Introducing Term Sheet Madness!


Do you find yourself wondering which terms and triggers in a term sheet or financing negotiation are most effective or powerful?  Losing sleep over whether or not to accept fully participating liquidation preferences with a full ratchet provision (hint: don’t)? Want to get a better understanding of the true power rankings of what is valuable and what is lawyer “boilerplate”?

If so, then you are in for a treat! In honor of “March Madness” we have decided to create our own version of the madness, C:V. style!  Over the coming days and weeks, we will be holding our first ever “Term Sheet Madness” where we will be matching up some of the key terms and triggers in a financing against one another and having them battle it out until a victor is crowned!

In the process, we will also give an explanation (as best we can, we are neither VC’s nor Lawyers…) on what the term means and why it is so often (or not often) used/in vogue/SAT word eligible.

Early “term-ologists” have Price and Liquidation Preference as early favorites, but Board Seats have made an impressive run in their conference tourney and is by far the hottest term in the field….

Term Sheet Central:

Full Field

Palo Alto Regional

Denver Regional

Boston Regional

Palo Alto Finals

Denver Finals

Boston Finals

Term Sheet Madness Finals

Dueling Valuations: Shape Security


Dueling Pianos : Music Fans :: Dueling Valuations : Finance Nerds

The time has come for our first attempt at putting on our VC hat!

We have been on record here at C:V. about how HOT we think the Enterprise Security space is so we decided to dive even deeper and perform our first valuation on Shape Security.   We made this a type of “Dueling Valuations” post with our initial valuation thesis and then a rebuttal post from a guest writer and fellow VC fanatic.

Have a comment?  Think we were absolutely insane for valuing the way we did?  Think we were spot on and want to hire us?  Email us here or send us a comment on the Contact Us page.   We welcome all thoughts/feedback!

Confused?  Lost?  See our prior post on Shape’s $40M funding round to get caught up.

*Editor’s note:  We are not VC’s, we are simply fanatics about the space and want an outlet to post our musings on.  All our research was done from browsing the internet and applying a few concepts/spreadsheets from Grad School (CGSOM represent!). We are more than happy to share our findings with you. Seriously though, we built out a minimalist cap table and pro-forma’s to factor growth expectations and we would be glad to send them along (we promise, we DO have social lives too…)

C:V. ‘s Attempt:

Overview: Shape Security is an Enterprise Security company that has pioneered a revolutionary way to deflect cyber-attacks on websites.  With its flagship product, ShapeShifter, what was normal code on a website becomes polymorphic (think random number generator) to distract attackers from taking vital information.  This is done completely in the background with no impact on the operation of the website.polymorphism

Market: One Word:  MASSIVE. Gartner estimates that Security spending in 2012 alone was $62B and is expected to grow to $86B by 2016. This aggressive growth combined with the increasing mindshare that security is gaining inside Fortune 500 Board Rooms makes for a very compelling market sizing argument.

People:  If you read our Round of the Week on Shape, you know how impressed we were by the caliber of talent they have at their disposal (See here for full post).  Their team of Board members, Investors, and Executives is easily one of the best in the Enterprise Security space. Don’t believe us? The proof is in the funding.  We don’t know of many Enterprise Security companies that can raise over $25M while STILL in stealth…

Product:  First Mover advantage?  Check.  20 customers in the Fortune 200? Check.  Appliance/Subscription business model with 7 figure price point? Check.  If an Enterprise Security startup had a wish list for creating a quality product, we are pretty sure these would be at the top of it.

Threats:  The opportunity is clearly there for Shape, yet it is not without significant risks.  The cybersecurity game is one where the good guys are always playing catch up and the attackers are always finding new ways to extract the data they need.  In this ever-changing model, there will continually be new prevention techniques and if Shape cannot capitalize on its current opportunity while continuing to invest for the future, it will have a very tough time remaining competitive.

Valuation:  We placed a $130M pre-money valuation on this round.  We feel this is a fair valuation at this point in time given numerous factors and have highlighted the key points below.

  • C Round: Given this is a C round ($6M A, $20M B), we feel that 24% is an appropriate balance of ownership at this stage for the investors and employees.  We think it stays in line with what earlier rounds offered, as well as provides enough incentive (re: hurdle rate, same or better as prior)  for the investors to depart with their capital.
  • Ability to Scale/Cash Burn:  This funding should provide Shape with enough resources to scale their enterprise offering and sales team.  Additionally, based on our estimate of Shape’s Cash Burn, we feel they should have enough cash for at least 12-18 months depending on revenue growth.  These factors should allow Shape to become laser focused on disrupting the market and greatly contributes to their value.

