EDocs Study Questions Essay

Custom Student Mr. Teacher ENG 1001-04 19 September 2016

EDocs Study Questions

This case concerns the negotiation of a venture capital investment between Charles River Ventures (CRV) and the founders of eDocs. eDocs (Kevin Laracey) and CRV (Jonathan Guerster) must decide what terms they would like to negotiate. Negotiation roles are given in an accompanying spreadsheet. Please review the study questions (page 2) and the poll questions (pages 3 and 4) – I will use these questions as a basis for class discussion. The point of the poll questions is to force people to think specifically about trading off deal terms for price, and to see how these tradeoffs vary across teams. Statistics from the poll results will be discussed in class.

In your case memo, please include a term sheet signed by one member of each team. Please make sure that the term sheets from both sides of the transaction match. It is not necessary to reproduce the entire term sheet for the case; instead, you can sign an “amended term sheet” that includes only the provisions that have changed from the original; please also include any amendments to the terms discussed in Guerster’s letter to Laracey (page 22 of the case). If the teams could not reach an agreement, please say this explicitly in your case memo. The memos should include all the answers to the “poll questions” for your team (pages 3 and 4) and some logical support for these answers.

These poll questions are effectively the starred (*) questions for this memo. You are also free to answer/discuss any of the study questions (see page 2) or any other issues that were important in your negotiation. Grades on these memos will depend on the logical coherence of your negotiating strategy and answers to the poll questions (as described in the memo) and may depend on the relative success of your negotiation (judged vs. other teams). It is possible to negotiate against intransigent counterparties, come to no agreement, and yet explain this well and write an excellent case memo. Please restrict your memos to be no more than five pages (not including the term sheet). A well-written memo of three pages beats a rambling five-page memo any day.

There are two sets of poll questions: one set for the eDocs team and one set for the CRV team. I apologize for stating the obvious, but here it goes: eDocs teams should answer only the eDocs poll and CRV teams should answer only the CRV poll.

eDocs

A startup e-commerce company is looking for its first-round of venture capital. A prominent VC is interested, and the parties must bargain over terms and price.

1) Is eDocs a good fit for CRV? If you were CRV, is this the kind of company you want to invest in?
2) Is CRV a good fit for eDocs? If you were eDocs, is this the kind of VC you want as an early-stage investor?
3) What are the most contentious terms for negotiation?
4) (*) How did your team decide on the relative value of these terms? 5) With the experience of this negotiation behind you, how would you have handled it differently?

Poll Questions: eDocs

NOTE: There is not just one “correct” answer for any of these questions, so don’t go crazy trying to figure it out. Also, for Questions 2 and 3, we do not expect any specific quantitative analysis. There are, however, good reasons why you might care more or less about the issues raised in all of the questions: please discuss these reasons in your memo and use them to guide your answers. One thing that is true: all of your answers to these questions should have X greater than or equal to $1. If you want to give an answer less than $1, then you are misunderstanding the question.

1) You have made a counteroffer to CRV that eliminates the participation described in the “liquidation” section of the term sheet. That is, you have offered that CRV pay $1 per share for regular convertible preferred stock with no participation feature. They counter with an offer of $X per share while keeping the participation option. What is the lowest value of X for which you would be willing to let them keep participation? 2) You have made a counteroffer to CRV that accelerates the vesting as described in the “Founders Stock, Options & Vesting” section of the term sheet. That is, you have offered the same terms as the original spreadsheet, except that founder’s shares vest immediately. CRV counters with an offer of $X per share while keeping the same vesting schedule. What is the lowest value of X for which you would be willing to let them keep the original schedule?

3) You have made a counteroffer to CRV that adds Kris Canekeratne to the Board of Directors. CRV, concerned that the board would be too large, counters with an offer of $X per share while keeping the same board composition as in the original term sheet. What is the lowest value of X for which you would be willing to let them keep the original board composition?

4) Guerster’s letter to Laracey (page 22 of case) includes a condition under which CRV will receive extra warrants if they finance the entire round. You have made a counteroffer that removes this provision. CRV counters with an offer of $X per share while keeping the extra warrant condition. What is the lowest value of X for which you would be willing to let them keep this condition?

Poll Questions: CRV

NOTE: There is not just one “correct” answer for any of these questions, so don’t go crazy trying to figure it out. Also, for Questions 2 and 3, we do not expect any specific quantitative analysis. There are, however, good reasons why you might care more or less about the issues raised in all of the questions: please discuss these reasons in your memo and use them to guide your answers. One thing that is true: all of your answers to these questions should have X greater than or equal to $1. If you want to give an answer less than $1, then you are misunderstanding the question.

1) eDocs has made a counteroffer to you that eliminated the participation described in the “liquidation” section of the term sheet. That is, they have offered that you pay $1 per share for regular convertible preferred stock with no participation feature. You are preparing to counter with an offer of $X per share while keeping the participation option. What is the highest value of X you would be willing to offer in order keep the participation?

2) eDocs has made a counteroffer to you that accelerates the vesting as described in the “Founders Stock, Options & Vesting” section of the term sheet. That is, they have offered the same terms as the original spreadsheet, except that founder’s shares vest immediately. You are preparing to counter with an offer of $X per share while keeping the same vesting schedule. What is the highest value of X you would be willing to offer in order to keep the original vesting schedule?

3) eDocs has made a counteroffer to CRV that adds Kris Canekeratne to the Board of Directors. You are concerned that the board would be too large and are preparing to counter with an offer of $X per share while keeping the same board composition as in the original term sheet. What is the highest value of X you would be willing to offer in order to keep the board composition as described in the term sheet? 4) Guerster’s letter to Laracey (page 22 of case) includes a condition under which CRV will receive extra warrants if they finance the entire round. eDocs has made a counteroffer that removes this provision. You are preparing to counter with an offer of $X per share while keeping the extra warrant condition. What is the highest value of X you would be willing to offer in order to keep this condition?

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