To: Michael Goldberg
Subject: Case Write-up #2: Endeca (A)
Endeca Technologies is a software company that established by Steve Papa on September 4th 2001. In the case, the company is currently looking for a Series C round funding to reduce the expected pre-money valuation multiple times because of the NASDAQ had fallen. In the end, the company got a rough pre-money valuation of $25M. At this time, there are two different term sheets that each of them contains some pros and cons putting in front of Papa to let him choose. Overall, Papa should choose the first term sheet because the benefits in that term sheet are more than the second term sheet, and at the same time it has less cons.
Does …show more content…
In addition, I would not bring the insider-led and the potential client DGSCP into the deal to give any verbal commitment before I made my decision.
Provide a detailed discussion of the pros and cons of the two term sheets. Which is more favorable to Endeca? Evaluate the two term sheets both financially (in terms of value) and non-financially (other terms.) Which provides them with a higher probability of survival and success?
First Term Sheet
Many investors who invested before, easier for the transition
Barely dilutes Venrock
Original Price equals to Liquidation Preference
Made verbal commitment before
Potential client DGSCP involved
Lower price per share, $0.985/share
Second Term Sheet
Higher Price per share, $1.25/share
Bring in new investors, new opportunity
Lose Anger Series B investors and DGSCP in the C round
More complicated because of new investors
Ampersand doesn't have much experience in investing this industry
Accrued dividends and redemption rights
As the chief representative for Endeca’s shareholders, which deal should recommend to the Board? Why?
As the chief representative for Endeca’s shareholders, I think Papa should choose the first term sheet. According to the analysis above, the first term sheet has more benefits over the second term sheet and less cons compared to the second term sheet. The only thing I concern