In: Business and Management

Submitted By ksauk
Words 3878
Pages 16
This report deals with a group of MBA students that have founded SpiffyTerm, Inc. They are figuring out what to do with negotiations with various venture capitalists. They were spending a particular amount of time with a term sheet they received from Vulture Ventures. They decided to focus on understanding the term sheet in order to conclude what valuation and terms they should be negotiating for. Annabella, Krishnuvara, and Bob needed to start by deciding on what they believed an appropriate valuation would be. The group decided they would need to raise $4 million at the current time. To start they allocated 5 million shares to themselves. Along with the 5 million shares they decided to put aside 1.5 million shares for any potential future employees. The group also decided that after 2 additional years they would need to raise another $2 million. Venture Vultures offered to invest $4 million at $1 a share. They did not fully believe this was the best valuation however. Because of this they wanted to create a model that would show an appropriate valuation. The group of MBA students believed SpiffyTerm, Inc. was capable of releasing an IPO after 4 years of approximately $80 million. They did take into consideration the potential risks of their venture. Because of this they came up with a discount rate of 45%.
To start, defining what a term sheet is and its role in this circumstance. A term sheet is a bullet-point document that outlines the material terms and conditions of a business agreement. A term sheet can be either binding or non-binding. Within the context of venture capital financing the term sheet usually includes conditions for financing a startup company. Crucial offering terms tend to include the amount raised, price per share, pre-money valuation, liquidation preference, voting rights, anti-dilution provisions, and registration rights. The term…...

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