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Concierge Club is an early-stage company looking to raise $6 million of additional funding in a Series A financing in December 1999. Mary Naylor, the founder and CEO of Concierge Club, is a dynamic and energetic leader who has previously received backing from a Washington, D.C.-based angel investor group. She established her business in 1987 as an on-site "brick and mortar" concierge service providing concierge services to commercial office buildings, residential buildings, and corporate headquarters. With the subsequent growth in on-line technology, Naylor is seeking funding in 1999 to become the "first nationwide concierge service to offer full Internet capabilities to companies seeking to offer these services as a customer or employee benefit." The case includes materials from Concierge Club's business plan and pitch to investors, which allows students to assess the reasonableness for her forecasts, the level of competition, the adequacy of the $6 million in funding, and the value of the company. A key issue is whether the company can perform on the national level with a service based on exceptional local knowledge and assistance. The case is designed as a negotiation exercise in which teams of students are assigned to play the role of investor and entrepreneur (Naylor).

The typical term sheet for a venture-capital investment contains a host of contract provisions designed to protect the value of an investor's capital. The purpose of this note is to focus on a few key terms (namely, antidilution, liquidation preference, dividends, redemption, and control rights) and to discuss the ways in which these terms may be made more investor-friendly or entrepreneur-friendly. The terms discussed in this note are widely regarded by practitioners as having the greatest ability to affect the economic returns for the parties involved in an early-stage investment. At the end of the discussion of each term, a chart highlights the various ways in which these terms may be structured. The examples, though not meant to be exhaustive, offer a perspective on the various ways a term might be worded in order to confer different rights on the parties.

This case is designed for use in JD/MBA programs or in contexts where mutual understanding of legal and financial issues is required. The case focuses on an entrepreneur in the security-software industry who is attempting to raise a first round of financing in October 2000. The firm was unsuccessful in attracting funding from venture capitalists and has relied on a small seed round and bridge loan from angel investors. The angels have now proposed investing $1.4 million in Series A convertible preferred stock. The entrepreneur must decide whether to accept the angel investors' proposal or revisit the issue of seeking venture capital. The case incorporates the Stockholder Agreement for the proposed Series A round, the capitalization of the company after the seed round, and five years of cash-flow projections for the firm. The case can be used in a law-school setting as a contract-drafting exercise and as an introduction to valuation. In a business-school setting, the case can help students understand the complex contract terms associated with a "plain-vanilla" form of venture capital. Valuation can be taught at an introductory level, or it can be made more complex if students are asked to incorporate "what-if" contract conditions into their analysis.