10: Venture Finance II (Staged Financings)

Date: 
Friday, October 23, 2015
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

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?


Handouts: