Like most of the software companies, Metapath demands continuously money supply during the premature period of its life. The main financial strategy of Metaph was to raise several rounds of money by turning to venture capital investors: get money from them in exchange for Metapath’s preferred stock and a promise to redeem or convert to commom stock in event of IPO. It had raised $ 9 million in four rounds of financing before 1997, in which STI and Bessemer participated in the first two rounds. Unlike the following standard convertible preferred stock instruments, these first two rounds had a structure called “straight redeemable, cheap common”, which required a principal payment in the future, making the two classes of preferred stock more like debts. Therefore, by paying yearly (or quarterly) dividends and guarantying the safety of principle value to venture investors, Metapath raised its first four rounds of capital.
Selling the company to CellTech could bring Metapath many advantages. First, CellTech offered an attractive price $115 million, relatively large for a premature company with revenue of 25.6 million and negative income -$1.9 million. Second, it was already an public company, which prevented the dilution of possible further financings. Third, by merging with CellTech, Metapath could achieve synergy from expertise of CellTech’s engineers, and the fully-formed marketing and domestic sales organization. However, since the merging was plan to be in stock exchange and CellTech had