures pay out at different exit values.
Key takeaways
Each round should pay to remove a specific risk, such as whether the technology works, whether customers will pay, or whether growth can repeat profitably. Retiring a risk raises the company's value, so raising all the money at the earliest, riskiest price is usually the most expensive choice.
Project cumulative cash flow month by month. The deepest point of that curve, plus a buffer for slippage, is the least you should raise. Raising less doesn't save equity; it pushes you into a bridge round negotiated from a weak position, often before you have hit the milestone that would justify a better price.
Berkery frames investor evaluation around whether there is a meaningful gap in the market and whether this team can fill it. A real gap combines genuine pain, no incumbent solving it well, and evidence that customers will pay. Most of a pitch should be evidence for one of those two questions.
A sources-and-uses breakdown reveals whether you understand which risk to tackle next. Heavy spending on sales before customers are retaining tells investors you are working on risks out of order. Allocate the money in the sequence that removes the biggest current risk first, and say so explicitly in the plan.
Ownership equals investment divided by post-money valuation. Investors typically start from a plausible exit and the return they need, then solve for the stake that delivers it. Arguing valuation without discussing exit assumptions means arguing the wrong variable. Bring your own exit reasoning to the conversation.
Economic terms include valuation, option pool placement, liquidation preference, participation and anti-dilution. Control terms include board composition, protective provisions, drag-along rights and pay-to-play. Founders often give up a great deal of control to win a better headline price, a trade that is hard to reverse later.
Owning a share of the company is not the same as receiving that share of the proceeds. Liquidation preferences are paid before common stock, and participating preferred is paid twice: once as preference and again as equity. Run the numbers at low, middle and high exit values before you sign.
The framework
| Exit value | Common receives (1x non-participating) | Common receives (2x participating) |
|---|---|---|
| $20M | $10M | $0 |
| $40M | $28M | $14M |
| $100M | $70M | $56M |
Apply it this week
Read next
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The textbook math behind how venture capitalists value startups, size ownership, and structure preferred stock.
A plain-language guide to reading financial statements, understanding where the numbers are soft, and managing cash in a young company.
This page is an original summary and commentary prepared by XRAYCLOUD.AI with AI assistance. It is not affiliated with or endorsed by the author or publisher, and it is no substitute for the book — read it for the full argument.