Secrets of Sand Hill Road

Kupor, managing partner at Andreessen Horowitz, explains how venture capital works from both sides, aimed at founders who need to understand what they are agreeing to. It is the most practically detailed book on the mechanics.

The first part explains venture firms as businesses: how funds are structured as limited partnerships, who the limited partners are and what their constraints require, how the two and twenty fee structure works, what a fund's ten-year life implies for the pressure on portfolio companies, why the power law forces investors to seek outliers rather than reliable returns, and how carried interest and distribution waterfalls actually operate.

The second part covers the term sheet clause by clause. Kupor explains liquidation preferences including participating and non-participating structures with the arithmetic, anti-dilution provisions and the difference between broad-based weighted average and full ratchet, protective provisions, board composition, pro rata rights, option pool shuffles and how the pool's placement affects the effective valuation, drag-along rights, and the distinction between economic terms and control terms. He argues that founders overweight valuation and underweight control and preference terms, which determine outcomes in every scenario except the best one.

The third part covers the mechanics of exits, acquisition structures and going public, including direct listings. The perspective is a general partner's, so the advice is shaped by what a venture firm considers reasonable. It is specific to United States practice at a particular period, and terms have shifted since publication. The clause-level explanations with worked arithmetic are the reason to read it.