Solved Darden Case Study Solution: OptiGuard, Inc: Series A-Round Term Sheet (Download Now)

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Solution Pages: 10

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Questions Covered in the Solution

  1. How attractive is the company to prospective investors?
  2. Does the term sheet for the series A round generally favor the entrepreneur (Mannex) or the VC investor (WVP)? Be sure to cite the specific terms and features of the contract to support your opinion.
  3. Before the Series A round, what is the Optiguard’s post-money value if the offer is accepted as proposed?
  4. What are the implications for WVP if another investor offers to provide Optiguard an additional $7.8 million in equity after the Series A round at a price of $8 a share? At $3 share?
  5. What are the implications for the WVP if it has a participating versus conventional liquidation preference and Optiguard is sold for $15 million in three years?
  6. If you were Mannix, would you accept WVP’s offer as proposed, or attempt to negotiate certain terms of the offer? If you choose to negotiate, what adjustments would you seek to make?

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Sample of Solution

  1. How attractive is the company to prospective investors?

Since, the world’s mobile workforce has realized the trajectory of exceptional growth, the risks of potential cyber-attacks and the eventual losses procured from such attacks have also been increased. Optiguard Inc. was established in 2013 to capitalize the essence of such market peculiarity by providing the advanced data-security and compliance software products. While protecting the mobile-devices’ screens against data leakages through data security, eavesdropping detection and intruder guard, Optiguard applications have also provided audit trial for integrated follow-up forensics to clinch the potential source of discrepancies. In essence, Optiguard has been able to realize potential significance in the industry of cybersecurity. While considering the growth potential of the industry and particularly the company, investment in Optiguard has been a lucrative investment opportunity for the investors.

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  1. Does the term sheet for the series A round generally favor the entrepreneur (Mannix) or the VC investor (WVP)? Be sure to cite the specific terms and features of the contract to support your opinion

The term sheet for series A round must be evaluated over different dimensions to realize the precise and accurate implications of its execution. Both the entrepreneur (Mannix) and VC investor (WVP) have their own peculiar interests which may be quite different from each other and rather conflicting at some points. For instance, Mannix needs to ensure that its company is on the track of its ultimate vision and it has enough collateral to realize growth and conduct further research for a more advanced version of the products. Where, he is concerned about the cash at hand, he also needs to take into account what impact series A round would have on the employees’ incentives/ stake in the company which may keep them motivated. Furthermore, he would also be concerned about his say in the process of decision making and the need of further funding to keep the company on the growth-track, beyond series A.

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  1. Before the Series A round, what is the Optiguard’s post-money value if the offer is accepted as proposed?

So if the company goes with the offer of Bridge Loan which is contingent on the Series A round, the post-money valuation of Optiguard before Series A round would be $7,078,972

Series A RoundBridge Loan Amount $ 350,000Series A investment Amount $ 5,000,000Price Per Share $ 4Preferred Shares Offered 1,250,000Total Diluted Share Before Series A 1,800,000Bridge Loan Shares 87,500Total Diluted Share after Series A 3,137,500Series A ownership in Optiguard 43%Post Money Series A valuation $ 11,728,972Pre-Money Valuation of Series A $ 6,728,972Post-Money Valuation Before Series A $ 7,078,972

  1. What are the implications for the WVP if it has a participating versus conventional liquidation preference and Optiguard is sold for $15 million in three years?

Participating Liquidation Preference:

In the event of liquidation and the eventual distribution of the assets when the company is sold as per the exit strategy may be, the preferred stockholders have a superior claim on all the assets of the firm. So, first the claims of preferred shareholders would be satisfied, and then the leftover assets would be distributed among the common shareholders. Whereas, in the participating liquidation preference WVP would have claim over the assets equivalent to per share’s original purchase price plus any unpaid or declared dividends. While the leftover assets would be distributed on the pro-rata basis of common stocks and also the equivalent preferred shares of WVP.

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