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

Table 2.2: Without Dilution

Table 2.3: New Investment

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

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

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

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

Table 3.2: Internal Return of Return (IRR)

Table 3.3: Post Money Valuation

Table 3.4: Number of Shares Purchased

Table 3.5: Price per Share

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