Finance and Term Sheet Essay

1) What are the most important terms for Laracey? Founders’ termination term is very important for Laracey because it increases the possibility that the unvested equity of the founders could be accelerated when the incoming CEO terminates them. It directly protects the benefits of the founders. 2) What are the most important issues for Guerster? Mergers, redemption, reorganization of the company, or transfers of control of edocs are the most important issues for Guerster. These issues will directly influence his proportionate ownership of edocs. 3) What is ‘liquidation preference/participation?’ Both in general, and specifically in the proposed term sheet. Compare the term sheet to M-Y: what type of security (CP, RP, PCP) is this? A liquidation preference tells an investor where she stands in the capital structure hierarchy. When there have been multiple rounds of investment, it is common for the latest-round investors to get their money back first. So the Series A preferred is getting the first dollar from any liquidation first. In this case, the investor owns the Series A preferred stocks, so in case of merger, reorganization or transfer of control of edocs, Guerster first get paid. The security is Participating Convertible Preferred (PCP) because in the liquidation term, it is mentioned that Participating goes away on valuation that corresponds to 50 million. In addition, there is conversion term in the term sheet. 4) Why is CRV so concerned about board representation? Because CRV would like to ensure that the board members could represent its right, and the company develops in the direction it expects and doesn’t spend the money it invests in other business concepts. 1) Critique Steve Papa’s fundraising strategy for the â€Å"C† financing round? What steps did he take that were sensible? What mistakes did he make? When Steve Papa realized he had to raise money, the Enterprise IT spending was slowdown. The behavior of both venture capitalists and technology market was hard to forecast. So Papa chose a wrong time for the â€Å"C† financing round. The uncertainty of the spending on technology made the investors not willing to pay as much as Papa asked. So Papa had to revaluate and lower the price for several times. However, it is sensible that Papa realized that he should go back to the market and look for the investment. 2) What are the key differences in the term sheets offered by the insider group and Ampersand? What explains the key differences? The Venrock/BVP offer an inside round at 98.5 ¢ per share. The pre-money was roughly $25 million. They would share the $10 million, with Venrock taking more to increase its ownership, and leave the round open for another $5 million, getting the deal done at $15 million with an option to close as high as $18 million. Ampersand offered at $1.25 per share, and full ratchet protection for the Series B investors. The effective pre-money, with ratchets, was $32.9 million. The key difference is the offering price. Papa told Ampersand that they could only make room for them if, Ampersand gave Endeca a term sheet that offered to lead an alternate deal at a significantly higher price by the day of the board meeting. Otherwise, it would be unfair to the insiders who had been extremely supportive throughout the entire process. And the insiders had really supported when Endeca needed it. If the insiders have worked very well and shares a common vision, it also is likely to involve a very important potential customer. So Ampersand had to offer a higher price to become attractive. 3) Analyze the impact of renegotiating the anti-dilution provisions. Was Bessemer’s request to adjust these terms reasonable? Renegotiating the anti-dilution provisions will make the investors more beneficial. Bessemer’s request to adjust these terms was reasonable. Bessemer wanted to change the anti-dilution on the B round to full ratchet. Full-ratchet anti-dilution protection allows an investor to remain his ownership in the company as same as the initial investment. Since the price of BVP’s participation was going to be important to the stock price, Bessemer’s request to adjust these terms was reasonable.