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PunchTab, Inc., a Silicon Valley startup founded in 2011, offers free registration and services for site users. The company allows users to use and claim loyalty points and benefits for free. Its Founder and CEO Ranjith Kumaran must come up with a strategy on funding the firm's operation and growth. He is looking into individual angel investors, super angel funds, incubators, and seed funds inside traditional venture capital firms, among others.
Ramana Nanda; William R. Kerr; Lauren Barley
Harvard Business Review (812033-PDF-ENG)
October 19, 2011
Case questions answered:
- Describe the business model of the PunchTab, Inc.
- Explain in a few lines what a convertible note means.
- What are the differences in objectives between VC firms and angel investors?
- Kumaran has 3 options to raise money: which do you recommend and why?
- Now that he is raising capital for his second business, how is Kumaran's situation different now versus when he was starting YouSendIt? What are the three primary reasons?
- Please name three qualities that would make an ideal angel investor for PunchTab, Inc.?
- Why does Sturiale say that deal terms (e.g., valuation, % ownership) are irrelevant? Is that what determines how wealthy an entrepreneur will be? What is meant with that statement?
- What should Kumaran do? (1) Raise seed with VC; (2) Raise with Angels, or (3) Skip seed investment and raise Series A?
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Case answers for PunchTab, Inc.
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Question 1: Describe the business model of the PunchTab, Inc.
The business model of PunchTab, Inc. is a Freemium.
They offer free registration and services for site users and they allow users to use and claim loyalty points and benefits for free.
They are also willing to supply loyalty mechanics to customers and to manage the loyalty program (including all the steps required to accumulating and redeeming loyalty points) free of charge.
However, PunchTab is going to charge a fee for extra features such as customization, data analytics, and CRM.
Question 2: Explain in a few lines what a convertible note means.
A Convertible Note is a form of debt that can be converted to shares at the company by the second round of financing (usually with a maturity of less than 10 years). Instead of receiving principle + interest at maturity, investors receive shares in the company. The note is either…
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