10: Venture Finance II (Staged Financings)

Thursday, October 26, 2017
Summary: In this session, we will focus on understanding the progression of a company's staged financings, and the value of this financing structure to entrepreneurs and venture capitalists. The Dropbox case illustrates the exciting opportunities and challenges companies face in their formative years.

Guest: Somesh Dash

Quote of the Day: “If you would like to know the value of money, try to borrow some.“ Benjamin Franklin

Study Questions (Policy on Study Questions)
  • Who is the target customer for the Dropbox product? What is the product's value proposition? How does Dropbox plan to get customers?
  • If you were an investor, what are the key risks you would consider most important to evaluate at each round (choose one or more: market, team, technology, product, or business model). Why?
    • The seed round by YCombinator
    • The $1.2M convertible debt round by Sequoia Capital
    • The $6M Series A round by Sequoia Capital and Accel Partners
  • In this exercise you will calculate the company's capitalization table as it progresses through multiple rounds of financing:
    • Drew and Arash split the company equally. How much does Drew own before YC?
    • YC Seed Round: $15K buys 10% of the company. How much does Drew own after YC invests?
    • Sequoia Capital Round: $1.2M buys 15% of the company upon conversion to equity. How much does Drew own after Sequoia invests?
    • Accel/Sequoia Round: $6M buys 30% of the company. How much does Drew own after Accel/Sequoia invest?
Required Readings (Policy on Required Readings)
Online Assignment (Policy on Case Analyses) - All teams submit.

Review Dropbox's full financing history on Crunchbase . The company has raised money every 1 to 2.5 years. What is the value of staged financings for a company? How about for a VC? Why not raise all the money at once?