Product Overview

GoStage Ventures Fund LP (GoStage Ventures), a global venture capital firm, has a portfolio company, Motocredible Technologies Pvt. Ltd. (MotoSpin), that is pursuing a much-needed Series B financing round. MotoSpin was founded in Mumbai, India, to create a trusted and transparent online marketplace for pre-owned scooters, motorcycles, and electric vehicles (EVs). After several months of fundraising and hundreds of potential investor meetings, MotoSpin received a term sheet for a Series B financing round from ONE Capital, a large US-based impact fund. The problem for MotoSpin and GoStage Ventures is that the proposed Series B round valuation is at a 50% discount to the previous Series A round, creating a down round. In addition to the issue of the lower valuation, the ONE Capital term sheet proposed changes to many of the previous Series A round terms. Atiksh King, a vice president with GoStage Ventures, must decide how to respond to the proposed Series B financing. The case is appropriate for use in a first-year or second-year MBA course as well as an undergraduate business school elective that addresses venture capital, early-stage deal terms, and pricing of investment rounds in venture capital. Students should be familiar with venture capital financing in general before tackling this case. This case could also be used in an entrepreneurship class to illustrate how founders should think about term sheets, issues related to financing rounds, and how terms agreed to in a previous round can impact a subsequent financing round.

Learning Objectives

- Discuss investment rounds (Series A, Series B, and so on) in venture capital. - Consider why start-up/early-stage companies often need to raise more than one round of financing. - Learn about term sheets and how they are used in venture capital financing. - Identify deal terms that are frequently used in venture capital term sheets. Discuss how these terms may be utilized to benefit the investor and the impact they may have on the founder and others. - Develop an understanding of a down round in venture capital, why one might occur, and the impact it can have on existing investors, founders, and the company overall. - Describe how terms from a previous investment round can impact a future financing round.