Metapath Case Essay

Metapath was a hi-tech phoner providing parcel products for wireless carriers. It had a tax tax revenue of 22 million and was e integrate as the premier caller in its securities industry space. The ultimate goal of the founder, Hansen, was to see the Metapath go IPO in two years. However, this company confronted two main obstacles for that goal strong customers and fluctuant quarterly revenues. To expand his business and in like manner solve these problems, Hansen need to again remonstrate more than money. 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 stake capital investors demoralize money from them in exchange for Metapaths like mental strain and a pledge to redeem or convert to commom line of descent in moment of IPO. It had raised $ 9 million in four rounds of financial support before 1997, in whic h STI and Bessemer moved in the basic two rounds. Unlike the following greennessplace exchangeable preferred stock instruments, these low two rounds had a structure called solid redeemable, cheap common, which required a principal payment in the future, make 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. interchange the company to CellTech could bring Metapath many improvements. First, CellTech offered an harming price $115 million, relatively great(p) for a premature company with revenue of 25.6 million and negative income -$1.9 million. Second, it was already an habitual company, which prevented the dilution of possible further financings. Third, by conflux with CellTech, Metapath could achieve synergy from expertise of CellTechs engineers, and the fully-formed marketing and domestic bargains o rganization. However, since the merging was plan to be in stock exchange and CellTech had gone public besides few months, information could be particular(a) to value its stock price fairly. also in the big environment of easy 1990s, too much investments in high technology companies made this industry overheated, and CellTech could be overvalued by analysts. For the VC option RSC offered, one big advantage was that the immediate cash flow of $11.75 million, which would be very helpful for Metapaths operation. another(prenominal) advantage was that it bought time for Metapath to initiate an fencesitter IPO in the future, which had potential to cost more than CallTech offered. But it broughtconcerns to Metapath as well. RSC brought up the strike term called participating convertible preferred stock, at which pallbearer could not only convert from the preferred stock, but also in the event of sale, receive face value and participate in further consideration of common stock. This term could make a sale of Metapath extremely dilutive to the founders.