"OptiGuard. Inc.: Series A-Round Term Sheet" focuses on an entrepreneur in the cybersecurity industry who is attempting raise a first round of venture financing in November 2015. To date, the firm has been unsuccessful in attracting funding from venture capitalists (VCs) and has instead relied on a small seed round from local investors. With funds running short, the entrepreneur is again attempting to raise funds from VCs. During this process, it receives a bridge loan from a reputable venture capital firm to tide it over until it can complete a Series A round with the same firm. In November 2015, it receives the terms for a $5 million Series A round, and the students must evaluate the adequacy of the offer in light of other comparable financing rounds and how the terms will affect the future performance and other aspects of the firm in light of the high likelihood of future financing rounds.
The case's main teaching purpose is to provide a basic understanding of the legal and financial issues encountered in early-stage investments. The case incorporates the term sheet for the proposed Series A round, and the pre-Series A capitalization of the company. The study questions pose several direct questions to the students to help them focus on the features of the term sheet that have the largest impact on the company's valuation and control.
The case has been used successfully in an MBA-level entrepreneurial finance and private equity course, and a JD/MBA course in private equity. To facilitate preparation of the case, the materials include a student spreadsheet file (UVA-F-1798X) of the case exhibits, a detailed teaching note (UVA-F-1798TN), and an instructor file (UVA-F-1798TN).
The companion note, "Early-Stage Term Sheets" (UVA-F-1730), is a useful background reading for the case.