Endeca (A) Essay

Words: 946
Pages: 4

Date: April 4th 2013
To: Michael Goldberg
Subject: Case Write-up #2: Endeca (A)

Executive Summary
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.

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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

Less Capital

Low valuation

Second Term Sheet
Higher Price per share, $1.25/share

More capital
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