Venture capital is a term used to refer to the money offered by investors or other money lending institutions to startup companies or small business that show great potential for long-term growth. Angel investors are individuals with high net worth who provide venture capital to Startup Companies at an early stage, and in return, they get an equity ownership interest. They often choose to invest in startup companies for various reasons, and MetaCarta checked several of their boxes.
To begin with, MetaCarta had an exceptional management team. Considering that MetaCarta is a tech company, potential investors would feel that they are betting on the right horse if the founders are tech-savvy individuals with excellent managerial skills. Dough had a strong engineering background and some entrepreneurial and managerial skills. It made a lot of sense why he got the Vice President position. Erick is almost a jack of all trades; he excels in many areas especially at computer science and a related mathematics. He worked as a research assistant at Yale in both mathematics and computer science department where his primary duties were writing algorithms and using computer programming for fractal geometry simulation. His credentials earned him chief scientist position. John possessed a degree in physics and had good managerial skills which he inherited from his father who was CEO in multiple businesses. He also had god leadership skills being a team director of a student led competition team at Yale. The Company was also built on his idea; this made him earn the CEO position.
Another reason is that the founding team understood well the technology they were selling. The founders were a bunch of confident lads that believed no other company would do a better job than meraCarta. The founders inspired confidence and confidence in your product is a critical factor that investors want to see. Investors want to know what it exactly that they are financing.
MetaCarta had a high potential return on investment which was another contributing reason why it was able to acquire investment capital. The company sprung at the perfect time when most people wanted a piece of the pie of internet-based businesses. MetaCarta was primarily built as a geographic search engine; this made the company easily raise its first investment capital of $100,000 from its investors. Another contributing factor was the grant the company received from DARPA. The money not only gave the company the lifeline desperately needed but also raised flags to potential investors of a diamond in the dirt that had not been found. The company proved that it was not clutching at straws but could genuinely realize profits.
MetaCarta should not take the Sevin Rosen offer. Accepting the proposal would not be making a business decision, but it would translate to making a compromise as the founders would be forced to give majority shares to the investors. Taking the deal would mean giving up too much control of the company over a short period even before liquidation starts to apply. This action is not splitting the baby but giving up the baby, and it doesn’t require the wisdom of Solomon to realize that. Accepting this deal would mean more money for the founders but at what cost? Any founder should always keep in mind the vision they had of what their company would grow to become, giving up control of the company is letting the majority shareholders steer it in any direction they see fit.
Any successful company dilutes itself by raising more money, this will make its valuation go up, and in most cases, this is considered far more important than ownership. But this should be done moderately. Giving away big chunks of the company at an early stage is not wise. Sevin Rosen dictated the valuation by proposing the $6.5 pre-money valuation and expecting majority shares in return. MetaCarta should consider renegotiating to give Sevin Rosen smaller equity or the current offer might as well be a bear hug. MetaCarta should propose that Sevin Rosen to reduce the amount of money that it is willing to invest until it reaches the amount that matches its aspirations. MetaCarta Company should accept an amount that is adequate for it to run smoothly but not too much to give Sevin Rosen the majority shares.
As an angel investor, I would be worried about the new offer that MetaCarta is being offered as dilution of the company would result in the reduction in the value of my shares. The only logical thing to do is to approach MetaCarta with a more suitable offer that is more tailored to their needs and interest and in the process eliminate Sevin Resin who are currently a threat to my investment. Considering that MetaCarta is only accepting Sevin Resin’s offer because there is no other offer will be available on the table anytime soon, they will gladly jump on any lifeboat I will throw their way. My proposal should enable me to get a good deal regarding securing more equity in the company.
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