5-815-106 2015 Fast Ion Battery TN-3 - 1
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Feb 20, 2024
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1)
What are the relative benefits and costs associated with extending
a Bridge round of funding to Fast Ion? Given these, should WSC extend a Bridge round to Fast Ion Battery?
The instructor can get into the first issue by taking a vote, “Who would like to extend
a Bridge round to Fast Ion Battery? Who does not want to extend the Bridge Round?”
The class tends to split evenly on whether this is a good idea, with strong opinions on
either side. To get this dynamic initiated, the instructor can pick a student who is
strongly against the Bridge Round and ask them to play the role of Donna Lerner and ask
a strong supporter to play the role of John Davidson. The instructor can start the class
discussion by asking Donna Lerner to call Davidson, letting him know she is not going to
back Fast Ion any further. It may be worth reminding the students that Donna and John
know each other for several years, that they were classmates and HBS and that there is
an implicit power dynamic given that Donna works at a larger fund and is personally
more successful.
This role play need only last a few minutes, but it can bring to life the fact that while it
is easy to academically decide whether or not to abandon an investment, these
decisions are embedded in a broader context, where relationships and competing
viewpoints push against the decision.
The instructor can now turn to the student playing John Davidson and ask them to
defend the decision to extend a Bridge round of financing to the investment committee
at WSC. The class is asked to play the role of the investment committee, asking
clarifying questions, playing the role of skeptics, and trying to ensure that John Davidson
is not asking for further funding because WSC is his “pet project”.
The following headings may be useful in organizing the discussion (and can be summarized on Board 2M as shown in TN Exhibit 1
):
Arguments in Favor of Extending the Bridge Round of Funding:
An argument in favor of extending a Bridge Round of funding to Fast Ion is that in
many ways, the inherent qualities that made the startup attractive have not changed. It has
a revolutionary technology in an important market. Davidson believes that the technology
has the potential to not only dominate in the electric car market, but also play a role in the
much larger market for grid scale storage, that can make it worth hundreds of millions of
dollars. The technology has won a competitive award from ARPA-E and the startup had
begun to develop a strong IP portfolio, all of which were important selling points of the
company.
A key element of this argument also hinges on the question about whether the
lack of progress was due to the technology of the management of the firm. In part, the
technology was seen to be inappropriate for the grid-scale storage market, but students
may argue that the challenges the startup was facing were driven more by the founder’s
lack of success in focusing the team. Now that the CEO search was well under way and two
promising candidates had been identified, proponents for extending the Bridge round will
argue that the worst is likely behind this firm. Indeed, those in favor of the bridge round will
argue that all startups face some hiccups and the good news is that these have been
identified early, putting the startup “only” a year and $5 million off track.
In addition, Fast Ion’s projections suggest that it has developed a capital light
business model, which makes the economics for the investors quite attractive, despite being
in a sector that is typically considered to be very capital intensive. Investor IRRs are still
projected to be good, even after factoring in the year’s delay and extra funding. See TN
Exhibit 8.
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