Guest Valuation/Rebuttal:

While I share your optimism for the company, I’d like to take a look three hurdles they face. Maybe after seeing those, we’ll see if a fair value emerges – and just as Shape emerges from the shadows of stealth.


  • Replication and Replacement: While their polymorphic approach is certainly novel, especially considering their hardware approach, it is not the end-all be-all — and many other solutions exist under $1,000,000. Take Cross-Site Request Forgery (listed on their “Product” page as a sample attack). In many cases, a simple CSRF token can be a viable option which might only take one developer a couple of weeks to roll out across the board. While ShapeShifter offers a suite of solutions, the price tag may convince larger firms to devote developers’ time towards matching their capabilities. Where there’s money to be made or saved, people will flock.
  • Outrunning the Other Campers: I liked the analogy of “you don’t have to outrun the bear; just don’t be the slowest one running,” for deflecting attacks. Many hackers will no doubt go after weaker, easier targets. But where the analogy comes up short is when one camper is already dripping in honey, where’s the bears focus going to be? If you’re sitting in, say, Amazon’s shoes, do you really expect to pass off all threats to other smaller competitors? You’re going to be too valuable of a catch.
  • Constantly Changing Landscape: This iteration of ShapeShifter technology will not be the company’s last. To truly offer the “comprehensive defense,” they will have to innovate at the same rate as a world of thousands of hackers who have big paydays on the line. They were able to roll out the technology in apparently as short as two years, and that development time may decrease with a higher headcount, but I worry that they’ll end up just like Randy Marsh playing Heroin Hero.

Wildcard Prediction: I’m not all pessimism, guys. Here’s an upside you might not have seen coming. One source of funds I didn’t see backing Shape could become of one of their biggest customers: the Department of Defense. Given CEO Sumit Agarwal’s time spent at the Pentagon, he must have a sense of what the government needs as the U.S. becomes vulnerable to threats beyond trench warfare and the Redcoats (Russia is apparently still on the table, though). While nothing has been announced, it seems that massive DoD grants could have provided some easy non-dilutive funding – except for that pesky caveat of nonexclusive, irrevocable, royalty-free licenses… This leads me to believe they see them as a target customer, and boy, are they a big one.


With those, I tried to reverse-engineer the deal as best as I could. I think the deal was for 30% of the company (Series C, but with pro-rata follow-ups from GV, KPCB, etc.), and with that we’re looking at a pre-money valuation right around $95M. This would put their EV/Revenue multiple more in the realm of 3-5x, depending on what those early customers were willing to pay. This indicates some serious growth potential, but nothing’s a lock in the ever-evolving battle waged against cybercriminals.

I expect that this company could surpass $1B in value by 2020. With an exit at that, to one of the big guns who truly can offer a comprehensive security package, the VC’s would be looking at a 40%+ return – not bad for getting in at a Series C.

And when the team is this strong, you trust in their judgment of the market needs.

So there you have it.  Both our takes on Shape.  More to come!

Round of the Week – Spritz

Pretty neat how this actually works without giving us a headache…


Finally coming out of stealth this week, Boston based speed-reading technology company Spritz has raised a $3.5M Seed round.   Check out the technology behind the faster reading tool here.  They plan to license their technology to app and web developers, which should be a good way to test new channels indirectly and inexpensively (free downstream R&D!).

Given that Spritz has the ability to disrupt so many MASSIVE markets (Email, Education, Business, etc.), we wonder if they are only using the licensing model initially for feedback loops to find product-market fit and then will pivot to a more vertical approach?  Either way, it will be fun to read about what happens (hopefully much faster than average!)

Name: Spritz


Funding to Date: $3.5M Seed

Deal Notables:  This was a tranched deal ($1M, $2.5M).  When we see tranches, we see it as our duty to at least guess what the terms of it were…

C:V.’s guess:  Initial funding went for development and since they are all about User adoption, we think they hit their User growth goal which triggered the final piece. Simple. Actionable. Desirable for all.

Monday Morning Memo

daylight savings

Good (feels extra early) Morning from C:V. HQ!  We hope you have survived the annual “Spring Ahead” daylight savings switch and what better way to kick-start your week into gear than with an all new Monday Morning Memo!

Recap of Last Week:

Last week we had Brad Feld as our VC spotlight, DocuSign as our Round of the Week and we also did a feature piece on Enterprise Security while channeling our inner Zoolander.

