ENTR-510 Week 6 Case Study Assignment: MetaCarta

Week 6: Written Assignment ENTR510 Entrepreneurship and New Ventures Keller Graduate School of Management Introduction MetaCarta’s founders, Doug Brenhouse, John Frank, and Erik Rauch all m eet while pursuing their graduate-level education. Doug had learned a lot working for his previous employer about the early stages of the entrepreneurial company and thought that that experience was preparing him for his own venture. John on the other hand, had an idea about creating a “software that would search online information and unstructured documents and identify which specific geographic location that a document is referring to” (Bygrave, 2014). John then recruited Erik who was also attending MIT, to help him in building the software. John and Erik entered MIT’s 50k Business Plan Competition in pursuit of finding someone who would complement their skills to partner with. That’s when they met Doug, who joined them for his business expertise and established the founding team. Why has this deal attracted venture capital? With their initial business model, in 2000 the “dot-com boom was well underway” as online advertising was growing steady so it only felt right to take advantage of the opportunity and MetaCarta created a free geographic search engine to the public in which the company could monetize its services through online advertising. During this time they figured that folks like McDonalds and Nike would be willing to pay more for their advertisement on a map that would drive real purchasers to their actual stores. “The story was resonating with early investors” and they were able to raise $100,000, that is until the “dot-com bust and the stock market fell apart” (Bygrave, 2014). They switched up their business model and thought that instead of providing a free search engine perhaps it’d be more useful as enterprise search engine to government agencies and Fortune 500 companies. Furthermore, when the federal government created DARPA (Defense Advanced Research Projects Agency), who’s mission is to provide funding to research and development of technologies that could be used by the U.S. military and/or the public, the team was able to secure funding from the agency in amount of $500,000. Not only did they receive the money from DARPA in form of grant it also provided credibility to the team and their project. Having gotten the opportunity to get a grant from DARPA it also boosted the team to a new level as the company continued to grow at a rapid pace. With DARPA’s backing added to the team’s resume, this presented them with an opportunity to seek additional funding from angel investors and capital venture firms Should MetaCarta take the Sevin Rosen offer? In my person opinion How was the valuation determined? Is there anything MetaCarta could do to improve the valuation? When John and Doug decided to solicit angel investment they knew that valuing the company at such an early stage would present a challenge. They took into consideration that if they demanded to high some investors would lose interest and if too low it could lead to the loss of their equity as financing progressed. In 2001, they were able to round up a group of investors in Boston and New York including three partners from Goldman Sachs. They were able to reach a compromise in which investments would be convertible debts and the angel investors decided to contribute $1 million with an 8% accruing interest rate. At this point their total investment was into the company was $1.6 million ($100,000 from advertising, $500,000 from DARPA, and $1 million angel investments). And has they had agreed upon a convertible debt at a discount they calculated a pre-money valuation of the company was $4 million in eighteen months considering that MetaCarta would raise any additional funds before November 2003. I think that the $5 million valuation post-money was good set value for the company as they used the post-money valuation formula to approach; Equity owned by investor = Amount invested ÷ (Agreed pre-money valuation + Amt. invested) Equity percentage owned by investor = $1M/($4M + $1M) = 20% Post-money valuation = Pre-money valuation + Amount invested = $4M + $1M = $5M Once they went through this first round of investment, they required more capital and raised a second angel round in 2002. Soon after the Business valuation | How investors determine the value of your business | Entrepreneur's Toolkit. (2013, December 6). Retrieved April 09, 2017, from