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Metapath Software: September 1997
On September 29th, 1997, John Hansen called together his board to debate an interesting choice that his company had to make. Hansen—the CEO of Metapath Software Corp., a Seattle-based provider of software and services to wireless carriers—had two offers to describe to his board.
The first was an offer to be acquired by CellTech Communications, a wireless products company who had only recently gone public. Under the terms of the deal, Metapath’s shareholders would at closing receive common stock in CellTech valued at $115 million. CellTech at that time had a market capitalization of approximately $260 million. The
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In his discussions with analysts at major investment banks that underwrite technology IPOs,
Hansen had come away with two requirements for Metapath to be saleable as a public company.
One was that Metapath needed to attract more customers. As it stood, their revenue was all concentrated in four accounts, and the analysts feared the their dependence on these few key customer relationships would make them seem too risky an investment. The other requirement was that Metapath smooth out their quarter-to-quarter revenues, which had been choppy. Hansen’s plan assumed that both of these problems would be worked out in a year.
With that in mind Hansen and his board embarked on raising enough money to see them through to cash break-even and, ultimately, an initial public offering.
RSC’s Offer
Hansen and his CFO, Paul Bialek, contacted several late-stage and mezzanine funds to solicit their interest in a Metapath financing. Over time, two funds emerged as candidates to lead the round
—Robertson Stephens Omega Fund (RSC) and Technology Crossover Ventures (TCV). In the subsequent discussions, RSC emerged as being quicker to provide specific term sheets and so most of the negotiations took place with the partners at RSC. Subsequent to a term sheet being settled the company invited TCV to join with RSC and the existing insiders to form a $11.75 million round.
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Comparing the term sheet of the offer from RSC and TCV consortium to that of CellTech, RSC and TCV’s PCPT had a much more dilutive impact to Metapath upon exit.
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