What Lies Ahead:

This week you can expect a VC spotlight, a round of the week, and our first valuation attempt.  We may also add in a book review and we have a “March Madness” themed surprise starting the following week, so stay tuned!

Monday Morning Memo

Welcome back dear readers. Today we roll out the first of our Weekly installments (Monday Morning Memo) and in it we give a bit of an overview of what to expect as this site revs up for primetime!

New Layout – Look around the site?  You may notice a different layout of things and we have added some pretty cool blog links of VC’s we like and you should too!  (Seriously, they are awesome)

New Features – We will begin to post content at regular intervals in addition to the blog postings and other musings we may add.  Here’s a snapshot of some things to come:

  • Monday Morning Memo – Who says Monday mornings have to suck? We certainly don’t!  Much like the Monday partner meetings our VC brethren hold each week, we will be posting a weekly update of last week’s events and anything upcoming in the week ahead.
  • Round of the Week – Unfortunately we will not be buying our readers a beer each week, BUT we will be selecting a new funding each week and doing a write-up on the company, backers, round size, and other cool aspects of the deal.  2nd best option to beers?  We think so too…
  • Book Reviews – The beauty of driving to work 40 minutes each way leads to a lot of time for audio books (Sorry Ke$ha, there are only so many times one can listen to Timber in the same day and stay sane…).  Book reviews will be on various topics from Lean Startup Methods to Twitter to Term Sheet Nuances.
  • Weekly VC Spotlight – Each week we will be featuring a VC on the site with background about their career path, Fund, current investments, notable exits, etc.  Initially it will just be all general information, but the goal would hopefully be able to get some Q&A with them as well. To future spotlight members, we will most likely contact you via Twitter (we promise we are not spam, we just have wayyyy too much interest in your world)
  • Valuation Attempts – Periodically, we will feature some valuation techniques and apply them to recent rounds.  This will mostly be a way to put on our “VC hat” and take all available characteristics of a deal and try to piece together what the terms/cap table impact would be. Given that we are not privy to the deals themselves they may not be too accurate, but they will at least be fun to do!

We are always looking for cool new content to feature or other fun ideas so this list is by no means exhaustive and is subject to change.  If you have an idea, let us know!  You can use the Contact Us page or send us your thoughts via the twitter machine.

Any feedback whether positive or negative is greatly appreciated as we work to build out this site. Seriously, we are adults and won’t get upset if you tell us we are bad at writing (we probably are…) or that our valuation methodology is about as realistic as every company with funding becoming a unicorn (Wait, 40% on an A round with 2 board seats and 3x liquidation preference aren’t standard terms?)

Facebook buys WhatsApp – How do you like me MAU?

It’s only fitting that we take a page out of Ben Horowitz’s book and begin our foray into the blogosphere with a Rap Lyric…

“How you like me now, when my pinky’s valued over three hundred thousand” – Usher, “Yeah!”

Pretty sure if you add a few zeroes on the end of that number that is EXACTLY what Jan Koum, Brian Acton, and the rest of the team at WhatsApp  were thinking last night when Facebook announced they had acquired the Mobile Messaging app for an astounding $19B.

A lot of the tech media has covered the deal in various forms today (see here, here, here, and here) but for those who want the spark/cliff notes version then you have come to the right place!  Here are the key takeaways from the biggest VC-backed exit yet:

Cash vs. Stock  This is a split Cash/Stock deal where the company receives $4B in Cash and $12B in Facebook Stock with $3B in RSU’s (Restricted Stock Units).  Smart move by Zuck/Ebersman to use shares as currency and limit the cash outlay.

MAU – MAU (Monthly Active Users) is a widely used metric for consumer-facing companies and WhatsApp has over 400M of them and they seem to be growing exponentially every day.  Needless to say, if you can get to that many active users in such a short time period, then you will be the belle of the ball at the consumer-facing company Prom.

Location, Location, Location – As the old real estate saying goes, “the only thing that matters is Location, Location, Location!” and WhatsApp has plenty of that.  They have a dominant position on mobile messaging services in a lot of the growing areas that Facebook wants to expand its reach.

There are plenty of other reasons why the deal makes sense given Facebook’s overall mobile first strategy and letting WhatsApp operate Instagram-style (i.e. as its own entity) must have been a deal-clincher for Jan and team.

Finally, big props to Sequoia and Jim Goetz for basically doubling their fund size with this one exit (their stake was rumored to be in the high teens). Pretty sure you have just secured over-subscription for all future funds and made a few LP’s extremely happy in the process.