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Steve Beitler was the Managing Director of Trident Capital. The firm is a $1.3 billion venture capital firm that invested in information technology and business services companies. Beitler is faced with an investment opportunity from Iron Gate Technologies asking Trident to present it with a $3 million “Round A” term sheet. Iron Gate Technologies had launched its first round of “hacker” testing for its Portcullis security technology. Beitler must decide whether to submit a term sheet to Iron Gate. He is faced with the questions of whether Trident Capital should invest in Iron Gate, and if yes, at what valuation? He must also consider that despite Iron Gate's attractive technology, the company is still at its inception, something unusual for Trident to invest in.
Steven N. Kaplan; Mitch Glickman; Taka Terachi
University of Chicago Graduate School of Business (n.a.)
Case questions answered:
- What are the important economic aspects of the Iron Gate Technologies business? Is it a good opportunity (qualitatively)? What else would you like to know?
- What role has Beitler played at Iron Gate? What role has Earley played? Have they added value? How? Will Beitler add more value in the future if he invests? How? In general, what role do VCs play in portfolio companies? What role should they play?
- Does the proposed deal with Iron Gate make sense for Trident? How attractive is it quantitatively? Qualitatively?
- Should Beitler give the term sheet now or listen to his partners and wait?
- Should Earley accept the Trident offer? How should he make this decision? How should he and Beitler deal with the milestone issue?
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Case answers for Iron Gate Technologies
This case solution includes an Excel file with calculations.
What are the important economic aspects of the Iron Gate Technologies business? Is it a good opportunity (qualitatively)? What else would you like to know?
Iron Gate Technologies is a very early stage venture that offers a strong, innovative, and versatile technology that slows down hacking attacks. At the same time, a special notion needs to be made to the software’s ability to operate in the background without interfering with the application’s actual performance. So far, this technology has received very strong feedback from industry experts with regard to performance, and customer acceptance has been frequently high. Moreover, the timing poses a great strength for the company, as shortly after 9/11 represented a time where internet security firms were very highly demanded.
However, Iron Gate Technologies is still during the seed stage and its application only represents a pre-beta version, hence an overall future performance is hard to predict. More research and development time are required and ultimately, the software might not be as broadly applicable as originally hoped. This underlines the need for further clarification, including most importantly the setup of the management team. Additionally, neither the target customer nor an appropriate marketing strategy has been established yet.
With these kinds of innovative applications, one also needs clarification regarding the regulatory restrictions (e.g. placed by the government) as well as usability and portability on other systems. The potential impact of unauthorized usage by rivals as well as the rise of substitutes or industry competitors needs to be further evaluated. Additionally, it is still unknown whether Iron Gate Technologies’ two products can coexist in the same firm at such an early stage. Overall, a deeper analysis of the financial forecasts needs to be conducted to further validate the sensitivity and the assumptions that management has taken to derive these forecasts, especially when bearing in mind that a clear pricing strategy has not yet been established.
What role has Beitler played at IGT? What role has Earley played? Have they added value? How? Will Beitler add more value in the future if he invests? How? In general, what role do VCs play in portfolio companies? What role should they play?
Beitler has been contributing by leveraging his network and experience in the information security sector. He is also credited for identifying potential CEOs, CTOs, and other qualified individuals who might be willing to assume a position on the board. His good sense of people and resources made it possible for Iron Gate to be tested by beta users and customers that Beitler introduced to the company.
By conducting his own due diligence, he challenged Iron Gate Technologies to assess topics that may previously have not been on their radar and to ultimately become better. If Beitler invests in Iron Gate, he can…
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