Strava Harvard Case Solution & Analysis

Strava Case Study Solution

In addition to this, Table 2.6 is also reflecting the calculations with dilution in data. In which the two investments have been diluted such as sigma’s investment and while the other Gainey and Horvath investment investor’s investment have not reprised and remained same in the dilution in data in order to see the effect of dilution in two investors Series ‘A” preferred share prices named Sigma’s share prices and Gainey and Horvath’s share prices.

Table 2.1: Data

Data:
Founder Gainey and Horvath
Initial Investment                       5,246,086
Further Investment                       1,370,000
Initial No. of Shares                     19,328,389
Venture Capitalist Sigma & Others
Other Investors 300000
Sigma Investment                       2,925,000
Price Per Share Sigma Paid  $                             0.27

Table 2.2: Without Dilution

Capital Table
Equity Paid Price Per Share Total Invested No. of Shares
Gainey and Horvath  $                             0.27             5,246,086          19,328,409
Sigma  $                             0.27             2,925,000          10,776,718
Gainey and Horvath Investment  $                             0.27             1,370,000            5,047,557
Other Investors  $                             0.27                300,000            1,105,304
Total             9,841,086          36,257,989

Table 2.3: New Investment

New Investor Sigma & Others
New Investment                       4,595,000
Price Per Share in USD  $                             0.27

Table 2.4: With Dilution(Gainey and Horvath Investment is not Reprised)

Capital Table
Equity Paid Price Per Share Total Invested No. of Shares
Gainey and Horvath  $                             0.27             6,616,086          24,375,966
Sigma  $                             0.25             2,694,180          10,776,718
Other Investors  $                             0.25                276,326            1,105,304
Total             9,586,592          36,257,989

Table 2.5: With Dilution(Sigma's Investment is not Reprised)

Capital Table
Equity Paid Price Per Share Total Invested No. of Shares
Gainey and Horvath  $                             0.25             6,093,991          24,375,966
Sigma  $                             0.27             2,925,000          10,776,718
Other Investors  $                             0.25                276,326            1,105,304
Total  $        3,201,326 36257988.52

Table 2.6: With Dilution((Other Investor's Investment is not reprised)

Capital Table
Equity Paid Price Per Share Total Invested No. of Shares
Gainey and Horvath  $                             0.25             6,093,991          24,375,966
Sigma  $                             0.25             2,694,180          10,776,718
Other Investors  $                             0.27                300,000            1,105,304
Total  $        2,994,180 36257988.52

Analysis of Deal Terms from Sigma’s Perspectives:

The term sheet is prepared which is a statement of the proposed conditions and terms for the investment. It is imperative to note that the term sheet précises the terms of series “A” preferred stock. Also, it is feasible for the venture capitalist in means of no legally binding obligations until and unless all parties execute and delivers the definitive agreement. The term sheet does not mean that the venture capital has to invest as well as hardened on the accomplishment of the documentation, legal appraisal and due diligence. It shows that the venture capital is not entitled or required to execute in accordance with the term sheet.

In addition to this, the prepared term sheet need to be governed in accordance with the laws that are associated with the state of Delaware. Also, the initial closing date would most likely happen as soon as feasible subsequent the receiving of this term sheet from the company and satisfaction of the circumstances to initial concluding. The further closing would be held within the 60 days after the initial closing.

In case of issuing the additional securities at the purchase price less than the current conversion price of series A preferred stock, the conversion price would likely be adjust on the basis of the broad based weighted average. It is important to include the acceptable completion of the technology, legal and financial due diligence, filing of the certificate of incorporation that tend to create the preferences and rights of the series A preferred. It is also stipulate that the Series A preferred converts with the ratio of one to one at the option of holder to common stock that is subject to the adjustment for splits, stock dividends, similar and combination of events.

Analysis of Deal Terms from Founder’s Perspectives:

Deal term sheet is providing the win - win situation to both parties, in which some clauses are in the benefit of Sigma’s then some clauses are also protecting the rights of founders of Strava. The clause in which series “A” shares will be automatically converted into the common share holdings at the applicable conversion rate after passing the provided time duration of at least three years form public offerings.

Also, the dividends pertaining to Series “A” preferred shares are not cumulative. In case of any year in which the dividends are not announced then in next year it will be only liable to collect the 4 percent dividend which have been mentioned in the clause and terms of covenants. Furthermore, for any other dividends circulations and involvement with common stocks are on as conversion basis.

In addition to this, in case of nay liquidation events, the series “A” preferred shareholders are liable to collect the proceedings up to the par value of share price and any outstanding dividends which have been announced but have not paid yet. Meanwhile, after the distributions of proceedings in preferred shareholders, the proceedings will be distributed in common shareholders up to the par value of common share price and the remaining proceedings are distributed to series “A” preferred shareholders at the two times of its original share price and remaining outstanding balance of proceedings will be equally distributable to common shareholders.

Maximization of Deal Value form each Party’s Perspective:

In order to maximize the d3eal value for each parties, Sigma should invest 68.36 percent in the Strava which will provide the 10 percent internal rate of return to sigma and will increase the post money value of Strava to 11,316,594 dollars from 9,841,086 dollars.

Below mentioned Tables 3.1 to 3.5 are showing the calculations to find the maximum return form this deal for each party either the party will be Gainey and Horvath, other investors or sigma group.

Table 3.1: Data

Data:
IRR Required 10%
Investment Amount 4595000
Exit Value 9841086
Time Period in Years 4

Table 3.2: Internal Return of Return (IRR)

What Percentage of Money would You Need to Buy Now to achieve your Desired Return
Exit Value of Firm 9841086
No. of Years 4
Required Rate of Return 10%
Present Value of Firm 6721594
Investment Amount 4595000
% of Firm to be bought to get 10% IRR 68.36%

Table 3.3: Post Money Valuation

Post money Valuation
Present Value of Firm 6721594
Add: Investment 4595000
Post Money value of Firm 11316594

Table 3.4: Number of Shares Purchased

No. Of Shares Purchased
Present Value of Firm 6721594
No. of Outstanding Shares 36257989
Value Per Share 0.185382
Investment Amount 4595000
No. of Shares Bought 24786598

Table 3.5: Price per Share

Price Per Share
Post Value of firm 11316594
No. Of Shares Outstanding (Total) 61044587
Price Per Share 0.185382

 

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