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Metapath Case Report

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Metapath Case Report
METAPHATH SOFTWARE CORP.

BRIEFING NOTE
FINANCING RECOMMENDATION
SEPTEMBER 1997

1. PURPOSE
The purpose of this briefing note is to provide recommendations for Metapath Software Corp. (“Metapath”) on its financing offers received in September 1997.
These two offers came from 1) a fund consortium led by Robertson Stephens Omega Fund (“RSC”) and Technology Crossover Ventures (“TCV”) and 2) CellTech Communications (“CellTech”), a vendor of wireless technology which had recently gone IPO.

2. EXECUTIVE SUMMARY
Metapath has made good progress in developing its business since its inception – generating $6.4m revenue in the September quarter of 1997 with representation of three large customers. However, with the ambition to win a good chance of IPO within the next two years, more capital needed to be raised to gain traction in customer acquisition and smooth out current quarter-to-quarter revenues. Metapath has received two offers as at September 1997 and they are discussed as follows:
RSC and TCV consortium offered to buy $11.75 million of stock at a $76 million pre-money valuation (“Series E Preferred”). The proposed stock instrument was a participating convertible stock (“PCPT”). This instrument functions the same as the convertible preferred stock in the event of a qualified public offering whereas in the event of a sale, RSC and TCV consortium not only receives the face value of the consideration, but also gets the equity participation.
CellTech offered Metapath’s shareholders to receive common stock at closing in CellTech at $115 million.

3. STATEMENT OF THE PROBLEMS
The problems associated with the offers from RSC and TCV consortium are listed as follows:
Proposed stock instrument is extremely dilutive to the founders in the event of a sale where the liquidity preference will reduce the amount of funds available to the other four tranches from previous investments.
If the Metapath goes public, the percentage of ownership for C & D tranches will

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