Return Logic Case
1.)
Inspection right : Positive – sum
-Benefit for both parties in terms of time and cost
-VC can used the information to protect their interest
-Venture will make careful decision-making with help company’s sustainability
-Investors are given the information rights to target company. Such right informs investors with firms’ operating conditions especially when adverse events occur.
Seat on the board : Zero – sum
If one party’s seat increases, the other will lost one.
VC approval : Positive – sum
-VC vote is necessary for decision-making and they could protect their interest before the company go in the wrong and risky direction.
-Bias could happen if each party makes decision alone. Since both sides share the same goal, making decision together will be more effective.
Piggyback registration : Zero – sum(positive sum)
-Giving the right to register the stock for investors will increase the cost of company.
-more benefits to the investors; These rights provide investors liquidity by requiring the target firm to register their shares for sale to the public
Pre-money valuation : Zero – sum
-The cost of pre-money valuation that set up proportional of VC’s shares is the dilution of entrepreneur’s share.
-Investment by VC is valued by proportion not the actual amount they put in, so pre-money or post-money valuation doesn’t matter
Control the audit committee : Positive – sum
-Due diligence, this could prevent fraudulent risk.
Control compensation committee : Zero – sum (may be negative-sum)
-Good for VC but not for entrepreneur and company employees. VC has an incentive to give low compensation to entrepreneur and company employees to maximize its interest.
Pre-emptive right : Zero – sum)
-Venture will have less opportunity to raise fund.
-I think this term is a negative-sum. According to NVCA, usually the pre-emptive rights entitle investors to participate in later securities issuances on a pro rata basis. According to our case’s term sheet, however, it gives the
Inspection right : Positive – sum
-Benefit for both parties in terms of time and cost
-VC can used the information to protect their interest
-Venture will make careful decision-making with help company’s sustainability
-Investors are given the information rights to target company. Such right informs investors with firms’ operating conditions especially when adverse events occur.
Seat on the board : Zero – sum
If one party’s seat increases, the other will lost one.
VC approval : Positive – sum
-VC vote is necessary for decision-making and they could protect their interest before the company go in the wrong and risky direction.
-Bias could happen if each party makes decision alone. Since both sides share the same goal, making decision together will be more effective.
Piggyback registration : Zero – sum(positive sum)
-Giving the right to register the stock for investors will increase the cost of company.
-more benefits to the investors; These rights provide investors liquidity by requiring the target firm to register their shares for sale to the public
Pre-money valuation : Zero – sum
-The cost of pre-money valuation that set up proportional of VC’s shares is the dilution of entrepreneur’s share.
-Investment by VC is valued by proportion not the actual amount they put in, so pre-money or post-money valuation doesn’t matter
Control the audit committee : Positive – sum
-Due diligence, this could prevent fraudulent risk.
Control compensation committee : Zero – sum (may be negative-sum)
-Good for VC but not for entrepreneur and company employees. VC has an incentive to give low compensation to entrepreneur and company employees to maximize its interest.
Pre-emptive right : Zero – sum)
-Venture will have less opportunity to raise fund.
-I think this term is a negative-sum. According to NVCA, usually the pre-emptive rights entitle investors to participate in later securities issuances on a pro rata basis. According to our case’s term sheet, however, it gives the