Critique of Steve Papa’s strategies of series C financing
Steve Papa’s strategy of series C was not an effective approach. Although there was a huge market potential for the software, his strategy did not consider the capability of the market. The price of the product was relatively high, making it difficult for consumers to purchase it. In addition, it is essential to contend that rules such as those of the redemption and the liquidation period made the organization unpopular.
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Steps taken by Steve that were sensible
Steve conceived the idea of running a business. He assumed that the demand for his product in the market could be high. Thus, he focused on ensuring that the product reached customers at the scheduled time as he waited to choose a team with which to work in his firm.
Moreover, Steve aimed at providing customers with a high quality product. The last sensible step that he took was collaborating with a variety of companies that could assist him to obtain funds to expand his business establishment.
Mistakes that Steve Papa made in series C financing
He did not consider the potential of the market. The demand for his company’s products was high, but the firm could not realize excellent sales due to poor market research approaches, making it incur losses.
This was caused by the high prices that were set in the market by its competitors. Valuations that he was obtaining were getting low on a regular basis. In most instances, the company’s profits were also deprecating. Wrong approximations of the amount of money that the firm would realize made him face uncertainties, which he was unprepared for at that time.
Virtues and drawbacks of accepting the financial proposals of insiders and the proposal offered by Ampersand
The virtues of fairness and participation have been demonstrated in the financial proposals of the insiders group and Ampersand. Honesty in the negotiation process could be crucial to the proposals.
The price suggested by Ampersand was relatively low, making Steve request its management to propose a higher price. On the other hand, it could be unfair to deny the insiders group the business opportunity, yet it had been very supportive for a long period.
Key differences in the term sheet offered and where the differences are found
Endeca’s redemption was based on the preferences of its shareholders, which the management did periodically, according to the instalments from the first day of January to the end of December. On the other hand, Ampersand’s redemption could be reconsidered by any member who held such an opinion.
In relation to the insiders group, only the preferred shareholders voted, while in the case of Ampersand, all shareholders of the series C stock had rights to vote on the basis of the number of shares of the common stock.
The insolvency preference could be equated to its initial buying price in Endeca, while in Ampersand it could be evaluated in relation to the purchase price and the accumulated price, but unpaid bonuses for the holders of series A stock could also be paid. Conversion of series C could only be done upon consummation, which was through writing after an offer by the public, while in Ampersand it could be converted at any time a holder made a choice.
Why the original investors initially wanted outsider investors, but later declined and how the insider should view the outside package
The original investors’ desire was motivated by the fact that the company had high prices. Investors wished to adopt prices that were in the market. The firm had an excellent workforce and had the potential for a wide market. As time progressed, the original investors turned against the outsiders because of the huge profits they were making.