Detailed Analysis of VC Funding and Term Sheet for CoreTek Inc.

This report provides an analysis of Venture Capital (VC) funding, focusing on a case study involving CoreTek Inc. and Adams Capital Management. It explains the nature of VCs, their investment strategies, and the importance of government funding for startups. The report then delves into the details of CoreTek Inc.'s term sheets across three funding rounds, highlighting key terms such as preferred shares, liquidation preferences, co-sale rights, and fees. The analysis also explains the rationale behind Adams Capital Management's investment and why they were a good fit for the opportunity. This report offers insights into the VC investment process, the components of a term sheet, and the factors that influence investment decisions.

1. A VC is typically a group of managers who come together with an intention to generate
money. This is their main intention. They manage high-risk investment so as to maximise the
returns. Further, A VC is set for a limited time period ranging at about 10 years. Thus at the
end the investments are to be liquidated under any circumstances. The proceeds from such
liquidation are distributed amongst the members of the VC as per the pre-determined
arrangement. Thus VC’s look for small business with great recognition and engaged in a field
with great potential. Hence, a business receiving government funding is recognized and a
safer bet as a lot of diligence is already done by the government before the funding. Further,
the funding is for a greater commercial cause and hence there is an expectation of a huge
potential in the future. Hence the VC’s appreciated government funding of the company in
the given case. In case of the government funding is replaced by the Seed funding. It is very
likely that the founder would have to part away with 50% of their ownership in the initial
stage itself. Thus a dilution of 50%. Thus eventually when the company wold be sold they
might be left with 50% less than the current proceeds received by them.
2. TERM SHEET
CoreTek Inc. (1998)
This term sheet is a mere representation of the understanding of the parties in relation to
proposed investment in the company. This is not a legally binding agreement and hence will
not constitute a legally bound obligation. Any further legally binding agreement shall be
made only after objective and definitive negotiations and discussions duly executed by the
parties involved.
ROUND -1
Issuer - CoreTek Inc
Securities – Class A Preferred Shares
Amount of offering : $ 5.5 million based on pre money valuation
Investors- Adams Capital Management

Terms of the Preferred: Preference in payments in case of liquidation of the Company. The
holder retains the option for conversion into “Common Shares”.
Co-sale: In case of sale of shares to a third party, the same shall be at the terms agreed
herewith.
Fees: The Company will pay a fees of 2.5 % per annum to the VC
Founder matter: Each founder shall bring all the intellectual property into the company and
shall be on employment with the company for a period of 8 years.
ROUND 2
Issuer - CoreTek Inc
Securities – Class A Preferred Shares
Amount of offering : $ 6 million based on pre money valuation of $11.5 million
Investors- Adams Capital Management
Terms of the Preferred: Preference in payments in case of liquidation of the Company. The
holder retains the option for conversion into “Common Shares”.
Co-sale: In case of sale of shares to a third party, the same shall be at the terms agreed
herewith.
Fees: The Company will pay a fees of 2.8 % per annum to the VC
ROUND 3
Issuer - CoreTek Inc
Securities – Class A Preferred Shares
Amount of offering : $ 20.5 million based on pre money valuation of $ 52.5 million.
Investors- Adams Capital Management
Terms of the Preferred: Preference in payments in case of liquidation of the Company. The
holder retains the option for conversion into “Common Shares”.
Co-sale: In case of sale of shares to a third party, the same shall be at the terms agreed
herewith.

Fees: The Company will pay a fees of 3 % per annum to the VC
CorTek Inc Adams Capital Management
Signed by: __________ Signed by: __________
Name: ___________ Name: ___________
Date: ___________ Date: ___________
3. Adams Capital Management was a good fit for this opportunity because:
a. They understood the small business
b. They were quick decision makers
c. Their intention was to grow the overall business and profitability and not dilute the
interest of the entrepreneur.