"Most venture capitalists will focus on the viability of the concept, the size of the opportunity, and the quality of the management team ("Venture Capitalists", Bagley and Dauchy p

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“Most venture capitalists will focus on the viability of the concept, the size of the opportunity, and the quality of the management team.”

  • Venture Capitalists”, Bagley and Dauchy p. 5  

Executive Summary

Pathfinder Inc. is developing a prototype for an image-guided surgery device.  Pathfinder needs further financing.  Based on the people, the opportunity, the context, and the deal, Pathfinder is ready to proceed and should approach VC’s for further funding.

Financing

Pathfinder’s IGS product is in its R&D phase and requires a substantial sum of money to work towards a completed product.  PTI raised $1.1 million in a SBIR and $1.1 million in a 2005 round of Seed Financing.  The terms of the 2005 round Seed require Pathfinder to raise a substantial sum of $3-5 million, making external funding a necessity.  PTI can approach VC’s and issue equity, or PTI can approach banks and finance their work through more debt.  “Companies that have debt outstanding are more likely to find themselves in a position in which they are financially weak and therefore vulnerable” (“The Financial Perspective”, Sahlman p. 15), and debt financing increases the risk to which shareholders are exposed.  The downside of debt financing in addition to Pathfinder’s capital structure makes equity financing a necessity.

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PTI’s 2005 round of Seed Financing is a note convertible to preferred stock.  If PTI does not currently have a call option for the convertible note, PTI should renegotiate in an attempt to create a call option.  This option will allow Pathfinder to purchase the converted stock at a later time.

The People      

Every good venture needs a team of individuals with “the right experience, skills and attitudes, given the nature of the opportunity, the context, and the deal struck.” (“Some Thoughts on Business Plans”, Sahlman p. 3).  PTI has a strong team of ...

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